03 Jul Guide to Preparing a Medical Practice Business Plan
This Guide to Preparing a Medical Practice Business Plan has been developed to assist both doctors and practice managers understand the potential of their practices. It contains numerous practical tips and advice and identifies the main issues connected to planning and successfully running the practice. It has been identified as an area where practice managers and doctors alike have a keen interest, and a lot of important information is contained in the guide.
Having a well drafted business plan is the first step to success for any type of venture. Without concrete goals or strategies, and a vision of future achievements, it will be difficult to build and grow a new practice.
Setting targets is also an effective way of measuring success, and benchmarking is an area where there is an abundance of speculation and interest. There is little difference between good medicine and good business; when a practice provides a competent professional service, develops personal relationships, and retains patients over the long term, then the business of management is integral to success. Costs need to be reduced, staff productivity needs to be increased, and personal investment in the practice should also be reduced. Benchmarking against other practices is one way for practice owners and managers to identify areas that may need improvement.
This guide introduces the concept of business planning for medical practices and provides readers with essential knowledge required for planning future growth and profits of practices. It also emphasises the need for business plans to reflect the personal preferences and ambitions of individual doctors, ensuring that it accommodates issues of work/life balance.
Further reading is recommended throughout the guide.
An Overview of business plans
A successful medical practice does not happen without effort. It is the result of a good idea, implemented in a systematic way, over a period of time, according to a pre-conceived plan or schedule. This is the case, whether the practice is being started from scratch, or whether it is an older practice entering a new phase of activity and growth. This is also the case, regardless of practice location and competition. A good business plan should reflect the personal preferences and ambitions of the doctors. It accommodates private lives and, by anticipating problems, helps to reduce stress levels.
If there is a plan for what is going to be done and why, the chances are it will be implemented more successfully, and with less angst. For example, a good business plan will cater for peak workloads through the introduction of strategies such as introducing locums, assisting in delivery of patient care. Strategic planning will also assist in identifying appropriate development needs of the practice.
Sometimes the plan is in the doctors’ heads. They may have strong views on what will work, and they set about doing it in a deliberate and determined way. That is commendable, and there are many examples where this has worked well and has produced good results. However, the prospects of good results will be greatly increased, and perhaps more importantly, the prospect of bad results will be greatly decreased, if the plan is documented on paper. This should be done in a disciplined and structured way, identifying what should be done and what should not be done, who will do it, and why.
This discipline will focus thoughts on why and how the practice development should be conducted. It leads to a more rigorous pursuit of the practice’s goals and aspirations.
It provides a set framework for performance assessment for those involved in the practice.
There can be many reasons for doctors to draw up a business plan. These can include documenting thoughts in order to check, revise or improve them at a later date, and may be related to many aspects of business management and development; such as attracting new doctors to the practice, or simply advising a lending institution in order to secure funding. The business plan can be instrumental when describing future objectives to a potential partner. This is a useful way to attract doctors to the practice, or to obtain confidence from financial institutions confirming the practice is a good investment, with future plans that will enable it to continue meeting its obligations.
This process is called identifying the audience; if the business plan is being designed for a financial institution the emphasis should be on security for the proposed loan and how it can be serviced. However if it is being composed for a potential partner the emphasis should be more towards security of venture capital and returns on investments. If the business plan is being written for internal use only, it should then place equal emphasis on all components. Identifying the audience allows informed decisions to be made on the content to be included in the business plan that will satisfy the requirements of the particular audience.
It is always a good idea to analyse and check the plan regularly, which may vary according to clinic activities.
For well-established clinics experiencing little development or growth, each year at tax time, is an appropriate process. For clinics that are experiencing great change, review of business plans may occur more frequently, as deviations and changes may occur. This is an intrinsic part of developing and maintaining a successful practice.
Doctors can choose to develop their own business plan or they can seek the help of a consultant. There are advantages and disadvantages for both and these are listed in the following table:
|Creating your own plan||Seeking Assistance|
|Advantages|| An intimate knowledge of the plan allows the writer to implement the actions;
A better knowledge of the practice’s profitability will increase the understanding of how the practice works;
Business skills will be increased; and
It will cost a lot less than a consultant
| Professionals will have a far greater knowledge of creating business plans; and
Doctors’ time can be better spent consulting while professionals write the plan.
|Disadvantages|| A large amount of time will need to be invested in researching and writing the plan; and
Doctors’ skills at business plan writing will not be as proficient as a professional
| If someone else has written the plan, the doctor may not fully understand it;
The opportunity to gain further knowledge about the potential practice is missed;
The person writing the plan may not have a full understanding of the health industry and the desires of the practice; and
The cost involved will be high.
Alternatively, a combination of both options could be viable. The consultant could provide the guidance and expertise that doctors do not generally have for writing a business plan, and the doctor’s expertise in the industry can assist in its preparation. Therefore, both the doctor and the consultant will be familiar with the situation.
Successfully executed, a business plan should ensure practice profit, hence goodwill is maximised and all viable options available to the practice are encouraged and explored to their fullest extent.
Planning cannot begin if there is not a vision. Formalising the process can help turn abstract concepts and ideas into a practical reality. Formal statements about the visions and plans of the practice are often developed; this enables doctors to enhance their identity and market their plan, which in turn allows them to better manage performance and outcomes. The formalised process is called a vision statement and is usually kept short and simple to contain ideas about the future direction the practice intends taking.
To assist with creating a vision statement, doctors should first establish a set of principles and values that will underpin their practice. A simple tool to assist with the mapping of the practice’s values is the “value wheel”, as illustrated. The values should be agreed and understood by management and staff as they are an important factor in the success of the practice.
Thinking about the patients
Medical practices are different to other businesses. The profound emphasis on patient care and support doesn’t occur in most other businesses: the dominant purpose of a medical practice is only rarely profit maximisation.
It should never be suggested that patient care and support should be given second place on the practice’s list of priorities. The paradox is that a properly constructed and implemented business plan will assist in achieving the goals of patient care and support, and assist the doctors to maximise their income and wealth. In a good practice the two concepts support each other and do not conflict with each other. The market rewards good service. An ethos of patient care and support should dominate the medical practice business plan; in the same way client service or customer service should dominate the business plan of any other type of business. If this occurs the medical practice should flourish under all measures of success, including both patient service and practice profitability.
The doctor will need to define the demographics of the practice, and the planning process should be developed around meeting the needs of the type of patients it will be serving. For example, some practices may be located in an area close to Army Barracks, and therefore have a majority of veteran affairs patients, or may be situated close to several aged care facilities, and chose to concentrate on the needs of these older citizens. Alternatively it could be a new practice in a developing suburb, where the emphasis is on family medicine with more young families and children, or it may be in an industrial estate that is going to treat more WorkCover related patients. Identifying the potential patient base is an important factor when thinking about the type of services that will be provided.
Thinking about the doctor
A good business plan reflects the personal preferences and ambitions of the doctors. Apart from setting goals and selecting strategies, it also accommodates private lives, and by anticipating problems, helps reduce stress levels. Knowing what the plan is, and why it is implemented, increases the chances of a successful outcome, and with less resistance
The process of preparing a business plan allows the doctors to identify what is important to them, and allows for consideration of their choices and visions. The needs of a young family may dictate the hours the practice is open. An assistant may be required to help after hours, or on weekends. The preferred location of a practice may need to be weighed against the availability of good schools in that area, and the living or career requirements of a spouse.
The medical practice business plan should be realistic and should be developed with regard to the practical aspects of the clinic demographic, including lifestyle needs and wants of the stakeholders.
The business plan process often presents a good opportunity for reflection on the priorities of the practitioners, and for ensuring there is consistency between personal and professional goals.
What a business plan looks like
There is not one standard format. A business plan is not a precise formula to be strictly adhered to no matter what the circumstances of the doctors are. It is a document with some opportunity for flexibility, reflecting the needs of the people who created it and use it.
Nevertheless, some broad guidelines can be set out to assist in preparing business plans. Within common sense limits, a business plan can be as short or as long as one wishes it to be. It can be filled with detail, or devoted solely to the big picture. The plan should reflect the unique needs of the practice, and since it is their document, should be written by the doctors, using outside assistance if required. Using a template or a precedent can assist in developing a logical and consistent strategy for conducting the practice in both the short and long terms. This is particularly the case if a third party, such as a potential partner or a bank is going to view the document.
When starting from scratch developing a business plan, there is no set sequence that needs to be followed. However, common sense suggests that strategic plans cannot be identified until organisational strengths have been researched, and the direction of the practice has been determined. Neither can the tactical strategies be determined, until the practice strategic plans for development have been established. When reviewing a previous plan it is often easier to follow the same template that was originally used, as this has the added benefit of allowing review of the historical developments of the practice.
One suggestion for a medical practice’s business plan is set out in the table below:
|1. Background Information||1.1 Purpose of Report
1.2 Structure of Plan
1.3 History of Organisation and Organisation Profile
|2. Mission||2.1 Mission
|3. Practice Position||3.1 Market Overview
|4. Organisational Strength||4.1 Marketing
4.2 Management Control
4.3 Human Resources
4.4 Construction/Operation Technology
|5. Strategic Audit||5.1 Situation Analysis Summary
|6. Grand Strategy||6.1 Mission Review
6.2 Basis for Growth
6.3 Sustainable Competitive Advantage
|7. Functional Strategies||7.1 Alternative Strategies Available
7.2 Recommended Strategy
7.3 Operations Strategy
7.4 Finance Strategy
7.5 Marketing Strategy
7.6 Resources Strategy
|8. Implementation||8.1 Implementation Strategy
8.2 Contingency Factors
This is sometimes called an executive summary and is an overview of the business plan. It is usually developed after the body of the plan has been drafted, although it is presented first. It sets out the reasons for undertaking the process and highlights the main points by placing them into context.
It sets out the basic information required for its audience, (and should be modified for different audiences) including the practice name, owner’s experience, description of the type of practice, the structure of the practice, location and date it was established. This section should also contain an overview of the key activities of the practice, and the variety of services offered, for example, allied health professionals, nursing expertise, pathology, radiology etc. It should include an overview of the target markets of the practice, who the competitors are, and what competitive advantages it has over them. Then it should determine the projected income and profits from these services, what the capital requirements are, who will be contributing these, and what security will be offered.
The owner doctor prepares a mission statement, (this is different to a vision statement) and outlines what the practice wants to achieve. An example could be:
“The practice will provide quality primary health care to the community of Isleworth through a safe accredited environment, emphasising confidentiality, trust and compassion, and working closely with other providers to enable the residents to feel assured of receiving the highest possible care.”
Having declared what the mission will be, the doctor then sets out how to fulfil the mission by creating objectives. There are frequently more than one objective. Examples include:
“To assist both clinical and non-clinical staff in the area of education to continuously develop their skills”
“To commit to providing home visits to the patients of nearby residential aged care facilities”.
This section determines where the practice stands in relation to its competitors, examines what the patients want. It uses an integrated approach to assess the competitive advantages. It closely examines the patient profiles through the use of demographic information provided by market research, and enables the practice to make informed decisions about future actions. It also looks at the competitors’ profiles, and what strategies have been undertaken to fulfil any identified needs.
Market research of both the competitor’s and the practice’s current patients must be relevant, accurate, and objective in order to make decisions relating to the following areas:
- How to promote the practice;
- What pricing structure to use i.e. bulk billing or private fees, and what private fees the competitors are charging etc;
- What extra services to offer, e.g. whether the patients want 24 hour access or specialist services at the practice;
- Whether the patients live locally or cover a wide geographical area; and
- Changes that might enable these services to be established.
Having examined the competitor and patient profile, it is now time to look at what is happening in the rest of the world, and where the practice may have strengths. There are going to be some factors that can be controlled by the practice, as well as other areas that cannot be controlled. These could include, but are not exclusive to, technological advances, the economic climate, the availability of specific skills, patient preferences, etc.
Many external factors cannot be controlled, these may include:
- Legislation and political/legal requirements – business licence requirements, property titles and leases, employment law, Medicare rebates, zoning and parking restrictions etc;
- Economic factors – trends in patients behaviour, interest rates and their effect on spending, and economic policies regarding incentives to bulk bill;
- Environmental factors – whether the practice can continue to operate during a pandemic, bush fire, flood etc; and
- Issues with suppliers – does the practice use enough supplies to warrant a 30 day accounts, different pricing structures, and how quickly supplies can be delivered.
Most internal factors, however, can be controlled. These could include:
- Physical resources – the number of staff to be employed, expected patient numbers, rosters and workflow, patient service policies, staff appraisals;
- Financial resources – the amount of working capital required, whether there will be adequate cash flow, access to finance; and
- Business capabilities – available space for increasing the number of doctors, experience and expertise of clinical and non clinical staff, ongoing educational needs, recruitment and selection policies, staff morale and communication.
When the market research is complete, it is time to determine whether the practice will be able to operate within this environment, and if so what makes the practice special or different from its competitors. This is when a SWOT analysis should be undertaken; it gives the chance to review the strengths, weaknesses, opportunities and threats that will affect the practice.
Questions that could be asked include;
- Whether the practice will have the capacity to operate successfully in this market, considering the competitor analysis and patient profile;
- Will there be enough cash to set up practice without compromising patient care;
- Whether doctors can be successfully attracted to work in the practice;
- Have all regulations been abided by.
By identifying weaknesses and threats, strengths can be built upon and opportunities will present themselves allowing the practice to change direction if needed.
SWOT analysis allows the practice to identify what critical success factors are required to enable it to have a competitive advantage. The three main critical success factors include:
- Resources – appropriate premises to operate from, adequate funds to operate successfully, and skilled staff to undertake the work;
- Processes and systems – feedback systems, procedures and policies, operating systems, accounting systems, appropriate patient relationship protocols, patient confidentiality processes; and
- Services being offered – appropriate medical, dental, allied health, nursing consultations, including prices and promotion of these services.
Although the three types of critical success factors are independent, it is important to remember that in order to deliver the right services, appropriate resources and processes must be in place.
This section gives the opportunity to assess how to make the most of what differentiates the practice from others already established and gives the opportunity to assess the risk of opening a new practice. It is time to review the mission statement and identify what is important to the practice. It is also crucial to prioritise the identified critical success factors; these priorities may be different to other practices, and this is also a point of differentiation:
- Business resources, such as comfortable consulting rooms, ongoing staff training, appropriate equipment, cash flow etc;
- Processes and systems, such as a system for recruitment and retention, systems to ensure cleanliness, processes for admin staff, appropriate backup and restoration of information and data, processes for maintaining patient confidentiality etc;
- Services, such as which services are required, value for money structure, how to promote the practice etc.
The risk of the practice failing is fairly low, as there is much greater demand for doctors than supply. There is also scope for diversification, such as adding the services of allied health, nurse practitioners and the like, which can give the practice a sustainable competitive advantage over others.
It is now time to identify and develop key activities that will need to be undertaken in order to put the strategies already identified in place. The tasks will need to be broken down and done one at a time. The action plan should have the following characteristics – SMART:
This ensures that what is undertaken will in fact be appropriate and achievable, and focus does not move from the critical success factors already identified. The person responsible for undertaking the tasks and the timelines involved will also need to be identified.
Alternative strategies can be examined in this section, and action plans are developed for all areas of the business including:
- Operating strategy – how the practice is going to run, keeping in mind the resources and processes identified earlier;
- Financial strategy – budgets are drawn up for expected income and expenditures, spread sheets for costs, how much patients will be charged, whether they will be charged privately or bulk billed, whether it is appropriate to consider a second or even third doctor, fixed costs compared to variable costs, breakeven point etc;
- Marketing strategy – signage, advertising in local papers, word of mouth, website, community involvement etc; and
- Resources strategy – how many doctors will work, how many support staff will be required, what alternative services will be offered, what awards staff will work under etc.
Having identified all the tasks required to achieve the goals set, it is time to put them all into operation. Contingency plans should be included in case alternatives are required.
It is fair to say that this template is a very detailed business plan for a medical practice. Many practices prefer something less formal and rigid. However, it is useful to refer to this style as a model for subsequent discussions and explanations. Some business plans have exceeded thirty A4 pages of single spaced typing: this may sound a lot but in reality it is not, and it is surprising how much detail can be forthcoming once the process has begun.
ISSUES TO BE ADDRESSED
A basic business plan will address the following basic themes:
- Establish where the practice is going;
- Confirm where the practice is currently;
- Consider where the practice could be;
- Examine how to get there; and
- Discover when you have arrived.
Where the practice is going
The business plan will establish the vision for the practice and identify the direction for future plans. It will identify what sets it apart from other practices, and what the desired goals and achievements will be, giving it differentiation and direction.
Where the practice is now
For existing practices, it is important to confirm the current situation. This will entail confirming what the practice’s past record, strategy and focus was. It can then reflect on whether it has done as well as it should have, having regard to the purpose or vision of the practice. If it has not, then establishing why outcomes have not been achieved will help in future planning? Important areas for any business to consider include:
- Management, direction and control;
- Human resources;
- Quality of management; and
- Other strengths and weaknesses.
Where the practice could be
Consideration should be given to what the big picture or grand strategy is for the practice. It is acceptable to be a little idealistic here, as everything must begin as an idea. Consider, as a minimum, the matters effecting practice goodwill set out below:
- Efficient support staff that enjoy a friendly rapport with patients;
- Clean modern premises that are easily accessible, have adequate car parking space and, preferably, a play area for children, with some form of entertainment for adults, so patients find the ambient surroundings comfortable;
- Stable and personable assistants and associates, who have their own lists of patients, and who are able to operate at a maximum capacity, with minimal supervision and control (and who do not intend to, or who are contractually prevented from, setting up an opposition practice in the same locality);
- Established relationships with allied health care professionals, such as physiotherapists, pathologists and chemists, ensuring the practice attracts a continuous stream of new patients and is able to provide a broad range of medical and health services to its existing patients;
- Increasingly, a market niche or practice specialty that attracts a particular type of patient, as well as the general practice patient. Examples of this include skin cancer, geriatrics, sports medicine, a language expertise, and women’s medicine;
- Good location, both within a particular suburb and as to the choice of suburb or region itself, and the related issue of a practice’s physical presentation; and
- In some cases, specialist equipment, that has a high cost or market interest, creates a barrier to entry for a particular type of procedure or service.
As these are the factors that impact practice goodwill, it makes sense to consider each of them when preparing the business plan.
How to get there
Given the current situation of the practice, the plan will need to include ways of achieving its identified goals, and how to become the practice of its vision. This is the sharp end of the business plan. It is here the real detail sets in and actual tactical plan’s and proposed actions are formulated, setting out the key issues of who, when, what and how.
Knowing when you are there
Plan controls and assessment criteria are needed to measure the success of the practice, having regard to the objectives that have been set for it. These should include financial and non-financial criteria. For more information about how to write a business plan visit the following document: How do I write a business plan? How-to guide.
An example of a business plan for a sports medicine practice can be found at appendix 1 at the end of this module. This sample has the basic components required in a business plan and shows how doctors can be flexible with what is included.
A final thought
Before starting a business plan, patients could be asked what they desire from the medical practice and whether their needs are currently being met.
Perhaps a simple questionnaire could be sent to a few patients. Remember, this is not the Government Actuary, so be selective about who is asked. Make sure the sample is fairly representative and sufficiently large for the results to be reliable and meaningful. These questions should reflect the matters that affect goodwill discussed earlier in “Where the practice could be” section.
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