The Top Ten Questions on Vendor Negotiations

When it comes time to purchase anything, there are always pure cut-and-dried retail prices that are offered as a “sticker price.” The sticker price is what other people pay, not what you pay. The following 10 questions should determine how you negotiate for your next purchase. In this article, the term “purchase” may refer to the definition of securing the item via a lease, a traditional loan, or an outright cash purchase.

When is the best time to negotiate the purchase of a piece of equipment?

All of us want to purchase the newest, latest, and greatest toy in the industry, but when is the best time to do so? The most difficult thing to put our arms around is when you should obtain what you have been wanting for years:

• Try to determine if this is just the latest craze in the industry.

• Who else in the marketplace (competitors) already has one?

• What marketing support will you get from the manufacturer?

• Do you have the patient base to support such a modality?

Should I buy or lease?

Choosing whether to buy or lease can be determined by your available capital. If you purchase, you may be able to take advantage of certain tax credits. Check with your tax professional for clarification. In certain areas, you may not have to pay certain local tax fees (document stamps) on the type of loan you secure. If you lease, you may be able to obtain off–balance sheet financing. A company can rent or lease a piece of equipment and then buy the equipment at the end of the lease period for a minimal amount of money, or it can buy the equipment outright. In both cases, a company will eventually own the equipment or building.

The difference is in how a company accounts for the purchase. In an operating lease, the company records only the rental expense for the equipment rather than the full cost of buying it outright. When a company buys it outright, it records the asset (the equipment) and the liability (the purchase price). So by using the operating lease, the company is recording only rental expense, which is significantly lower than booking the entire purchase price, resulting in a cleaner balance sheet.

Bottom line: Check with your legal advisor or tax professional for the best answer. He or she knows the best personal and professional accounting principles for you.

When are the best times to negotiate the purchase of a piece of equipment?

We have all been to trade shows where we can’t even walk five feet without tripping over another big box and several people waving at us to stop at their booth as we walk by. If we listen to the sales pitch, we will consistently hear about the “show special” being offered if we make that large purchase while we are at the show. Don’t get caught up in the dialogue! It is quite simple to explain why.

I lecture at an average of six to eight shows a year, which means that there is another show every four to six weeks. If you miss one show, the special will be there at the next one, and you may possibly even get a better deal than you were offered a month ago. The truth of the matter is that the best time to negotiate your best deal is at the end of a quarter or at the end of the company’s fiscal year, especially if the company is a publically traded company that has to satisfy shareholders.

What’s included as a total package?

When negotiating, try to break down all of the necessary components that go along with your purchase. Remember, everything is negotiable. It all depends on how badly the company wants to make the sale. Let’s take a look at what might be negotiable.

• Consumables: If a machine requires additional consumables to keep the procedures flowing, try to negotiate so items such as additional tips, grounding pads, or gel are included. This will all result in lower cost per procedure.

• Marketing materials: Many vendors include marketing materials or marketing dollars in the purchase price. Some include additional external educational training at an offsite location, whereas others bring in third-party contractors to train staff as well. Try negotiating for brochures and advertising dollars.

• Shipping: Because shipping usually is done through a third-party transportation company, it is more difficult to negotiate, but not impossible. Your vendor may just reduce the cost of the machine itself to compensate for the cost of the shipping.

• Sales tax: Sales tax is state controlled, except for those states that do not have sales tax (e.g., Delaware, Montana, Oregon, and New Hampshire). Tax is not a negotiable item, and if you lease the equipment, the leasing company will add it onto the lease if it was not paid at the time of the lease/purchase.

How should a warranty be negotiated?

Because warranties are an offering by the manufacturer itself, this may be easier to negotiate. Try to negotiate for either an extended maintenance agreement above and beyond the standard/traditional parts and labor warranty or a discount on additional terms. Once the warranty has expired, the usual and customary rate is approximately 10% of the retail purchase price, which may get pricey. This is why it is important to negotiate this in the beginning of the sales process.

Should I buy used or new equipment?

You must understand the benefits and consequences of purchasing new and used equipment.

If you buy new, the machine comes with a brand new manufacturer’s warranty and all of the benefits of a wonderful cosmetic appearance. You are also covered by Federal guidelines for equipment warranties and have the availability to purchase consumables and disposables as the original owner. Of course, new equipment also has that hefty price tag, but you know the old adage . . . you get what you pay for.

If you buy used equipment, you may get a deeply discounted price, but you may never know the maintenance history of the unit in relation to past breakdowns and parts failures. In addition, many secondhand companies will sell equipment in an “as is” condition, which translates to “buyer beware.”

Manufacturers have become extremely strict with purchasers of used equipment and have placed heavy restrictions on the new potential owners. For example, the manufacturer may not allow any remaining warranty to transfer to the new owner and may allow you to purchase parts and consumables only after a safety inspection has been performed by a certified inspector of the vendor. This may require you to pay thousands to tens of thousands of dollars.

Am I better using a consultant to negotiate?

Consultants have the opportunity to negotiate a better price on your behalf because they know the vendors in the marketplace, and know the bottom line that a vendor is willing to drop their price to. A bona fide consultant can shop the market for you for both new and secondhand equipment and can spend the time assisting you, which allows you to concentrate on what you do best: practice medicine. Consultants can either charge you an hourly rate to negotiate the equipment for you or share in a percentage of the savings from what you were originally quoted, or a combination of both.

What level of authority is the best one to negotiate with?

This is always a tricky question. Your initial contact usually is the salesperson, who is either a manufacturer’s representative or an actual employee of the company. The salesperson usually works on commission, so it is not in his or her best interest to give you the best deal from the beginning of the negotiation process. Once you get closer to actually signing on the bottom line, the ability to give greater discounts and other options may need to come from a higher level of authority.

Don’t be afraid to walk away from the deal if you don’t feel like you are getting the best opportunity.

Don’t be afraid to walk away from the deal if you don’t feel like you are getting the best opportunity. It’s usually too late once the deal is signed. You can always come back to the table. Remember that there are always more supplies and equipment to sell than there are legitimate and qualified buyers.

Is it better to negotiate with a cash price or credit?

Often, you may not have the available cash/check/credit card funds available to pay for the expensive items you want. It may be necessary to finance the purchase, which can slow down the process. Once you have the need to finance, there is the application process, credit checks, possible submission of prior tax returns, requests for personal guarantees, and you may or may not qualify for the loan or lease.

Cash purchases are always better because they are immediate. However, don’t get caught up in the immediate need to secure the equipment. Unless it is a showroom special, it still needs to be shipped from the manufacturer’s warehouse. Another few weeks will not make the difference in your overall profit for the year.

If you do need to finance equipment, check around. Many manufacturers have deals with their finance vendors, and are compensated for bringing business to the lender. Someone has to pay for that compensation that goes back to the lender, and guess who it is? Of course . . . it’s you. Try to secure personal financing through your own lending institution. You may be able to get better deals from your private banker with whom you already have a relationship.

Ask whether the manufacturer will accept credit cards for your purchase. You have additional leverage; possibly additional warranty; and of course, the most appealing thing of all, the miles or points associated with your credit card.

Lastly, you might want to consider obtaining an interest-only line of credit to finance your purchase. In slower times, all you have to pay is the interest on the remaining principal. This can lower your expense when you need the available cash for other purchases. Once again, check with your accounting and tax professional.

When should my warranty start?

Warranties usually start when the equipment leaves the factory or when it’s shipped. Try to negotiate that the warranty does not start until the unit arrives in your facility, it has been properly inspected by the vendor, and, finally, you have received training to operate the machine. What good is a warranty when the machine may not have been in service for several weeks to a month before you are ready to use it?

Conclusion

Everything in life is negotiable. Don’t fall prey to salespeople trying to sell you something rather than having them consult with you for your best interest. As practice management consultants, we work for you and for the best interest of your total overall success. Surround yourself with people who always have your best interest at heart. You will never go wrong with seeking out additional advice prior to making large capital expenditures.