You Want to Start A New Practice: Now What?

The January installment of this series included a table that summarized a few points we propose you should consider (and that we plan to discuss) when thinking about starting a practice. The very first consideration should be where you want to go and how you plan to get there, which will be formally outlined in a business plan with a substantial financing section. Included in this plan are start-up costs, cash flow analysis, break-even analysis, etc.

Because there are many nuances to daily operations and Human Resources components that cannot be covered explicitly in a business plan, it may be useful to embrace the notion that business is not medicine. Business is not always precise, and it has a tendency to morph into something other than originally documented. That's why we recommend being comfortable with change—many times the result is more beautiful than you originally pictured.

THE BUSINESS PLAN
A business plan can be written in PowerPoint or as a typical document. It is a living document that allows you to regularly review desired milestones and progress toward achieving them. It may also help to keep you consistent in your methods and grounded in your reasons for pursuing this journey. Writing a business plan is a very personal and critical process in any business start-up.

The items below were key components of our business plan, which we will follow with commentary on how you can construct your own:

1. Overview Items
   1. Executive Summary
   2. Mission Statement
   3. Objectives/Milestones
   4. Critical Success Factors
2. The Customer and the Competitive Environment
3. The Company
   1. Marketing Strategy
   2. Operations
   3. Organizational Structure
   4. Management Team (Roles & Responsibilities)
4. Financials
   1. Break-even Analysis
   2. Startup Costs
   3. Monthly Cash Flow (aka Pro-Forma)
5. Amendments and References

It's important to note that much of the Overview section will be written or refined after completion of other sections. Therefore, a good starting point may be to devise a mission statement that can guide the tone, strategies, and goals, but you will have to revisit this section to refine it appropriately (see the January 2008 article "Work Smarter, Not Harder with an Effective Mission Statement" available online at practicaldermatology.com). In our business plan, within the Executive Summary section, we covered some of the major points about why this is a good opportunity, why now, and what major steps we will take to get us there. Our Objectives and Milestones section contained three meaningful chronological breakouts based on major events we wanted to have happen over the next five years. These are not necessarily our goals, but an example of objectives and milestones: Year 1 (break-even by month X), Year Two or Three (recruiting X providers), Year Four or Five (expand to second office location, offer privately labeled products). Finally, the Key Success Factors section can identify some key items needed to ensure success (i.e., execution of marketing strategy, negotiate favorable lease terms, develop customer service training manual).

We did our Customer and Competition analysis with research from various websites like city-data.com, yellowpages.com, aad.org , and through relationships forged through the Chamber of Commerce, banks, local colleagues, and directly with prospective patients. You will be amazed how many people are willing to talk to you, and how much information they are willing to share. The section also identified other general facts that made this a good opportunity for us, such as affiliation with the local hospital and the Southwest lifestyle that leads to greater sun exposure/sun damage.

Marketing Strategy and Tactics can become a very long conversation that may require you to look into various activities. We offer two pearls for developing your marketing strategy. First, we operate under the notion that one plus one is greater than two. In other words, your marketing activities must be synergistic, i.e., rooted in the same general strategy, and should be complementary with each activity, strengthening the prior activity. Marketing tactics that sales teams try to put in front of you may be distracting, but you have to reevaluate if they fit into your original plan and are complementary. Don't fall for the salesman's favorite line: "If you only get one new patient a day/week/month, you will pay for this activity." This all may be true, but the real question is what would happen if you spent that same amount and effort in a manner that is complementary to your other activities. If so, you would likely be better off. Second, confirm that each aspect of the Sales Hierarchy is addressed, from awareness to increased knowledge, to purchase consideration, to purchase intent, to incurring resale and finally preference/loyalty.

The Operations section identified things like hours of operation, training and employee manuals, customer service control plan, outsourced services, a technology plan, records keeping system (we went 100 percent EMR/PM, to be a discussion for a future article), and things that get you more into business controls like management/staff roles and responsibilities, Key Performance Indicators (KPIs), and ongoing business management improvements.

Don't feel overwhelmed if you do not know how to get started preparing your business plan, as you can get an accountant to help with the financials, and a consultant to help with the marketing plan and organizational structure. You will not write a business plan in one sitting if you put a good amount of research into the plan. You will have to research the competitive layout vs. current population growth (or decline) trends; figure out the various costs of supplies and equipment, office lease rates, your marketing strategy, etc.

THE FINANCIALS
Managing the financials (i.e., start-up costs, cash flow forecast, and break even analysis) was and continues to be an interesting subject in our business. Ensure that you always have a balance between items that are considered costs vs. investments, and items critical to patient care vs. extras. It is sometimes easier to manage this with two people with different rolls—one managing the clinical side, and the other managing the business side. If you care about the most robust business design, you will be sure to have another party constructively challenging your financial decisions. Funds are limited in a start-up, but understand that either buying used, buying less quantity or quality, or simply doing without can be difficult.

Outside of personnel, the biggest cost will likely be rent/mortgage (we'll explore in more depth in the future). It is the basis for much of our cost structure. Other large ongoing costs are related to personnel. With our aggressive growth plans, we hired two medical staff members and a Practice Manager/Biller immediately (Tarik works the business part-time while doing other consulting).

Forecasting is not exact, so you will have to make some assumptions. Realize that you can only control the controllables, but also realize that "garbage in" equals "garbage out," so assumptions should be based on something solid. For example, disposable medical supply costs should be based on expected patients/ day; loan principal and interest payments should be based on actual terms available; salaries should not be based on market rates; collection rates and cosmetic/product prices should be based on rates actually experienced by your colleagues, etc.

Table 1 features a list of items we considered in our startup costs, as well as another list for our cash flow forecast (which should be completed on a monthly basis for at least a full year and even forecast out two years). Keep in mind that this list is by no means totally inclusive, but it should help you as you gauge and project costs. Finally, no matter how detailed a plan you put together, we recommend building in at least 10-20 percent additional room for unexpected costs.

The authors welcome comments, questions, and constructive advice. Please e-mail your queries to tpigeon@bmctoday.com, and the authors will try to comment on them in upcoming articles.