As I traverse the medical private practice landscape across the U.S. through consultations and speaking engagements, I’ve observed that private practices suffer from a very high failure rate.
According to Dave Chase, author of CEO’s Guide to Restoring the American Dream, 43 percent of healthcare-related businesses fail within their first five years. The only industry that appears to have a higher failure rate is the restaurant industry.
The main reasons “private practice-preneurs” fail in today’s environment is that they’re simply not identifying their risk factors. Too many health practitioners underestimate the resources that are needed for a successful practice.
Most healthcare practitioners aren’t trained to develop a business as a successful entrepreneur. They’ve built their careers around their passion for health and wellness—not analyzing financial statements and maximizing profits.
But to succeed at building a financially sustainable business, you need a strong organizational foundation. To protect your private practice from failure, take these essential steps upfront.
1. Define your vision of success
Take a moment to consider your true intentions. It’s essential that you define your professional and personal goals and your ideal vision for success.
Begin the vision process by naming your net financial goals so that they’ll lead you to the follow-up step of identifying the how and the when. Determine whether your private practice vision involves using other practitioners in your service delivery method, or if you intend to be a sole proprietor.
2. Set out to run a profitable business
If I could change one thing about our society’s view on service-based business models related to healthcare, it would be the notion that private healthcare practices operating as successful and profitable businesses runs contrary to their mission.
Still, clinicians and healthcare providers are often so invested in their own passion for their work that they overlook the profitability side of the business.
Borrowing a page from investment legend Warren Buffet: Priority #1 is to never lose money, priority #2 is to never lose money, and priority #3 is to never lose money.
3. Invest the time in a solid business plan
There’s enormous value in articulating your vision of the path forward. Writing a business plan—even a Lean Business Plan that’s short and easy to update—will help. It’s proven that companies that do business planning grow 30% faster. Doing so will help you better determine your specific objectives for the business, as well as give you an understanding of how to support sustained growth.
Some might be tempted to just launch into action and figure out the process of building a business along the way as they go—what we might call “building the airplane while flying it.” Simply put, this is not the most effective or efficient approach.
Start by clearly understanding why you wish to open your own practice.
Part of defining your why is identifying its relationship to other key questions, including:
- Who is the target demographic?
- What is your core service or product?
- When are you looking to start?
- And how are you going to execute your vision?
Be as specific as possible with your goals and milestones. A well-constructed business plan helps to ensure that you aren’t just spinning your wheels, but are executing against a clearly drawn strategic roadmap that aligns with specific, measurable goals for your business.
If you’re not sure what a medical practice business plan should look like, check out some examples in Bplans’ sample business plan gallery.
4. Create accountability through metrics
It’s one thing to create a plan, but it’s another to execute it and achieve your goals. The secret to executing your private practice strategy is through metrics. Besides thinking through your who, what, where, when, why, and which questions, define what will be the measurable metrics that will tell you when you’ve arrived at your goal.
They should include a time limit—when are you going to achieve that goal? I recommend that you develop weekly, monthly, and quarterly metrics. Key financial metrics include your balance sheet, income statement, and net income. Others include cash flow statement analysis, payer mix, cancellation report, and marketing/referral effectiveness.
You can set up your financial statements in Excel, and a business management tool like LivePlan that connects to your online accounting system and offers a business dashboard can make it quicker and easier.
The added benefit of using metrics is that they help empower your team to be accountable without having to micromanage their every move. Adding incentives for staff to reach their goals can be a helpful motivator.
5. Understand the funding model of health insurance
A fundamental reality that all private practice entrepreneurs must realize is that there’s never a guarantee of coverage.
Do this: Call the phone number on the back of your health insurance card and verify your own benefits for whatever service you’re offering (occupational therapy, speech therapy, chiropractic, and so on).
The bottom line is that you must understand the limiting factors and trends related to medical billing depending on your patient demographics, diagnosis, service offering, and so on. The rule of thumb is 60 percent of your funding should be cash flow positive in 30 days or less from the date of service. This will keep your private practice financially moving in the right direction.
6. Prepare for worst-case scenarios
As you build your strategy, you must be prepared for conditions that could impact your survival. Ask yourself a variety of questions, spanning from what would happen if your best therapist left to go into competition with you, to what if your funding source stopped making payments (Medicaid, etc.)?
Formulate a strategy to overcome these obstacles before they happen. For example, get out ahead of clinical and personnel issues by clearly communicating your expectations with your staff, and articulate policies in both your employee and client packets on everything from HIPAA to expected response times to inquiries.
7. Hire the best staff you can find
A unified team can transform your practice. Hire the best staff you can find—it will pay off. If you have staff members who aren’t fully behind the mission of the practice and are simply clocking in and clocking out each day, they aren’t contributing to the success of the organization.
In particular, I’ve seen this happen when practitioners recruit their friends to work for them. Employees who have a passion for their work, who always act with the company’s best interests in mind, who look for ways to contribute, and who bring new ideas will be vital team members for ensuring the success of the practice.
8. Build a support team to help with essential decisions
Surround yourself with people who can give moral or professional support. They can be employees, friends, consultants and more. As you build your strategy, you need a team who can watch over your shoulder.
Know when to hire help; there’s no need to tackle every challenge alone. Find those with expertise in the areas you know aren’t your strong points. If you’re not sure where to start, SCORE offers a great mentorship program that can help you build your medical practice with confidence.