Many businesses use financial leverage to support their startups or continued growth, helping finance new equipment, resources and other essential factors they need to thrive. Understanding how financial leverage works can assist you in getting more out of your practice.
In this guide, we’ll explore leveraging your private practice physical therapy clinic as a financial asset, along with potential pros and cons. Like any business owner, you have to be willing to take some financial risks for your business. However, progressive practice owners know how to utilize their finances so that it significantly pays off in the long run and serves as an investment in your future.
Why PT Practices Use Financial Leverage
A physical therapy clinic may utilize financial leverage to grow its business operation and achieve significant goals. If your practice currently does not have enough funds to expand in the ways you’d like, borrowing money to maximize the return on investment is a path to pursue.
When you involve assets, the person or party that your business is borrowing from might use them to protect themselves (as collateral) until your practice returns the money. Leverage can help maximize your practice’s earning potential, but you must not take on more than you can handle.
The Risks and Rewards of Leveraging Finances for Your PT Practice
The Perks of Increased Capital
Becoming as profitable as possible and exceeding the borrowed amount of money are the two primary goals of leverage. The benefits of leveraging capital include consistent cash flow, long-term growth for your clinic’s operation and improved net worth.
Through leveraging finances, your clinic can also receive state-of-the-art equipment or technology, expand the physical premises to provide services to a growing clientele or upgrade in-house resources and tools that will change the way you operate. Having that capital could help you make the upgrades you’ve been wanting.
Potential Risks To Consider
Any company that uses leveraging is taking a risk, but it’s essential to decide if it’s wise and worthwhile for your specific practice. When the return on investment of your assets is lower than you expected, you might have an issue paying off debts and financing normal daily operations.
Having a deeper understanding of your practice’s financial situation and current debts can help you decide if leverage is right for you. It may also make your leverage process easier and become one of the best, most rewarding risks your practice took.
How To Calculate Financial Leverage
You can calculate financial leverage in the following ways:
- All Debt / All Equity = Debt-to-Equity Ratio
- All Company Assets / All Debt = Debt Ratio
Leveraging your PT business as a financial asset could involve taking out loans, or it might look like utilizing trade credit with some of the most trusted vendors. Smaller loans could prove the right choice for practices that are hesitant due to potential risks.
Identifying the Right Time for Financial Leverage
Timing is crucial when considering financial leverage for your physical therapy practice. If you leverage finances at the wrong time, you won’t see a return. So how do you know if it’s time to start raising capital for your business? Often, it coincides with strategic expansion plans. Here are a few key indicators that it’s time to leveraging:
- Sustained Growth: Consistent increase in patient volume and revenue.
- Market Opportunity: Emerging trends or gaps in the market that your practice can capitalize on.
- Capacity Limitations: Existing resources and infrastructure are fully utilized, and expansion is necessary to meet demand.
Steps and Considerations When Securing Capital
Accessing capital requires careful planning and a solid understanding of different financing options. Here’s how you can proceed:
- Evaluate Your Needs: Determine how much funding you require and for what specific purposes.
- Choose the Right Type of Financing: Options include traditional bank loans, lines of credit, SBA loans or alternative lenders. Each has its pros and cons.
- Prepare a Strong Business Case: Lenders will assess your practice’s financial health, growth potential and repayment capacity. Have clear financial statements and a compelling business plan ready.
- Explore Grants and Special Programs: Investigate if there are any healthcare-specific grants or low-interest loan programs available.
- Negotiate Terms: Focus on getting favorable terms, such as lower interest rates or flexible repayment schedules.
Exiting Your PT Practice for Financial Gain
Many PT practice owners consider their business an investment in their retirement plan. However to sell your practice at a profit, you need an exit strategy, especially when leveraging finances for growth or expansion. Essentially, an exit strategy serves as a roadmap for how you intend to step away from your practice. By carefully planning an exit, you can enhance the value of your practice over time, ensuring that when you do decide to sell or transfer ownership, you do so at a profit.
Because leveraging finances often involves taking on debt, an exit strategy can provide a clear plan for how these financial obligations will be managed and eventually resolved, which is essential for protecting your personal and business finances.
Grow Your Physical Therapy Practice and Achieve Your Financial Goals With MEG Academy
Now that you’ve learned about leveraging your PT business as a financial asset, it’s time to consider your goals and ways to achieve them. At MEG Business, we understand the importance of expansion and creating the best possible practice to meet the growing needs of clients.
With MEG Academy, physical therapy business owners can enjoy certification courses for staff, master’s programs, live coaching and so much more. Reach out today to learn more.