Writing a group practice business plan - includes related article on pro forma income statement assumption for a hypothetical pediatric group practice

Healthcare Financial Management, July, 1999 by J. Max Reiboldt

A business plan offers group practices a blueprint to accomplish a variety of goals, such as securing capital, marketing the practice's services, recruiting new employees, developing a strategic plan or a budget, or planning for growth. A business plan should be informative, specific, and visionary. Elements that every business plan should address are a mission statement, strategy, planning, management information, and action scheme. A business plan should include certain information in a prescribed order. By writing a realistic business plan, group practices can work more efficiently and minimize the risk of not meeting their financial projections.

Group practices can use a business plan for many reasons, such as planning for a new practice start-up, introducing a new product line, developing specialty-specific recruitment profiles, and devising a strategic plan for growth and expansion. How a business plan is used is key to its value. A business plan can be used internally to give direction to the entire organization. Decisions and consensus are derived from the formal document that states the group practice's mission, plans, financial projections, and action scheme. The plan can be used externally to inform lenders, partners, and suppliers about the practice's plans for achieving growth and other goals. The business plan should be written to be suitable for both internal and external use.

Business plans often are used for securing capital, marketing, recruiting, planning and budgeting, and expanding services and products. Serving as a road map for the future, business plans include both financial and operational outlooks. A typical business plan includes the completion of pro forma financial statements to project income, cash flow, and balance sheet performance for long-term (multiple years) and short-term (month-to-month) projections.

Securing capital. Securing capital generally is necessary for buying or merging practices. The business plan should specify how much capital is needed over a specific period to accomplish these goals.

Marketing. As a marketing tool, the business plan highlights the group practice's strengths and weaknesses and designates strategies that will benefit both internal and external marketing initiatives.

Recruiting. The business plan provides information about the practice as a place to work.

Planning and budgeting. A primary use for a business plan is budgeting and forecasting. The budget, as an express component of the business plan, charts specific line-by-line goals (ie, budgeted numbers) to project the revenue goals and forecast the financial requirements (ie, cash, capital, debt) that are necessary for achieving the business plan.

Expanding services or products. Deciding whether to merge or acquire other group practices or to offer additional services or products is made easier using a business plan that recaps the history and projects the future of a group practice.

A business plan should provide adequate information in a concise and accurate form. As a rule of thumb, the plan should be no longer than 50 pages. To be an effective tool, a business plan should be visionary rather than prescriptive. It should provide useful information that will generate interaction within the organization. Because of the difficulty of projecting finances in the healthcare industry, a group practice's business plan should cover no more than a two-year span and should be revised during that time only if market pressures signal a need to do so.

Elements

The business plan should state its purpose in the introduction, summarizing the ideas that are developed in the plan and specifying the expected accomplishments. A group practice's business plan typically describes the mission, strategy, planning, management information, and action that will occur because of the plan.

Mission statement. The mission statement should summarize the group practice's goals, values, and obligations; identify key objectives; and specify the service that the group practice provides. Stating the reasons for writing the plan and the goals it is trying to accomplish while tying those reasons to a mission is an appropriate foundation for the plan.

Strategy. Strategy explains how the group practice will accomplish its objectives. Strategy should conform to the group practice's mission.

Planning. A business plan specifies what it expects to accomplish and offers suitable responses to challenges to achieving its objectives. Planning at this stage is identifying the actions that will be taken to carry out or accomplish the mission. Unlike the mission statement or strategy (or other plan components), the planning element is a specific list of tasks that will be established to get the job done. It also may include assignments or appointments for certain tasks and time lines. The project time line is a vital component of an effective business plan and typically is part of the implementation schedule that concludes the document.

Management information. A realistic business plan serves as a management information tool for decisions related to finance, products and services, personnel, performance, and organization. The plan projects revenue and expenses for a set period, specifies the products and services the group practice plans to provide, describes the current staff and positions to be filled, delineates performance expectations and criteria, and describes the group practice's management and reporting relationships.