Scaling Healthcare: Considerations for Successful Geographic Expansion

Considering opening an additional clinic for your Healthcare Services business?

This is a decision we regularly see being grappled with by Healthcare Services operators.

There is typically a material amount of capital expenditure for equipment and clinic fit-out, and material expenses in terms of staff costs and rent, that are associated with opening a new clinic. Opening an additional clinic can also be a distraction to existing business. This makes the decision of whether to open an additional clinic an important one.

To assist with this decision making, it is useful to understand and consider the following:

Purpose / Strategy

• What is the purpose or strategy behind adding an additional clinic:

  • to reach new regions not serviceable from the existing clinic/s?

  • to increase or build brand exposure?

  • to drive further throughput to a Day Hospital owned by the business through a Hub and Spoke Model (for a specialist medical business)?

  • other?

• By clearly documenting the purpose or strategy, it will help in assessing and forecasting expectations for the additional clinic, and other questions / items to consider will open up.  

Capacity & Initiatives in Existing Clinic/s

• Have the existing clinic/s reached their ceiling in terms of growth potential due to capacity constraints?

• Would an additional clinic be a distraction to revenue growth initiatives or cost initiatives being implemented at the existing clinic/s?

Data Availability & Reliability

• How reliable and current is the data that is being used to consider the potential geographic expansion?

• Have the locations of existing patients and the locations of the referrers of patients to the existing clinic/s being examined to fully test the catchment area of the existing clinic/s?

Infrastructure & Management Capacity

• Does the business have sufficient infrastructure, systems, processes and management capacity in place to support an additional clinic?

• Does the business use a cloud-based or on-premise server hosted Practice Management System? If cloud-based, while there is still work to be done in setting up a new clinic, it is less complex and costly than in the case of a on-premise server solution.

Standalone Reporting & Analysis

• It is important that the stand-alone performance of an additional clinic can be easily measured to assess progress / success / failure separate from the existing business, so having the right set-up in place for the accounting & reporting software of the business from Day 1 of any new clinic is key.

Suitable Premises Available

• Is an appropriate premises available which has the required characteristics for the business in terms of space, amenities, accessibility, parking, lease tenure, the quantum of rent / outgoings per annum and lease incentives?

Staffing

• How difficult will it be to staff the additional clinic? Could the additional clinic be partially serviced utilising existing staff, or will it be dependent on new hires?

• What training will be required to new staff (both compliance training and on-the-job training) and who will conduct this?

Practitioners

• Are sufficient practitioners available to service prospective patients? If not, how will additional practitioners be recruited and how long will this take?

Marketing & Business Development

• What marketing and business development activities will be required in order to attract foot traffic / referrals to the additional clinic, and how much will this cost?

• Who will undertake the marketing and business development? Will this be existing staff, a new hire or external agency?

Expected Cash Flow Profile & Ramp-up Period

• What is the expected cash flow profile for the additional clinic?

• There will inevitably be a ramp up period when opening an additional clinic and the clinic may make a loss for a period of time which will need to be funded.

• Has a robust 3-way forecast for the additional clinic been sufficiently modelled and sensitised to assess the funding required in the best case, expected case and worse case?

Financing

• Is debt financing available for funding equipment and any fit-out that won’t be covered by lease incentives?

• What security is required by the proposed financier/s? Can providing personal guarantees be avoided?

• If debt financing is not available to fund the fixed assets and equity is required, how will this be obtained? Will it come from retained earnings, further equity from existing or new shareholders, or by way of shareholder loan?

• How will the working capital required to provide sufficient cash flow for the additional clinic and any ramp-up period be financed? Will this be via equity or a working capital debt facility such as an overdraft?

As part of any Healthcare geographic expansion assessment, it is worthwhile also considering if the desired expansion could be achieved by way of acquisition. Acquisition opportunities present various other considerations. Check out our Buy vs. Build article which provides a framework for working out whether to Buy or Build when expanding your business offering.

Assessing geographic expansion in Healthcare Services can be a time consuming and overwhelming process, so seeking advice early on in the process can reduce risk, minimise resources invested and speed up the pathway towards successfully achieving the goal of geographic expansion.

At Zealth Advisory, we have extensive experience in partnering with Healthcare Services businesses to scale and achieve successful geographic expansion.

Get in touch to see how Zealth Advisory can add value to your business.