Over the years, I have worked with businesses at almost every stage of the journey, from developing their first business plan to navigating serious financial difficulties and restructuring. Combined with my own experience of investing in a healthcare business, this has taught me an important lesson: a much-needed service does not automatically make a financially sustainable business. Healthcare business owners must find the difficult balance between delivering high-quality care, managing significant staffing costs and maintaining sufficient cash flow to keep the business moving forward. Here are some of the lessons I have learnt over the years on why healthcare businesses fail and how you can avoid this.
- Not Investing in the right people
When starting a business, passion, capital and a great idea can make you feel ready to take on the world. But one of the lessons I have learnt is that these things alone cannot sustain a business in the long run. I have met many business owners who, because of financial or resource constraints, decide to do everything themselves just to get the business off the ground. I understand why. In the beginning, every penny counts, and doing things yourself can feel like the sensible option. But there comes a point when doing everything yourself can cost the business more than asking for help.
This is particularly important in healthcare, where you are trying to balance the demands of delivering quality care with staffing, compliance, operations and finances. You may not need a large team from the beginning, but having the right people and expertise around you can make a significant difference to the decisions you make and the foundations you build.
What do you need to do
You don’t necessarily need to employ every specialist from day one. Do your research and build relationships with people you can turn to when you need them. Attend industry specific conferences as they tend to have relevant specialists under one roof. Investing in the right expertise at the right time can help you avoid costly mistakes and give your business stronger foundations for future growth.
2. Have an organisational structure
Having written many business plans over the years, I have noticed that some business owners think of the business plan primarily as a document needed for a bank, investor or regulator. But the real value of a good business plan begins when you use it to build the business.
For a healthcare business, your plan should help you think beyond the service you want to provide. It should help shape your organisational structure, staffing requirements, financial forecasts, responsibilities and operational controls.
Even if you do not initially have the resources to appoint someone to every role, define the roles your business needs from the beginning. In the early stages, one person may carry several responsibilities, but having a clear structure helps you understand who is responsible for what, where controls need to be introduced and when additional resources will be required.
Don’t write your business plan simply to get through the door. Use it as a roadmap for building the business you want to create.
What do you need to do
Write down all the roles that are required in order for the business to run smoothly. Define the roles, responsibilities and who they report to. Even if you are currently carrying out multiple roles, map out the structure and put tiers to understand the reporting hierarchies. As you work on a role, for example administration, right down additional information pertaining to the role and put together process notes for the role.
3. Build Systems
One of the easiest mistakes to make when starting a business is thinking, “I’ll put proper systems in place when we get bigger.” The problem is that growth can arrive before those systems do. Suddenly, there are more employees, more clients, more invoices, more expenditure and more decisions to make. Processes that worked when the business was small can quickly become difficult to manage.
That is why I believe in building systems early in the business journey. They don’t have to be complicated. Start with the basics: How are staff recruited? Who approves timesheets? How do you know every service delivered has been invoiced? Who approves spending? How often is cash flow reviewed? When are the management accounts prepared and reviewed?
What do you need to do
As the organisation structure is now in place and you have mapped out the roles and responsibilities. Look at the tasks being carried out and highlight these three stages,
- What triggers the task to start?
- How is the task processed?
- Who checks that task for quality control.
For example, processing Care Worker timesheets
- Trigger – When a care visit is completed, the Care Worker submits a timesheet or records the visit electronically
- Process – Administrator checks the hours against the schedule
- Quality Control – Manager approves any discrepancies before information is used for client invoicing and payroll.
4. Know your goals
One question I encourage business owners to ask themselves is, “what does success actually look like for my business?” Is it reaching a particular level of turnover? Supporting more people? Building a management team? Improving profitability? Creating a business that operates without you being involved in every decision?
Once you know where you want to go, put numbers behind the goal. If you want to grow revenue, understand how many additional clients or care hours you need. If you want to improve profitability, understand your current margins and where costs are increasing. If you want to recruit more staff, understand whether your current and forecast cash flow can support them.
Your goals can then feed into your budget, cashflow forecast and KPIs, allowing you to measure whether the business is genuinely moving in the right direction. A goal without financial planning can remain an ambition. A goal supported by numbers becomes something you can actively manage.
5. Have a stop loss limit
A stop-loss limit is a contingency plan that you put in place to ensure you don’t lose more than you can afford. It creates a trigger for management action before financial losses become unmanageable
Before investing, assess how much you can realistically afford to put into the business and, importantly, how much you are prepared to lose if things do not go according to plan. Set a clear stop-loss limit so you know when further investment is no longer commercially sensible. Decide in advance what you will do if the business does not gain traction as expected. This could mean reducing costs, changing your pricing, targeting a different customer group, diversifying your services or moving into a different location or market.
Having clear limits does not mean that you expect the business to fail. It means you are managing risk and protecting yourself from continuing to invest in a strategy that is not delivering the results you expected.
Starting the business or running a business can be daunting as you have a lot of information to take in and process. If you need help with any of the above, our dedicated team is always ready to help. Get in touch.
