Over the years I’ve consulted with a handful of Nurse Practitioners, who asked for my help after putting the cart before the horse… in a big way.
Collectively they’ve made some of the costliest mistakes you can make when starting your practice; mistakes you want to avoid at all cost!
Now, I’m not blaming or pointing fingers!
Trust me when I say these mistakes could happen to any of us if caught off guard and unprepared!
What are these three costly mistakes?
- Buying equipment, furnishings, and technology before…
- Signing on the dotted line before…
- Overextending or over-leveraging …
Now, let’s talk about each of these mistakes.
Ideally, starting your practice unfolds along a sequence of proven steps. But naturally, life doesn’t always work out as planned, and that’s when you have to make the best of it.
However, more often than not, there is an opportunity to plan, prepare, and carry out your plans.
And when it comes to starting a practice, you want to create a detailed plan outlining the type of practice you want to start. You’ll want to map out how you’ll make that happen and include as much detail as you can.
Unfortunately, not everyone does that. Not everybody sticks to a sequence of proven steps. On occasion, things happen out of sequence, seemingly at random. And often, that’s when we see problems.
So now, let’s talk about the first mistake some NPs make. Before starting their practice, they start buying “stuff!”.
They know they want to start a practice, but don’t know much of the specifics yet; they may (or may not) have an idea about…
- The type of practice
- The size of the practice
- The ideal patients they would like to work with
- The location
- Their equipment needs
- Their budget
Some NPs get distracted when they research their practice. They’re trying to find out how much will it cost to purchase equipment, furnishings, technology, etc.
And they come across a deal they can’t pass up. They find the perfect exam tables, lamps, furniture, or computers and decide to buy.
But then, something happens…
The space they thought was theirs falls through, they can’t secure a permit, or the bank decides last minute not to give the loan.
Bottom line is this. They no longer need the equipment purchased, at least not now.
But now, not only are they stuck with something they no longer need but they may also need to pay to store the equipment. Alternatively, they may try to sell what they can at a discount.
The moral of the story? Buy only when you know your practice has been finalized and is a definite go!
While similar to the first mistake, this one may be far more costly than buying a few exam tables or used computers. Because in this scenario you may be committing yourself long term, perhaps even for years.
Mistake #2 refers to signing a lease before you know what you want or need for your practice.
But unless you’ve planned your practice, how could you know what you’ll need? And you won’t have an idea about how much space you’ll need unless you know what it is you want to create.
And how could you possibly lease space unless you have a reasonably good idea how much money you can generate in your business to cover the lease payments?
The bottom line is this… before you go out and look for space, you must know what you need, what payment you can afford, and how much you’re willing to pay.
Fortunately, this is not something that often happens (but it has!). Here, the NP was looking for space and received an offer too good to pass up… and before realizing it, the NP had space without knowing what to do next!
Don’t let that happen to you!
While it’s ok to look for space, you must know what your space requirements are. What space would feel right to you? What space do you need so you can create your perfect practice?
And by all means, don’t let someone talk you into leasing space that may or may not be right for you! While finding the right space can be challenging, there is plenty of space out there!
This final mistake, overextending or over leveraging, is something to avoid at all cost (no pun intended!)
While you may not be able to start your practice without taking on debt, try to limit the amount of debt you take on. Depending on your specific situation, you might try to bootstrap your practice, instead of taking on debt.
But regardless of how you decide to move forward, make sure your revenue projections are robust. Make sure you know how much revenue you must bring in to both service your debt and net income. And, make sure you’re able to generate that revenue consistently.
But if you decide to take on debt, what collateral do you have to secure the debt? While you may be organized as a legal entity, often banks will require a personal guarantee, particularly if you are a new business.
Think twice before choosing collateral to secure debt. Are you willing to risk your home, a piece of property, or a valuable heirloom? Always go through a “what-if-analysis” to consider the possible outcomes.
Think about these questions before you go to a bank asking for a loan. If at all possible, bootstrap your practice. And once you’re confident your practice model can generate revenue, perhaps then you want to approach a bank for funding.
Whatever it is you’ll decide to do, don’t jeopardize your financial wellbeing; certainly not if you have other options available to you!
It’s all too easy to get swept up into the excitement of starting your own practice. But that’s not what you want to do.
Create a plan to help you start your practice and then stick to it! When you do that, you’ll be able to sidestep the costly mistakes.
Join the conversation! Share your experiences with your peers by leaving your comment below!
By Johanna Hofmann, MBA, LAc; regular contributor to the NPBusiness blog and author of “Smart Business Planning for Clinicians.”