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BSM Blog

published

01.17.2018

author

Andrew Maller

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Financial Management
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Assessing New Business Opportunities

Assessing New Business Opportunities

No matter the time practices should always be on the lookout for opportunities to grow and improve the business. While the type of growth opportunity will vary, common options include adding new providers or purchasing new equipment. Any growth or business opportunity a practice considers requires dedicated leadership, answering tough questions, and thoughtful decision-making to assess the various strategic, operational, and financial elements of the project.

Factors to Consider

A formal approach for analyzing opportunities is required to successfully embark on any new venture. Unfortunately, many practices: 1) skip one or more of the important analytical steps in this process; 2) rely on gut feel; or 3) fail to involve key stakeholders such as physicians, administrators, staff, and professional advisor(s). Practices can generally avoid these common pitfalls by being attentive to the three primary considerations discussed below.

1. Strategic considerations. Strategic analysis should be the first step in the process, starting with answering the “hard” questions listed below. Doing so allows an organization to take an objective viewpoint when determining what opportunities make the most sense.

  • How will this opportunity create differentiation from our competitors?
  • Does the demographic of our patient base support the new opportunity?
  • Are we in a financial position to take on the new opportunity?
  • How will the new opportunity impact referrals from community physicians?
  • Will physicians and staff buy-in to support the new opportunity?

2. Operational considerations. When studying any opportunity, it is critical to address what impact the new venture will have on practice operations and, more specifically, what type of infrastructure is needed to be successful. This involves careful review of current provider capacity, staffing needs, potential equipment purchases, IT requirements, and physical space limitations. When getting started, it is important to answer these key questions:

  • What capital expenditures are needed (office equipment, medical equipment, IT needs, etc.)?
  • How many additional staff need to be hired to support the new opportunity?
  • What impact will the new opportunity have on physical space capacity and patient flow?
  • What training will our physicians and staff need?

3. Financial considerations. After reviewing the operational factors, the next step is to layer in various financial assumptions to assess the opportunity. While there are multiple ways to label this phase (i.e., a break-even analysis or business forecast), the objective is the same: To project the potential revenue and expenses associated with the new opportunity to best forecast the financial impact to the practice’s bottom line/profitability. Below are several key questions to address when building a forecast:

  • What is a reasonable estimate of annual volume for the first two to three years of the opportunity?
  • What is the expected revenue and variable supply cost per case?
  • What is the cost of incremental expenses (staffing, marketing, IT costs, etc.) involved with the opportunity?
  • What is the expected cash flow after all expenses?
Increase Your Chance of Success

By tackling these important questions upfront, it is easier to determine the true feasibility of an opportunity and begin the process of seeking final buy-in from members of the organization (and patients). In addition, when this type of objective, sequential thought process is used, addressing the strategic, operational, and financial questions becomes a more manageable exercise. When new opportunities are approached in this manner, the likelihood of being successful increases exponentially.

YOUR TURN: What do you consider when assessing new business opportunities for your practice? Please leave your response in the comment section below. Thank you.

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