Begin With the End in Mind
Sunday, August 14, 2011
A business constantly changes, but what is happening in the medical sector is forcing change at a historic pace! Let’s look at how to prepare for change by looking briefly at the life cycles of a medical practice.
If your practice is like most in the medical industry, Stephen Covey’s second habit could easily be rewritten as “Begin with the End of the Next 12 Months in Mind.”
Rarely in the history of service and industry has a sector come under so much pressure to control costs, increase efficiencies and defend itself in the midst of ever-increasing demand for its services. The impact of the baby boomers growing into the age of their greatest medical need has been discussed extensively. Yet, mix in the large uncertainty from massive health care legislation and its political ramifications, and you see large-scale changes being forced upon you and your practice. A business constantly changes, but what is happening in the medical sector is forcing change at a historic pace! Let’s look at how to prepare for change by looking briefly at the life cycles of a medical practice.
Start-Up
Start-up businesses are ones that are just beginning to get their footing. Owners invest a great deal of resources into the new business to create a stable customer base, buy inventory and perform other activities before they generate profitable revenue. The challenges of start-ups are large, and these hurdles can be hard to overcome. Developing an owner mentality and establishing and expanding a customer base can take up a large majority of the hours in a day, and this does not even include the actual performance of services. While planning is essential, generating cash tends to be the primary focus.
Growth
When leaving the start-up stage, a company will either crash and burn or begin to gain a strong foothold in its market. Typically, there is enough cash flow — though limited — to get by without further investment. For a physician, his/her niche or expertise has come into focus, and a patient base is beginning to grow. The practice is beginning to sense the need for additional resources, such as personnel, larger office space and specialized equipment. Also, a sense of conflict is mounting between working “on the business,” instead of “in the business.” Finding ways to manage the business more efficiently becomes critical. This typically forces expansion of the employee base, bringing with it increased cost of insurance, other employee benefits and retirement plans. It’s critical in this stage to maintain an adequate cash reserve and watch expenses to guard against unforeseen problems.
Maturity
By this stage, a practice has become well-established with a reputation and name recognition in the community. Deep relationships have been developed between suppliers, including insurance providers. The business is benefitting from a steady stream of revenue, and the fundamentals of the business have settled into a predictable pattern. Usually at this stage, a reputation of caring for long-term employees and strong community involvement has been established. The main risk here is complacency and failure to adapt to a changing environment. Sound familiar? At this stage, owners are becoming increasingly aware that personal tax and investment planning is now becoming a critical factor in the planning of the practice.
Decline
In a nonmedical industry, the market for the company might be shrinking. Not so for the medical industry. In reality, the lack of ability or willingness to change might begin the decline of a medical firm. Because of the intensity of change in the medical field, this stage might actually become recognized as the stage of transition.
Whichever the stage you find your practice in, you will find there is substantial impact on how you plan your next steps. A focused business plan, even during these times of transitions, will help control and allocate resources most effectively and communicate a firm’s potential to lenders, patients and, yes, even future merger partners.
Paul C. Spoelstra is a Certified Financial Planner practitioner. Since 1994, he has provided financial and investment services to individuals, practices and corporations. His firm, Milestone Wealth Management, has offices in Grand Rapids as well as Saranac, MI. He can be reached at
(616) 642-9595 or paul@MilestoneWM.com.
MD News Early Summer 2011, West Michigan