Tuesday, May 5, 2015

Another No-Cap No-No, Part 1

By Al Hardy
In the October 22, 2014 blog post, “Non-Capital Equipment Programs, A pithy pitch flawed by pitfalls” readers were cautioned on transactions that result in 1) liabilities not captured in financial reporting 2) the cost of debt for some rental agreements can be far more than bank borrowing rates or through an equipment finance company.

Two very good conversations came out of the post.  They can be summed up by two more points.  First, keep promoting a greater understanding of the dog-wagging tail associated with some non-capital acquisition strategies.  Second, make it clear that adopting a policy of cash only acquisitions  for equipment purchases generate waste in money and time. 

So, I will make it clear by repeating “adopting a policy of cash only acquisitions  for equipment purchases generate waste of money and time”… especially if you have it to waste.  It’s pretty basic on one-hand.  There are technology solutions which are best not to own.  On the other hand, the pressure to act often causes someone to act in a way that checks a box. 

Physician recruitment and retention are great examples.  What is the market value of assets sitting idle in operating rooms not generating revenue because they were purchased with cash to attract a certain physician or physicians?  The physician wants it.  Buy it.   Get it done.  Attracting talent does not default to a cash purchase for an asset.  Instead, consider a strategy that allows acquiring the use of an asset for a cost fractional to the cash price.  Safeguard the purchase decision point closer to a time in which the physician relationship is cemented or terminated.  There are methods of doing that without suffering a loss.

We can always resell it.  I hear that as a reason to pay cash for equipment.  Do you resell it?  And if you need to resell it so quickly, why did you pay cash for it?   Reassignment or resell can be good options.  Unfortunately, those tend to become choices well after the best option is long past.