As a doctor, dentist, or any other health care provider, your primary concern is to patients and their well being. You spend a great deal of time listening and helping patients through their health concerns and preventative needs, but may not be putting enough time and effort into the process of operating the back end of your business. The best way to mitigate risk to your practice and ensure you always have enough working capital as a doctor or dentist, is to conduct a periodic financial stress test on your business. And periodic financial stress test – a must for small business loans.
What Is a Financial Stress Test?
A financial stress test is a process that identifies very specific areas of risk that could impact your ability to continue to provide services. Doctors and dentists don’t feel the impact of economic decline as significantly as other businesses, but there are still numerous risks your business could face at any time.
When you conduct a stress test on your business, a formal process generally done with the expertise of an advisor, you’ll get a better understanding of what risks are present, what preventative measures you need to take, and what you’ll need to do in the event that one of these risks does occur.
What’s the value of a stress test like this to health practitioners? Many factors are impacting the viability of medical practices across the country, including changing insurance requirements, Medicare and Medicaid fraud, and increasing security matters — all are risks that could impact your business.
To continue providing services to your patients and to keep your employees working, you’ll need a plan in place that addresses any and all risks that could arise.
Conducting a Medical Practice Financial Stress Test
You can conduct a financial stress test on your business at any time, and you can do it with or without the help of an advisor. In most cases, these tests are done by an advisor who will then run them through complicated, data-based software to produce a true formula while also fleshing out various scenarios so you can see the full scope of your risks. In this case, though, we’ll look at the questions you need to start asking to ensure your business remains safeguarded.
Identify Your Patient Personas
First, identify who your primary patient is. Do you work mostly with the elderly? Do you have a family practice with individuals from all sections of life? You may have a practice that focuses on a specific type of service or procedure. Identify what your business does, where your geographical area of service is, and who your most common patient is. This way, you can look at scenarios that impact all components of your business.
Identify Your Competition
Most dentists and doctors don’t think of other offices as competition, but they are. You need to know who they are so that you know what they’re offering that you’re not (and whether or not you should be.) A good example of this is the average family dentist. Practices 10 years ago were very basic. Today, family dental offices offer kids all types of technological tools and toys, entertainment areas, sedation dentistry, and preventative capping services.
Identify the Financials Related to Your Business
The next step is to look closer at your financials.
- How much income do you need to keep providing services and paying employees on a weekly, monthly, and quarterly basis?
- How many new patients do you need to bring in each month to meet these goals?
- What type of liability insurance do you need?
- How much are you investing in marketing, upgrading, and ongoing training?
- How often does your equipment need to be upgraded?
Identify Your Risks
The final step is to identify all of the risks that impact your business. You’ll need to make this very specific to your own practice, but here are some thoughts to get you moving in the right direction.
- What level of risk is present for lawsuits and liability risks, based on current laws, previous costs, and future predictions?
- How will changes in availability of insurance, the requirement for most Americans to carry their own insurance, and changes in medical costs impact your business?
- How do economic changes impact your business? For dentists, this may be more significant, as it is for doctors who provide only primary care and preventative medicine.
- What regulation changes impact your business?
By asking these questions, it’s possible for the operator of a dental or medical practice to better identify specific risk factors that could impact their bottom line or even ability to stay operational. Use this as a starting point for planning your long-term ability to meet your patient’s needs.