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Negotiating Your Laser Lease
May 2002
D ermatologists and other skin care specialists are bombarded with new technology on a daily basis. Lasers have become a standard treatment alternative for a variety of concerns from hair removal to diminishing scars and wrinkles.
Many practices opt to lease their lasers rather than buy because most practices don’t have the cash resources to purchase laser equipment and financing terms aren’t always acceptable. From a tax perspective, leasing may have certain advantages. It certainly makes sense when the technology rapidly changes.
While leasing may be an attractive alternative, it’s not without potential pitfalls. Before you consider leasing a laser, you should know some basics.
Leasing vs. Traditional Financing
This analysis, by necessity, starts with a long hard look at your practice. Can the practice afford to purchase the laser equipment outright? Often the answer to this question is “no.” It may take months to accumulate the thousands of dollars needed for a major purchase. Large sums of money sitting in a savings account are often too tempting for physicians who have been financially squeezed over the last few years. Even if your practice is fortunate enough to have savings set aside for capital investments, the ability to pay cash doesn’t make it the best option. Financing and leasing options should always be considered, whether out of necessity or in comparison to determine if such a cash purchase is the best use of these scarce resources.
After considering the practice’s ability to set aside cash savings, you’ll need to determine the practice’s ability to obtain credit. Some advisors will tell you that it’s more difficult to obtain a lease than traditional financing. Others will tell you the exact opposite. Depending on the size, longevity and financial soundness of your practice, your practice’s regular bank (or other traditional lending institution) may require personal guarantees from the physician-owners over and above collateralizing the practice assets and accounts receivable prior to advancing credit to the practice. Alternatively, leasing companies often require a sterling credit rating and significant credit history and may also require personal guarantees. Either way, the practice will need to determine its ability to obtain credit and the physicians’ willingness to pledge
personal assets to secure the financing.
Now, assuming the practice is able to obtain the amount of credit necessary for the transaction, the “real” financial analysis takes place. There are two different types of leases: operating leases and financing leases.
Operating leases. These are “true” leases where the lease payments are expensed and the equipment is returned to the lessor or may be purchased at fair market value at the end of the lease.
Financing leases. These are treated like installment purchases or traditional financing. The equipment is capitalized and depreciated and some portion of the lease payment is calculated to be interest expense. Under financing leases, the lessee often has a bargain purchase option at the end of the lease permitting purchase below fair market value or for some nominal amount.
Tax Time Considerations
Knowing how the accountant will treat the payments for your acquisition for tax purposes will help determine which method is most efficient. Acquisitions by cash, traditional financing, and financing lease are all carried on the books as assets with corresponding liabilities for whatever financing is used. Your accountant will want to utilize a Section 179 deduction to write off a significant portion of the purchase in the first year. The remaining value will be depreciated over what the government determines to be the useful life of the equipment whether or not this useful life is truly accurate. In some cases this will permit you to fully depreciate the equipment long before its usefulness has ended. However, as modern technology rapidly advances, equipment that utilizes these technologies (computers, telecommunications, video, and, most importantly, medical equipment) often become obsolete long before fully depreciating.
Therefore, the purchase price and the useful life (both actual and tax related) are vital to determining which means of financing is best. As the purchase price of the equipment rises, the practice may be able to expense more of the acquisition each year under lease payments than can be depreciated even taking into consideration the Section 179 deduction. Similarly, leasing is more attractive if the actual useful life of the equipment is less than that used for calculating the depreciation or less than the length of the term necessary to make the financing payments tolerable. Leasing allows the practice to match the financial life of the equipment to its actual useful life.
Other Advantages of Leasing
You should also consider other advantages to leasing (some financial, some not). For example, leasing allows the practice to more easily establish and enforce standards with regard to the quality, interconnectivity and productivity of the equipment. Shopping for the best deal for purchases and finance arrangements often results in acquisition of diversified equipment that may not meet the same standards, will not work well together, and will cost more to service and support.
Leasing eliminates the excesses associated with “planning ahead.” Anticipation of growth will cause a practice to acquire bigger or better equipment than it currently needs. It may be less expensive to acquire the equipment necessary for today on a shorter-term lease and replace the equipment with bigger and better options under a new lease when the need arises.
With advances in technology, often the practice can hardly wait to trade in the equipment that it just finished “paying off” under a traditional finance arrangement. While waiting for this final pay off the practice is less productive than it could be as the older equipment is probably slower and has less capabilities than the new technology available. For a payment similar to that paid under the purchase arrangement, the practice could have upgrade sooner under a lease.
Don’t forget to consider the inconvenience and cost of disposing the old equipment. Disposing of some medical equipment is regulated and can be quite costly. More frequently, however, practices will keep the “old clunker” around as a spare — just in case. Or, sometimes the equipment is passed along to part-time users or satellite offices. The additional costs related to space, insurance, maintenance and inefficiency could definitely be better invested elsewhere.
Leasing is fast becoming very popular as a means of acquiring equipment that’s expensive and becomes quickly obsolete. In fact, many banks are now offering leasing as an alternative to their traditional financing because they don’t want to lose their clients to alternative financial institutions. However, don’t let popularity and current trends drive your financial decisions. When acquiring new equipment, contact your consultant, accountant or financial advisor to run the numbers and determine which option is best for you. Remember that there are other considerations beyond depreciation and payments.
Covering the Costs
A laser lease often has two components.
1. How much the equipment costs. Typically, this is a fixed fee per month, covering the term of the lease.
2. Fee based on volume. Often, there is also a fee based on the volume of procedures you performed. This is called a click fee. Most leases designate a minimum number of procedures per month written into the lease. You pay this amount every month whether or not you actually perform the specified number of procedures. For each additional procedure beyond the minimum, an additional fee per click is charged.
Before you enter into any lease with a click charge, you need to do your homework. Consider how many patients you refer for laser procedures and how many of these procedures you could perform if you had a laser. Analyze your patient base. Do you have a significant number of patients who fit the relevant demographics? For example, if you’re considering a laser for reducing facial wrinkles, do you have a significant number of women over age 40 who have annual incomes of at least $65,000?
Also consider the incidental costs. You may need to add staff. Be prepared to market the new service heavily. If you are the first practice in your market to offer the service, you’ll have to spend more on marketing, but you’ll also have the benefit of being the only source for the procedure, even if only for a short time.
If you’re the second or third doctor to enter the market, you may benefit from the marketing already done by your competitors. However, if a number of other practices already provide the laser service, you should be sure your practice's current patient base can support the service.
Calculate the lease costs together with the incidental costs on a monthly basis. Also consider what you can charge per procedure, based on what your market will bear. What are your competitors charging? What will your patients be willing to pay? Divide the charge into the monthly cost to determine how many procedures you will need to do per month to break even.
Legal Issues
When you’re negotiating the terms of your lease for laser equipment, the financial terms are usually foremost in your mind. However, other legal terms may be buried in your lease that can have a great impact. Be sure you cover these issues before you sign.
Terms of the lease. Be aware that there’s usually no way out of a lease other than bankruptcy and even then, the lessor will go after the individual doctors under the personal guaranty. The shorter the term, the less you’ll have to pay if you find you’re not utilizing the laser as you had hoped.
It cuts both ways, however. If you’re finding that the laser is a lucrative part of your practice, then every renewal term is an opportunity for the lessor to increase the price.
Ideally, go for a short term (1 to 2 years) with an automatic renewal. Be sure to specify renewal price terms up front.
Click fees. Often, if you negotiate a lower minimum number of procedures per month, the click fee is higher. If you use the laser often, it may ultimately cost you more. Be sure to run a number of financial models to determine overall profitability at a variety of procedure volumes. Be realistic in your estimates of number of procedures you will do.
Assignment to leasing companies. Note that most laser manufacturers may enter into the lease with you but will ultimately assign the lease to a leasing company. The basic terms of the lease don’t change upon such assignment. However, leasing companies are far more sophisticated in their collection methods. Even if you enter into a lease thinking the manufacturer will let you out if the laser isn’t working for you, the leasing company won’t let you off the hook so easily.
Interestingly, the lease often specifies that you may not assign the lease. In other words, if you’re not using a leased laser and you sublease it to another practice, you may be in breach of the lease.
Jurisdiction specifications. Often, the lease will specify in which state any legal claims may be brought. I recently dealt with a practice in Delaware that had a dispute with a laser company. Unfortunately, the terms of the lease specified that all claims could only be brought in California. The cost of litigation is high enough, and now the practice will have to factor in the costs of going across the country on a regular basis.
Exclusivity clauses. You may propose to the lessor that a lease not be granted to another practice within a certain mile radius. This serves to make you the exclusive provider for your area. This isn’t a standard lease provision, and many laser manufacturers won’t willingly do this. It’s certainly worth bringing up this issue, though.
Recognize that a lease is a legal contract. Make sure you understand all of the provisions of the lease. Have your legal counsel review the lease before you sign.
Before You Sign on the Dotted Line
Leasing a laser may be an attractive option for your practice. To avoid being stuck with a lease for equipment you don’t use, make sure you understand the costs involved and reasonably estimate the volume of procedures and charges. Before you sign a lease or any other legal financial document, consult your practice accountant and attorney just to be sure.
D ermatologists and other skin care specialists are bombarded with new technology on a daily basis. Lasers have become a standard treatment alternative for a variety of concerns from hair removal to diminishing scars and wrinkles.
Many practices opt to lease their lasers rather than buy because most practices don’t have the cash resources to purchase laser equipment and financing terms aren’t always acceptable. From a tax perspective, leasing may have certain advantages. It certainly makes sense when the technology rapidly changes.
While leasing may be an attractive alternative, it’s not without potential pitfalls. Before you consider leasing a laser, you should know some basics.
Leasing vs. Traditional Financing
This analysis, by necessity, starts with a long hard look at your practice. Can the practice afford to purchase the laser equipment outright? Often the answer to this question is “no.” It may take months to accumulate the thousands of dollars needed for a major purchase. Large sums of money sitting in a savings account are often too tempting for physicians who have been financially squeezed over the last few years. Even if your practice is fortunate enough to have savings set aside for capital investments, the ability to pay cash doesn’t make it the best option. Financing and leasing options should always be considered, whether out of necessity or in comparison to determine if such a cash purchase is the best use of these scarce resources.
After considering the practice’s ability to set aside cash savings, you’ll need to determine the practice’s ability to obtain credit. Some advisors will tell you that it’s more difficult to obtain a lease than traditional financing. Others will tell you the exact opposite. Depending on the size, longevity and financial soundness of your practice, your practice’s regular bank (or other traditional lending institution) may require personal guarantees from the physician-owners over and above collateralizing the practice assets and accounts receivable prior to advancing credit to the practice. Alternatively, leasing companies often require a sterling credit rating and significant credit history and may also require personal guarantees. Either way, the practice will need to determine its ability to obtain credit and the physicians’ willingness to pledge
personal assets to secure the financing.
Now, assuming the practice is able to obtain the amount of credit necessary for the transaction, the “real” financial analysis takes place. There are two different types of leases: operating leases and financing leases.
Operating leases. These are “true” leases where the lease payments are expensed and the equipment is returned to the lessor or may be purchased at fair market value at the end of the lease.
Financing leases. These are treated like installment purchases or traditional financing. The equipment is capitalized and depreciated and some portion of the lease payment is calculated to be interest expense. Under financing leases, the lessee often has a bargain purchase option at the end of the lease permitting purchase below fair market value or for some nominal amount.
Tax Time Considerations
Knowing how the accountant will treat the payments for your acquisition for tax purposes will help determine which method is most efficient. Acquisitions by cash, traditional financing, and financing lease are all carried on the books as assets with corresponding liabilities for whatever financing is used. Your accountant will want to utilize a Section 179 deduction to write off a significant portion of the purchase in the first year. The remaining value will be depreciated over what the government determines to be the useful life of the equipment whether or not this useful life is truly accurate. In some cases this will permit you to fully depreciate the equipment long before its usefulness has ended. However, as modern technology rapidly advances, equipment that utilizes these technologies (computers, telecommunications, video, and, most importantly, medical equipment) often become obsolete long before fully depreciating.
Therefore, the purchase price and the useful life (both actual and tax related) are vital to determining which means of financing is best. As the purchase price of the equipment rises, the practice may be able to expense more of the acquisition each year under lease payments than can be depreciated even taking into consideration the Section 179 deduction. Similarly, leasing is more attractive if the actual useful life of the equipment is less than that used for calculating the depreciation or less than the length of the term necessary to make the financing payments tolerable. Leasing allows the practice to match the financial life of the equipment to its actual useful life.
Other Advantages of Leasing
You should also consider other advantages to leasing (some financial, some not). For example, leasing allows the practice to more easily establish and enforce standards with regard to the quality, interconnectivity and productivity of the equipment. Shopping for the best deal for purchases and finance arrangements often results in acquisition of diversified equipment that may not meet the same standards, will not work well together, and will cost more to service and support.
Leasing eliminates the excesses associated with “planning ahead.” Anticipation of growth will cause a practice to acquire bigger or better equipment than it currently needs. It may be less expensive to acquire the equipment necessary for today on a shorter-term lease and replace the equipment with bigger and better options under a new lease when the need arises.
With advances in technology, often the practice can hardly wait to trade in the equipment that it just finished “paying off” under a traditional finance arrangement. While waiting for this final pay off the practice is less productive than it could be as the older equipment is probably slower and has less capabilities than the new technology available. For a payment similar to that paid under the purchase arrangement, the practice could have upgrade sooner under a lease.
Don’t forget to consider the inconvenience and cost of disposing the old equipment. Disposing of some medical equipment is regulated and can be quite costly. More frequently, however, practices will keep the “old clunker” around as a spare — just in case. Or, sometimes the equipment is passed along to part-time users or satellite offices. The additional costs related to space, insurance, maintenance and inefficiency could definitely be better invested elsewhere.
Leasing is fast becoming very popular as a means of acquiring equipment that’s expensive and becomes quickly obsolete. In fact, many banks are now offering leasing as an alternative to their traditional financing because they don’t want to lose their clients to alternative financial institutions. However, don’t let popularity and current trends drive your financial decisions. When acquiring new equipment, contact your consultant, accountant or financial advisor to run the numbers and determine which option is best for you. Remember that there are other considerations beyond depreciation and payments.
Covering the Costs
A laser lease often has two components.
1. How much the equipment costs. Typically, this is a fixed fee per month, covering the term of the lease.
2. Fee based on volume. Often, there is also a fee based on the volume of procedures you performed. This is called a click fee. Most leases designate a minimum number of procedures per month written into the lease. You pay this amount every month whether or not you actually perform the specified number of procedures. For each additional procedure beyond the minimum, an additional fee per click is charged.
Before you enter into any lease with a click charge, you need to do your homework. Consider how many patients you refer for laser procedures and how many of these procedures you could perform if you had a laser. Analyze your patient base. Do you have a significant number of patients who fit the relevant demographics? For example, if you’re considering a laser for reducing facial wrinkles, do you have a significant number of women over age 40 who have annual incomes of at least $65,000?
Also consider the incidental costs. You may need to add staff. Be prepared to market the new service heavily. If you are the first practice in your market to offer the service, you’ll have to spend more on marketing, but you’ll also have the benefit of being the only source for the procedure, even if only for a short time.
If you’re the second or third doctor to enter the market, you may benefit from the marketing already done by your competitors. However, if a number of other practices already provide the laser service, you should be sure your practice's current patient base can support the service.
Calculate the lease costs together with the incidental costs on a monthly basis. Also consider what you can charge per procedure, based on what your market will bear. What are your competitors charging? What will your patients be willing to pay? Divide the charge into the monthly cost to determine how many procedures you will need to do per month to break even.
Legal Issues
When you’re negotiating the terms of your lease for laser equipment, the financial terms are usually foremost in your mind. However, other legal terms may be buried in your lease that can have a great impact. Be sure you cover these issues before you sign.
Terms of the lease. Be aware that there’s usually no way out of a lease other than bankruptcy and even then, the lessor will go after the individual doctors under the personal guaranty. The shorter the term, the less you’ll have to pay if you find you’re not utilizing the laser as you had hoped.
It cuts both ways, however. If you’re finding that the laser is a lucrative part of your practice, then every renewal term is an opportunity for the lessor to increase the price.
Ideally, go for a short term (1 to 2 years) with an automatic renewal. Be sure to specify renewal price terms up front.
Click fees. Often, if you negotiate a lower minimum number of procedures per month, the click fee is higher. If you use the laser often, it may ultimately cost you more. Be sure to run a number of financial models to determine overall profitability at a variety of procedure volumes. Be realistic in your estimates of number of procedures you will do.
Assignment to leasing companies. Note that most laser manufacturers may enter into the lease with you but will ultimately assign the lease to a leasing company. The basic terms of the lease don’t change upon such assignment. However, leasing companies are far more sophisticated in their collection methods. Even if you enter into a lease thinking the manufacturer will let you out if the laser isn’t working for you, the leasing company won’t let you off the hook so easily.
Interestingly, the lease often specifies that you may not assign the lease. In other words, if you’re not using a leased laser and you sublease it to another practice, you may be in breach of the lease.
Jurisdiction specifications. Often, the lease will specify in which state any legal claims may be brought. I recently dealt with a practice in Delaware that had a dispute with a laser company. Unfortunately, the terms of the lease specified that all claims could only be brought in California. The cost of litigation is high enough, and now the practice will have to factor in the costs of going across the country on a regular basis.
Exclusivity clauses. You may propose to the lessor that a lease not be granted to another practice within a certain mile radius. This serves to make you the exclusive provider for your area. This isn’t a standard lease provision, and many laser manufacturers won’t willingly do this. It’s certainly worth bringing up this issue, though.
Recognize that a lease is a legal contract. Make sure you understand all of the provisions of the lease. Have your legal counsel review the lease before you sign.
Before You Sign on the Dotted Line
Leasing a laser may be an attractive option for your practice. To avoid being stuck with a lease for equipment you don’t use, make sure you understand the costs involved and reasonably estimate the volume of procedures and charges. Before you sign a lease or any other legal financial document, consult your practice accountant and attorney just to be sure.
D ermatologists and other skin care specialists are bombarded with new technology on a daily basis. Lasers have become a standard treatment alternative for a variety of concerns from hair removal to diminishing scars and wrinkles.
Many practices opt to lease their lasers rather than buy because most practices don’t have the cash resources to purchase laser equipment and financing terms aren’t always acceptable. From a tax perspective, leasing may have certain advantages. It certainly makes sense when the technology rapidly changes.
While leasing may be an attractive alternative, it’s not without potential pitfalls. Before you consider leasing a laser, you should know some basics.
Leasing vs. Traditional Financing
This analysis, by necessity, starts with a long hard look at your practice. Can the practice afford to purchase the laser equipment outright? Often the answer to this question is “no.” It may take months to accumulate the thousands of dollars needed for a major purchase. Large sums of money sitting in a savings account are often too tempting for physicians who have been financially squeezed over the last few years. Even if your practice is fortunate enough to have savings set aside for capital investments, the ability to pay cash doesn’t make it the best option. Financing and leasing options should always be considered, whether out of necessity or in comparison to determine if such a cash purchase is the best use of these scarce resources.
After considering the practice’s ability to set aside cash savings, you’ll need to determine the practice’s ability to obtain credit. Some advisors will tell you that it’s more difficult to obtain a lease than traditional financing. Others will tell you the exact opposite. Depending on the size, longevity and financial soundness of your practice, your practice’s regular bank (or other traditional lending institution) may require personal guarantees from the physician-owners over and above collateralizing the practice assets and accounts receivable prior to advancing credit to the practice. Alternatively, leasing companies often require a sterling credit rating and significant credit history and may also require personal guarantees. Either way, the practice will need to determine its ability to obtain credit and the physicians’ willingness to pledge
personal assets to secure the financing.
Now, assuming the practice is able to obtain the amount of credit necessary for the transaction, the “real” financial analysis takes place. There are two different types of leases: operating leases and financing leases.
Operating leases. These are “true” leases where the lease payments are expensed and the equipment is returned to the lessor or may be purchased at fair market value at the end of the lease.
Financing leases. These are treated like installment purchases or traditional financing. The equipment is capitalized and depreciated and some portion of the lease payment is calculated to be interest expense. Under financing leases, the lessee often has a bargain purchase option at the end of the lease permitting purchase below fair market value or for some nominal amount.
Tax Time Considerations
Knowing how the accountant will treat the payments for your acquisition for tax purposes will help determine which method is most efficient. Acquisitions by cash, traditional financing, and financing lease are all carried on the books as assets with corresponding liabilities for whatever financing is used. Your accountant will want to utilize a Section 179 deduction to write off a significant portion of the purchase in the first year. The remaining value will be depreciated over what the government determines to be the useful life of the equipment whether or not this useful life is truly accurate. In some cases this will permit you to fully depreciate the equipment long before its usefulness has ended. However, as modern technology rapidly advances, equipment that utilizes these technologies (computers, telecommunications, video, and, most importantly, medical equipment) often become obsolete long before fully depreciating.
Therefore, the purchase price and the useful life (both actual and tax related) are vital to determining which means of financing is best. As the purchase price of the equipment rises, the practice may be able to expense more of the acquisition each year under lease payments than can be depreciated even taking into consideration the Section 179 deduction. Similarly, leasing is more attractive if the actual useful life of the equipment is less than that used for calculating the depreciation or less than the length of the term necessary to make the financing payments tolerable. Leasing allows the practice to match the financial life of the equipment to its actual useful life.
Other Advantages of Leasing
You should also consider other advantages to leasing (some financial, some not). For example, leasing allows the practice to more easily establish and enforce standards with regard to the quality, interconnectivity and productivity of the equipment. Shopping for the best deal for purchases and finance arrangements often results in acquisition of diversified equipment that may not meet the same standards, will not work well together, and will cost more to service and support.
Leasing eliminates the excesses associated with “planning ahead.” Anticipation of growth will cause a practice to acquire bigger or better equipment than it currently needs. It may be less expensive to acquire the equipment necessary for today on a shorter-term lease and replace the equipment with bigger and better options under a new lease when the need arises.
With advances in technology, often the practice can hardly wait to trade in the equipment that it just finished “paying off” under a traditional finance arrangement. While waiting for this final pay off the practice is less productive than it could be as the older equipment is probably slower and has less capabilities than the new technology available. For a payment similar to that paid under the purchase arrangement, the practice could have upgrade sooner under a lease.
Don’t forget to consider the inconvenience and cost of disposing the old equipment. Disposing of some medical equipment is regulated and can be quite costly. More frequently, however, practices will keep the “old clunker” around as a spare — just in case. Or, sometimes the equipment is passed along to part-time users or satellite offices. The additional costs related to space, insurance, maintenance and inefficiency could definitely be better invested elsewhere.
Leasing is fast becoming very popular as a means of acquiring equipment that’s expensive and becomes quickly obsolete. In fact, many banks are now offering leasing as an alternative to their traditional financing because they don’t want to lose their clients to alternative financial institutions. However, don’t let popularity and current trends drive your financial decisions. When acquiring new equipment, contact your consultant, accountant or financial advisor to run the numbers and determine which option is best for you. Remember that there are other considerations beyond depreciation and payments.
Covering the Costs
A laser lease often has two components.
1. How much the equipment costs. Typically, this is a fixed fee per month, covering the term of the lease.
2. Fee based on volume. Often, there is also a fee based on the volume of procedures you performed. This is called a click fee. Most leases designate a minimum number of procedures per month written into the lease. You pay this amount every month whether or not you actually perform the specified number of procedures. For each additional procedure beyond the minimum, an additional fee per click is charged.
Before you enter into any lease with a click charge, you need to do your homework. Consider how many patients you refer for laser procedures and how many of these procedures you could perform if you had a laser. Analyze your patient base. Do you have a significant number of patients who fit the relevant demographics? For example, if you’re considering a laser for reducing facial wrinkles, do you have a significant number of women over age 40 who have annual incomes of at least $65,000?
Also consider the incidental costs. You may need to add staff. Be prepared to market the new service heavily. If you are the first practice in your market to offer the service, you’ll have to spend more on marketing, but you’ll also have the benefit of being the only source for the procedure, even if only for a short time.
If you’re the second or third doctor to enter the market, you may benefit from the marketing already done by your competitors. However, if a number of other practices already provide the laser service, you should be sure your practice's current patient base can support the service.
Calculate the lease costs together with the incidental costs on a monthly basis. Also consider what you can charge per procedure, based on what your market will bear. What are your competitors charging? What will your patients be willing to pay? Divide the charge into the monthly cost to determine how many procedures you will need to do per month to break even.
Legal Issues
When you’re negotiating the terms of your lease for laser equipment, the financial terms are usually foremost in your mind. However, other legal terms may be buried in your lease that can have a great impact. Be sure you cover these issues before you sign.
Terms of the lease. Be aware that there’s usually no way out of a lease other than bankruptcy and even then, the lessor will go after the individual doctors under the personal guaranty. The shorter the term, the less you’ll have to pay if you find you’re not utilizing the laser as you had hoped.
It cuts both ways, however. If you’re finding that the laser is a lucrative part of your practice, then every renewal term is an opportunity for the lessor to increase the price.
Ideally, go for a short term (1 to 2 years) with an automatic renewal. Be sure to specify renewal price terms up front.
Click fees. Often, if you negotiate a lower minimum number of procedures per month, the click fee is higher. If you use the laser often, it may ultimately cost you more. Be sure to run a number of financial models to determine overall profitability at a variety of procedure volumes. Be realistic in your estimates of number of procedures you will do.
Assignment to leasing companies. Note that most laser manufacturers may enter into the lease with you but will ultimately assign the lease to a leasing company. The basic terms of the lease don’t change upon such assignment. However, leasing companies are far more sophisticated in their collection methods. Even if you enter into a lease thinking the manufacturer will let you out if the laser isn’t working for you, the leasing company won’t let you off the hook so easily.
Interestingly, the lease often specifies that you may not assign the lease. In other words, if you’re not using a leased laser and you sublease it to another practice, you may be in breach of the lease.
Jurisdiction specifications. Often, the lease will specify in which state any legal claims may be brought. I recently dealt with a practice in Delaware that had a dispute with a laser company. Unfortunately, the terms of the lease specified that all claims could only be brought in California. The cost of litigation is high enough, and now the practice will have to factor in the costs of going across the country on a regular basis.
Exclusivity clauses. You may propose to the lessor that a lease not be granted to another practice within a certain mile radius. This serves to make you the exclusive provider for your area. This isn’t a standard lease provision, and many laser manufacturers won’t willingly do this. It’s certainly worth bringing up this issue, though.
Recognize that a lease is a legal contract. Make sure you understand all of the provisions of the lease. Have your legal counsel review the lease before you sign.
Before You Sign on the Dotted Line
Leasing a laser may be an attractive option for your practice. To avoid being stuck with a lease for equipment you don’t use, make sure you understand the costs involved and reasonably estimate the volume of procedures and charges. Before you sign a lease or any other legal financial document, consult your practice accountant and attorney just to be sure.
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