4 Creating a Business Plan
Abstract
This chapter will outline how to create a business plan for your dermatology practice. In the banking world, a business plan is a document you present to lenders in order to access the capital you require. You need money to not only start your practice but also get to the point in time when you cover your overhead expenses and become profitable. Lenders want to be assured that they will be paid back, and your business plan will explain exactly how this payback will materialize. In our opinion, the process of creating a business plan is especially important for physicians. We are incredibly well trained to provide care, but often incredibly poorly trained with regard to running a business. Creating a business plan requires you to take a very real look at your market, competition, the risks you are facing, and the work you will have to do to become profitable. Once you have framed your plan, you have your roadmap to success.
Top 10 Things You Need to Know
A business plan’s primary objective is to get someone to lend you capital.
A business plan needs to be based on facts.
A business plan needs to clearly review the reality of the pros and cons of your business.
Your plan should include an executive summary that someone with no medical background can understand.
The term “pro forma” means projected and you will use the projected financial outcomes of your company to engage the help of lenders or investors.
An income statement explains how your business will make profit or loss.
A balance sheet will show a business’s assets, liabilities, and equity.
A cash flow analysis shows the money moving in and out of your business.
A break-even analysis predicts the income level required to cover the cost of conducting business.
You can seek advice and business plan preparation from a professional, but you should possess in-depth knowledge of your own business plan and financials in order to meet with lenders or investors.
4.1 Introduction
In August 2005, we were living in two different worlds of private practice and residency, when our worlds were turned upside down by Hurricane Katrina. One of us was in the third year of being an employee, without a thought in the world about a business plan, while the other was thinking of Mohs fellowship, and not entrepreneurship. Our career paths and lives were forever changed by the flight of many dermatologists out of the city, including one of our employers and the other′s Mohs directors. By December, we decided to take a chance and start a practice in the city.
Knowing what you want to do is one thing, but honestly evaluating how you are going to go about it is crucial. Starting a business not only involves risk to but also requires funds. Unless you are independently wealthy, you are going to need to borrow and then pay back. Whoever lends you money is going to ask for a business plan. A business plan is used primarily by the lender to decide on whether he or she would help you access capital you require to start your business. Your plan should focus on interesting lenders in providing the funds you need to operate your practice until you start covering your overhead expenses and begin making profit. Lenders want to be assured that they will be paid back.
The best business plans tell a clear story about how and why your business will be a success. It is important to be realistic about financial estimates and projections, and to be able to back up those claims with data. The good thing happens to be that doctors understand reality and worst-case scenarios. The challenge we face is that we do not possess much business training to even know how to create financial estimates. You may need to hire a consultant to help you with the parts you find confusing, but you should understand the process behind the numbers. Taking the time and effort to ensure your plan is realistic will payoff for you in the beginning, as you secure funding and enter the real world of private practice. We actually suffered a net loss in year one of practice (our K-1 was −$60,000), but we expected that, planned for that, and have achieved great success year over year since!
The rest of this chapter is devoted to breaking down the components of a business plan. Keep the primary objective in mind through the process of creating a plan. You are framing the plan to gain access to money which is required to manage your practice. Most business plans include several sections. They begin with an executive summary that explains the fundamentals of your business. The following sections serve to educate a lender, who may know absolutely nothing about dermatology practice, about the financial implications of running your practice, including your market, competition, and plans to operate and manage your practice. There is no single correct way to write a plan and you may modify the sections, expanding some and limiting others based on your particular practice, but the overarching context involves the use of the data to make your business a success. Good luck!
4.2 Creating Your Business Plan
Start with a clean, attractive cover page. Open with an executive summary (see below) and then proceed to narrate the story of your business. You do not have to include every step below, as there is no specific format that every lender uses. The following sections should serve as a guideline of what your plan should contain.
4.2.1 Executive Summary
The executive summary explains the fundamentals of your business. It should provide a short and clear synopsis of your business plan, describing your business concept, financial features and requirements, company’s current business position, and any major facts that are relevant to the practice’s success.
Ideally, composed across one page, the summary should include the following points:
Overview: Describe the services your practice will provide.
Strategic logic: Explain why opening your practice makes sense, based on the demand for your services in your market.
Business organization: Describe the legal form of business your practice will take and where you plan to locate.
Business development: Describe where you are situated in the start-up stage and what you have done to get ready to open your practice. Review when the company was formed, who the principals are, and identify key personnel.
Financial objectives: Be clear about the amount of money you are seeking and how you will use the lender funding. Mention cash flow and sales projections as well as capital required.
Remember to keep your summary short and uncomplicated. Do not attempt to summarize every element of the plan. Focus on the elements that will prove to be the most interesting to the lender.
4.2.2 Business Description
This is a clear explanation of your business strategy. It is not a definition of the business or a summary of the market, but rather a summary of the one or two key factors that set your practice apart from the competition which is explained as follows:
Specialty description: A precise, substantial description of your focus. For example, will you be engaged in medical/general dermatology, Mohs, or cosmetics? Discuss what makes your practice stand out from similar ones. Is your training more specialized or prestigious?
Impact factors: Other aspects of your practice that are fundamental to your strategy. Do you have an alliance with a hospital or university? Do you have community ties that will aid in your success?
Product features and benefits: Describe any other distinguishing features of your practice (your services and products) and delineate any strong health care consumer benefits. For example, you may be skilled in certain procedures that other physicians in your area are not trained to perform.
Current situation: Present basic information about demographics, competition, staffing, and marketing plan. List specific milestones that you have achieved.
4.2.3 Review of the Market
This is where you define your target market (who you will be treating) and how you plan to reach out to it. Market analysis requires research and familiarity with the market, so that you can clearly make out your specific targets and structure your practice to reach them.
Market segmentation: Analyze your market (your potential patients) in terms of size, trends, and growth potential. Almost every market possesses some distinctive segments. For a dermatology practice, the market is segmented according to payers, age, income, nationalities, language, and race. You will need to discuss how you plan to cope with any positive or negative effects these segments may have on your practice.
How large is the potential market? What is the physician to population ratio for dermatologists? How many dermatologists are practicing in your area? Overall, is the market growing, flattening, or shrinking?
Consumer analysis: Describe your consumers and focus on factors that best determine how viable your practice will be in your market. Explain how you will attract patients in order to fulfill your plan. Look at the following points:
Services: What procedures, services, and products will appeal to your patient base?
Choices: Who are your competitors?
Marketing: What marketing approach is best suited to reach out to the patient base? How do you plan to align yourself to capture and maintain referrals from other physicians?
4.2.4 Competitive Analysis
What is the competitive advantage that your practice will offer? What are the possible weaknesses of your practice? This section should be a detailed analysis of the competitive advantages and weaknesses of your practice.
Overview other physicians who specialize in dermatology in your area. Identify the leading practice and define what makes it successful. Emphasize what sets your practice apart. For example, if there are no other physicians who specialize in advanced cosmetic dermatology and that is your focus, explain how that will serve to differentiate your practice.
Your practice may be competing with established practices in the area, and you need to let investors know how you will stand out. How do patients choose one provider over another? Prices, image, or visibility? What services will you offer that your competition does not offer? A couple of things to consider are that word-of-mouth publicity and provider referrals are key. How will your practice target these areas?
Honestly put forth your weaknesses in this section. This will help you and lenders identify problems that may hinder your success. A few other things to consider include other practices may have established patient bases, name recognition, and financial strength. 1
4.2.5 Positioning
Lay out your strategy for how your brand will distinguish itself and how you will portray your practice to the community. Provide details on how customers will benefit from your professional services and products. A positioning statement should be a succinct description of your target market and an explanation of how you want that market to perceive your brand. 1
4.2.6 Advertising and Promotion
A dermatology start-up practice can utilize many different promotional and advertising means. Begin this section with a general promotional plan. Provide a summary of different media and methods you intend to use and explain why. Go into the details if you know what types of promotional programs, publicity, or advertising media you will utilize. 1
4.2.7 Sales
Part of your business plan should include how you plan to “sell” yourself and your skills. Physicians will not refer to you unless they know about you. Focus on introducing yourself and any skills that you possess that set you apart. Describe how you are an essential part of the marketing and business strategy. 1
4.2.8 Operations
This section should first overview the practice as a business. Discuss all the critical elements of a dermatology practice. Explain how your practice will include management, front-office employees, and back-office employees. Detail how copays and insurance payments will be collected. If you plan on selling products, provide an overview of your retail plan. Break down insurance payments, patient responsibility, cash procedures, and products, so the lender can understand your dermatology practice. Summarize how your major business functions will be carried out. “Operations” should include any important aspect of your business that is not described elsewhere in your business plan. 1
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