Ophthalmology Business

OCT 2013

Ophthalmology Business is focused on business topics relevant to the entrepreneurial ophthalmologist. It offers editorial, opinion, and practical tips for physicians running an ophthalmic practice. It is a companion publication of EyeWorld.

Issue link: http://digital.ophthalmologybusiness.org/i/197424

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W e ophthalmologists have very large capital equipment needs. Only radiology comes close to our level of expenditures. Further complicating things, we have the added expense of significant and rapid technological upgrades, as well as a level of commercial competition that most other specialties cannot fathom. So how do the most successful ophthalmologists win and keep winning financially? First of all, from a capital standpoint, they understand that you finance everything you purchase. This is a very simple, yet very important concept that most fail to grasp. So, I repeat: You finance everything you purchase. You finance everything you purchase. Here is how: You either forego interest and returns when using your own money or you pay someone else interest to use their money. In doing so, you lose what that foregone interest or return could have earned; we can call this your "opportunity cost." When repeated, this behavior becomes very expensive. Whenever you borrow money and there is a fixed payment schedule, you pay something called amortizing interest. Each payment includes a little more principal and a little less interest. This continues until the payments of principal, plus the interest, equal the term of the loan. Thinking of leasing equipment? Please do not be fooled into thinking that leasing equipment is less expensive. It is not. It is much more expensive than common bank financing, no matter what the lease "factor" is. When quantifying the imputed interest rate, most capital leases are in the 9-15% range. Leasing may be good for your cash flow; however, it is not less expensive. Leasing may be good for your cash flow; however, it is not less expensive. Compounding the issue of utilizing inefficient or expensive resources, too many of you mask your financial mistakes with your high cash flow. Think about it, have you ever made a financial decision where the results were unexpected or disappointing? You are smart, sophisticated. Why does this happen? Could it be that you based your decision on misinformation, missing information, myth, or a misconception? There is a better way. Let's explore this a little further by returning to the amortizing discussion. Remember this: Compounding interest always outruns and outperforms amortizing interest. It works best over time and works great when it is uninterrupted, untaxed, and undelayed (because it works best over time). You may say you knew this already, yet are you practicing this in your business decisions? Is there evidence of this knowledge in your behavior when funding your capital equipment needs? There is an alternative for making that capital purchase through leasing or paying for it out of your own pocket, one that is used by the smartest investors and consequentially, some of the most successful ophthalmologists. It begins with building your "collateral capacity." Do not be embarrassed if you are not familiar with this term because if it were common, you would already be doing it—and so would your competition. Building your collateral capacity usually takes place in an asset protected account. We will call this account your Private Capital Reserve (PCR). Important note: PCR is a strategy, not a product. Also, it is a savings strategy, not an investment. Private Capital Reserve is a strategy, not a product. Also, it is a savings strategy, not an investment. This strategy creates conditions necessary for your account to grow and to compound without delay, without interruption, and without taxation. With this strategy, you are using dollars for which you have already paid tax. You can access this account for any reason, at any time, without penalty, and with no tax. The account will continue to grow and to compound, while you retain liquidity, use, and control of the money. There are limitations. Considering the safety of this strategy, your potential for growth will be lower than the markets. You also will not take on the risks associated with the markets. In fact, your money is always there and your principal protected. As long as you follow a few simple rules, you can never lose your money. While you neither take on the market risk nor access the comparacontinued on page 18 October 2013 • Ophthalmology Business 17

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