On the surface it makes perfect sense: spend most of your time in capital budget meetings on proposed expenditures that will eat up most of your capital budget, such as the latest diagnostic equipment, shiny lab gear, or an advanced EHR system with extensive patient self-service features.
Headliners like those get the spotlight first and longest. They’re new, they’re expensive, and frankly they’re more interesting to talk about, not just around the conference table but also in your marketing to patients and reports to stakeholders.
But it’s the items discussed least – a few exam tables and sinks here, a waiting room seating and lighting upgrade there – that slip into the budget and quietly pile up. By the time they’re on the radar, a pack of relatively minor (but patently necessary) expenditures can have a major impact on business agility – even to the point where big budget items planned for the next cycle get pushed out of reach.
So how can healthcare providers avoid this all too common situation? With an all too underutilized strategy for managing smaller scale capex.
Finding the Right Balance of Internal vs. External Capex Funding
Call it Capex Chaos Theory: butterfly expenses over time spin up into budget-breaking storms. But what if, instead of resigning yourself to weathering those storms when they come, you could prevent them? The key could be a change in your mix of internal and external funding for certain classes of capital expenditures.
When an expenditure is relatively modest, it’s tempting to tap into cash reserves. And for some purchases, internal funding like this is a wise idea. Though as always, there’s an opportunity cost to think about: cash that’s spent can’t be spent again on something that could potentially deliver a better return.
This isn’t necessarily much of a problem when there are only a few small expenditures to consider. And that’s why so many of these purchases get funded internally, at least until they build to the level where you take a step back and wonder where all the money’s gone while an opportunity passes by.
Instead of tying up cash like this, it may be a better idea to seek external funding, even for smaller expenditures. Not only can this free up cash for uses that generate higher returns, it can also provide a much greater degree of capex flexibility.
Take waiting room FF&E, for example: with the right structuring, you can customize payments to meet current and expected cash flow needs, plus take advantage of a variety of ownership/use options.
Or consider an ECG machine and a payment option that gives you better pacing between cash out and revenue in, plus a simpler upgrade path. Or even a cloud software solution that offers a substantial discount for an upfront multi-year subscription – an affordable finance plan pays your technology provider all at once, but you can spread out payments on a schedule that supports improved liquidity and business agility.
Get More From Your Cash With the Right Capex Funding Strategy
A strategic funding plan is usually a given for major capital expenditures. But it can be just as important for the kind of acquisitions that might otherwise tie up cash that could be better used in other ways. They may not be headliners, but expenditures like these deserve a little more time in the spotlight – time that can pay off significantly now and in the long term.