Realistic Financial Modeling for your Urgent Care Center
By Jim Lobel
We are an optimistic group, we entrepreneurs. It is common for us to believe that we will be successful at everything we do because of who we are – smart, talented, capable, effective – you pick the adjective.
For medical providers, we can add the years of education and the many patients treated to the list.
The result of this optimism is often the failure to be realistic when we build or buy an urgent care center, substituting our feelings for facts and expectations for reality.
As the saying goes, “when planning a vacation, put all the clothes and all the money you plan to take on the bed and then take half the clothes and twice the money”. True for vacations and informative for financial modeling.
The Urgent Care Association’s 2012 White Paper on the industry suggests that there are about 9,000 individual urgent care centers in the United States with just over half being single centers. This statistic suggests that there are almost 5,000 centers opened by individuals, some of whom fit the optimist profile. This article is for them but is informative to all who would venture into this arena.
What does “1 is a very big number” mean?
As a CEO and as a consultant, I sometimes wish that I had $1 for every time someone underestimated the value of 1. Here’s what I mean.
Let’s say you think you can increase your patient load by “just 1 more patient” each day. Here is the actual calculation.
1 patient = 365 more patients in a year x $110 (average reimbursement) = $45,000 year.
Sounds lucrative but let’s think about this extra 1 patient. Urgent care is episodic in nature and the odds of that one patient coming back over and over again are high at best. We can increase the odds by being the best we can be but a patient returns only if the service is needed. On average, you might see this person twice a year.
Based on two visits per year, one patient per day means about 182 unique individuals choosing your center in a 12 month period. What this truly means is that you must influence 182 people to visit once and then treat them, well enough for them to come back a second time. Doable for sure, but worth noting that it is a mission 182 times as difficult as the number “1” would imply.
Another example revolves around how much it will cost to open your own clinic. In well-served urban markets it could be a million dollars to build a clinic and achieve break-even.
So 1 new clinic could = $1 million investment
I know that many have done it for less but the truth is that in almost every case, real money is required until profitability is reached
Using some averages we can apply this thinking to other decisions as well.
Adding 1 physician = $200,000 to $250,000 per year
Adding 1 secondary provider = $110,000 – $125,000 per year
Opening 1 extra hour per day = $200 (your costs may vary) x 365 = $73,000
It’s so easy to fall into the trap of overestimating revenue and underestimating costs that financial modeling is an essential component of your decision making process.
So what is financial modeling?
Usually we think of it as a projection of operating costs and revenues for a period of time, 1 to 3 years.
But to be realistic, the model must include a number of variables such as hours of operation, staffing, type of ownership (a physician owner, for example, should consider lost revenue from not working for a third party, start-up costs, ramp-up periods, cost of financing, geography (your market area), and much more.
A realistic financial model begins with your personal financial sacrifice (did you give up your job?), has a mid-point at break-even and extends into profitability, in my opinion. It must be done on a month-to-month basis and should contain separate spreadsheets on at least the following:
The point is that financial modeling allows for realistic scenarios to be looked at so that you can make an informed decision. 30 patients a day from the day you open may seem like a reasonable target but if you don’t achieve it for 2 years, you can easily run out of resources.
Careful planning is essential to a successful launch and continuing profitability.
Create a financial model of your business and have all your surprises be happy ones.