Do you, doctor, lease ... or build?

Do you, doctor, lease ... or build?

Before you take the leap and build a new hospital or lease space, you should do some soul-searching and number-crunching. Pop these three questions to yourself.
Jun 01, 2008

Illustration by Gail Armstrong.
So, you're not sure you're ready to give up your freewheeling days as a carefree associate. Or maybe you're an owner wondering whether to leave behind your paid-off clinic and build a new and better one on credit. Don't worry; you're not alone. This is a perennial question that every new generation of veterinarians faces: Will you find the perfect space to lease—or will you buy land and build a brand-new hospital?

There are situations where a leased facility is ideal and others where it's best to build. As you weigh the stakes, ask yourself these three main questions. Your answers will help you figure out whether a leasehold or a new freestanding facility is best for you, and you'll feel more confident in your choice—plus the numbers will help back up your decision.

1. Where will I put my practice?

Location, location, location. It's important. You want maximum visibility—a well-trafficked street, intersection, or commercial area. If the only place to build a brand-new hospital is an out-of-the-way industrial park that sends clients driving in circles looking for you, you'll want to lease. The more visible your hospital, the less you'll need to spend on marketing. Your best advertisements will be word-of-mouth and "Hey, look, there's a veterinary hospital nearby."

You might also consider leasing if you're relocating your practice and need to move somewhere close to your current facility. Many of your clients won't travel long distances to follow you, especially if they'll pass three other veterinary hospitals on the way. You also need land or a building that's zoned for veterinary use.

Whether you lease or build is also contingent on your practice's revenue base and its potential for growth. Conduct a demographic study to find out whether the client population in the area you're considering will bring in enough revenue to support your new facility's cost of occupancy. Occupancy cost in the form of rent or ownership costs is usually 5 percent to 8 percent of hospital revenue. If your revenue doesn't support the occupancy cost, your new facility will be unaffordable and it's time to look elsewhere. (See "Can You Afford Your New Practice?") It's usually easier to look for a new location than to desperately hunt for more revenue in your business plan.