Maintaining properly certified, modern tools is a must whether your medical practice offers simple services like hair removal and microneedling or complex dental procedures and surgeries. Since medical equipment is FDA-approved and often patented, manufacturers can charge premium prices. This means that investing in new devices often takes the biggest bite out of your bottom line. Because negotiating contracts and properly structuring taxes is a complicated process, most business owners end up overpaying both their vendors and the IRS.
At Lengea, we have counseled hundreds of healthcare businesses through all stages of growth. Based on our experience, these are the best ways to protect your money when purchasing major medical equipment:
Find the Right Tax Break for Your Business
To incentivize businesses to grow, the federal government offers tax breaks on eligible equipment within the first year of purchase. Because of how expensive medical equipment is, Section 179 offers some of the biggest deductions for healthcare practices. Very simply, Section 179 of the U.S. Internal Revenue Code allows a business to take immediate deductions on the full price of newly purchased equipment, instead of writing off small depreciations for years. If your practice has collected high revenues this year: you can either A) pay a portion of your profits as taxes or B) choose to reinvest your profits back into your business. This should be a very easy choice to make, and with Section 179, you will get your biggest tax deductions upfront, without having to wait years. This applies to used equipment as well. Without using a Section 179 Deduction, a business may file an equipment purchase as a capital asset and include the depreciating value of the property every year in which it is used, but this results in a much smaller tax break.
Medical devices such as lasers, body contouring machines, and treatment chairs fall under the scope of this law, as do many other major business start-up purchases, like vehicles and office machinery. The property must be used during the tax year in which it is claimed and be used more than 50% of the time exclusively for the business. Larger businesses should note that only $1,080,000 on an individual piece of property and $2,700,000 in total claimed properties may qualify for this type of deduction.
For large equipment purchases, there are other, similar “bonus deductions” available within the first year, and taking advantage of these options may translate into huge savings. However, It is advisable to consult with a qualified accountant to determine the best tax strategy for your business.
Negotiate the Best Purchase Terms
When the business requires a large investment, many new business owners tend to have a “bite the bullet” mentality. They see the huge price tag, close their eyes, and take the plunge. What’s the point of stressing about it if there’s no way around it? However, there are always multiple safe, legal ways to get better deals on the equipment your business needs, whether it’s playing hardball in negotiating with vendors, sharing tools with another practice, or buying refurbished.
If your practice is working with another party to purchase, insure, finance, or lease a piece of equipment, asking for better terms that fit your needs is an essential part of the process. Besides trying to negotiate a lower price, there are several critical parts of equipment deals that you should consider before the final closing. Price is not the only thing to negotiate!
What warranty is included in the contract? What situations does it cover, and how long after purchase will the guarantees remain effective? Furthermore, are the stipulations for repairs or replacements reasonable in time and scope? If a contract is silent on this, you can negotiate for additional provisions stating that all repairs must be made within a certain number of days after being notified of a maintenance issue. This small stipulation alone can significantly protect your business from the risk of loss of profit in the case of a broken machine. It is best to negotiate these demands before signing anything. Play hard to get! Vendors are eager to close deals and have a practically limitless bag of resources with which to sweeten deals.
Other examples of important terms to negotiate are reasonable termination clauses, return options, removal of prepayment penalties, resale terms, and recertification fees. Almost all financing contracts are worded in ways that make costs look smaller than they truly are because of hidden fees and calculation structures. For example, a low upfront interest rate might balloon in a few months. Double-check all figures, and use your calculations to verify if everything in the contract is as it appears. Other critical items to negotiate are a “no prepayment penalty” provision so you can pay off a loan early, and a termination clause with a return option so you can return the equipment without incurring hidden charges.
Vendors have teams of high-powered lawyers writing contracts to serve their needs, so your best bet is to consult with attorneys who are experienced in reviewing these contracts to make sure that you fully understand the terms and how they can be reshaped to serve the interests of your business.
Other Things to Keep in Mind
Before you go ahead with your equipment purchase, remember these additional quick pieces of advice that should apply in all business decisions.
First, take care to research the best vendor or supplier—look beyond price to see which one has the best reputation, inventory, and customer experience. The decision of what equipment you buy today will affect you for several years. If you can, examine the machines in person, see if their size and height fits your requirements, and test them out to see if you like how they move and feel. . Make sure you are purchasing a standard type of technology that is expected to be in use for the next few years and not one at risk of becoming obsolete. In terms of financing, there are a lot of loan providers available, and it makes sense to shop around as slight differences in loan terms can mean thousands of dollars in savings.
Also, have a budget and make sure the purchase fits with your business plan and your expected revenue from the service it will provide. Usually, it is advisable to start with a smaller treatment menu and increase it as your reputation and clientele grow so that you do not end up with an expensive piece of equipment that is infrequently used.
Lastly and above all, make it your business ethos that safety comes first. There are lots of unregulated, cheap imitations available, but the best investment is equipment that follows all certification requirements and is used and maintained according to regulations. While machines can be extremely powerful, they all rely on the human element, so it is up to you to ensure that staff members are trained to use them properly. These small measures will protect you and your business from mistakes and malfunctions, as well as other medical, legal, and ethical risks to your practice.
Whether you are just starting or are buying a new machine for your successfully expanding business, these tips will leave you better prepared to handle an equipment purchase. And if you’ve still got any questions, feel free to reach out to us at info@LengeaLaw.com.
*This blog post is for informational purposes only and does not constitute legal, financial, or medical advice, or the forging of an attorney-client relationship. Please retain the services of a licensed attorney and a financial advisor to discuss the ways the law applies to your business.