Most startups don't fail because the idea was bad. They fail because the founder found out in March that they ran out of money in January. Why? Because they did not plan well, over-spent, and forgot that they needed money to run the business, not just start the business.
I am always surprised at the number of new practices that come to us 6 or 8 months after their start-up phase. That is six to eight months too long and therefore requires significant effort, and a lot of risk, to get the practice on track to profitability. It can get a little tense, but with the right advisors and daily money management, we have not lost a soul yet.
I recognize money is tight when you are opening a new practice or buying one. But money will be even tighter if poor decision leave you without enough cash to pay the rent next month, or your staff. Better to get the help you need before you need. An advisory accountant can be the best investment you'll make.
How Long Until a New Business Is Profitable?
There are so many variables that go into this answer. Let's look at two cases with very different outcomes and the answer may present itself.
Practice #1: This owner was referred to us by a colleague who said, "Hey, they need help." They had opened started their practice 18 months earlier and had not yet opened their doors! $350,000 spend on an overpriced buildout and a rent that to this day is a giant barrier to get over. We needed to get patients in the door quickly. We consolidated the schedule down to three days to create density and to allow the doc to pull two day shifts at another office to keep her personal cash flowing. There was no money coming from the business. Many, many mistakes made because they made decisions in a vaccum. Equipment purchased that was not needed. I am happy to say that we have been working with them for 6 months and have arrived at break even. The mistakes will linger for a long, long time but they are out of the woods and will soon be able to start paying down their notes.
Practice #2: Opened their doors and realized they needed assistance. They lost several thousand dollars each month for 4 months and arrived at break even. We held back on equipment spend. Staffing was tight. Their practice was modest in design. We just finished their 10th month with us and ended last month with a $22,000 profit. Our discussions have gone to expanding the optical and equipment purchases around very specific new services lines.
Both #start-ups#. Very, very different outcomes.
Getting advisors involved early can help say 'no' when you really want to say 'yes'. It can help you to see the 10s of patient each month it will take to just make the rent payment and perhaps look for a different location. This is not a measure of intelligence but it is a measure of experience and distance from the opportunity.
Management of cashflow at the start is critical to your success. Getting assistance with how best to manage cash is critical. Most accountants don't have the industry (healthcare) experience and the financial foresight (not hindsight) to help. Look for an advisory accountancy that can provide the view forward.
If you are opening a new or purchasing an exisitng practice, we'd love to help. Bring us in early. We will work with you every step of the way. We will titrate our fees to match your cashflow (pay less at the start and more later on), Contact Ratio Accounting for more information.