Practice Success Summit: Feasibility for Aspiring Practice Owners

If you’re like most healthcare professionals today searching to buy or build your dream practice, you’ll be wondering if you’re making the right decision. Perhaps it’s all too hard and you find yourself paralysed by procrastination and indecision. There’s no doubt the process of starting a healthcare practice can be daunting and one you will want to get right. Not only are you purchasing or building a practice where you will carry out your chosen profession, you’re also becoming a business owner.

So, start by donning your business owner’s hat to ensure your decisions are the right ones. Business decisions which are free from emotion and guided by your goals. It starts with planning — a feasibility study, business plan and needs analysis — before signing anything.

What is a feasibility study?

Feasibility studies assess and evaluate a project’s potential for success. It’s an objective and rational study to reveal strengths, weaknesses, opportunities and threats related to a proposed venture/existing business. Looking at the business’s history, operational detail, financial data, legal and tax obligations in a thorough and objective manner will provide credibility and financial detail for lending institutions and information upon which to base your decisions.

A feasibility study and a business plan will go hand in hand when it comes to applying for finance and will reduce the chance of unexpected costs.

When planning your business, start with the end in mind and plan according to your goals. Do you want to sell, eventually, for as much profit as possible so you can live and retire financially secure?

If so, you’ll need to get everything right at the beginning. As part of your feasibility study, you’ll need to research a number of factors:

The site:

• Vision and goals

Have you thought of your vision and goals? Will the proposed practice or site fulfill these?

• Site survey

Part of your feasibility study will be a site survey by a professional medical and dental design and fit-out company. Do this before signing a lease or buying a building. You need to know that it’s possible to create your vision for your practice and how much it will cost. Ideally, you will want to have your practice designed according to your vision, using WELL practice principles, not according to council regulations about what can and can’t be done with a particular property. Once completed, you can enter these costs into your feasibility study and business plan to take to your lender.

• Parking

This is a number 1 requirement. Patients want ease of access and will go elsewhere if access isn’t easy and convenient. If there’s insufficient parking, you may have difficulty in growing the practice and selling it later

• Council requirements

Speak to the council (town planner) about requirements they may have for the site you’ve identified. Ask about various permits relating to commercial or residential areas, parking requirements, operating hours, and GP numbers allowed. Heritage overlays for some buildings may be an issue. Building alterations which you may need to do may be disallowed by council because of heritage issues — impacting your vision at the outset

• Services

If you’re looking at a commercial space, are there the services (electrical, plumbing, air conditioning etc.) available for your particular medical fit-out? If you’re leasing, find out what the inclusions are

Patient demographics:

• You’ll need at least 1200 patients for practice viability. Does your area have enough population to support this? Does the area have enough of the type of patient you are interested in? Or has the area reached saturation with practices of your type? You want to know that you will have enough (or potentially enough) patients to support the practice from Day 1.
• What are the patient’s health conditions like within this area to assist you in servicing their healthcare needs?
• What are the patient’s socioeconomic status to assist in planning out of pocket fees?

Competitors:

• Know who your competitors are. What’s your point of difference to them? Talk to the council about development applications from other healthcare professionals. Where there may appear to be no others, there could be 5 development applications at council in the process of approval for competitors you didn’t know about

Finances:

• Most healthcare professionals will need to apply for finance for their start-up practice. For a lender to be comfortable with lending you the funds, they’ll need to see that you’ve done your due diligence, in the form of a feasibility study and have a business plan. Lenders will ask for a detailed cash flow forecast, patient numbers and operational costs based on days open. Have a rationale ready — your narrative, the story you’ve gleaned from your feasibility study. Your cashflow projections will show your likely income. It is worth noting that most practices have a negative balance in the first year
• Ensure your personal finances and tax returns are up to date
• Financing for GPs is different to Allied Health which is, again, different to dentists. Dental set up costs are higher initially because of the specialised equipment and fit-out. For example, the hydraulics involved. The good news is that lenders may lend up to 100% of set-up costs

Growth:

It’s important to think about the growth aspirations you have for your practice. Consider this when looking at different options.

• Growth potential: look at the Information Memorandum. What is the narrative between facts — what does the data mean, what story does it tell? Day to day operations matter, including the patient base demographics, with an optimal growth rate of 60%
• Greenfield versus established sites:
  • A greenfield site — starting with potentially no patients but with the opportunity for plenty of growth. Here, there is the opportunity potentially to provide for plenty of parking — for now and into the future
  • An established site — determine how much growth potential is available. Is there room to create another room for a doctor, nurse, allied health or pathology? Check the billings and other operational factors including processes. Is there room for improvement?

While you may feel a little overwhelmed by the amount of research and planning required, remember you are not alone. For a streamlined process with peace of mind, you can gather a highly qualified and experienced team of professionals to help you every step of the way.