A feasibility study in healthcare is part of a strategic plan designed to address a medical, acute, or long term care, in or outpatient service expansion or new development. The healthcare feasibility study and strategic planning process encompasses several components. First, the market study identifying where the customers are and how they get connected to your service. Second, a financial feasibility analysis, typically encompassing three to five years of pro forma financial statements. The final step in the completion of the healthcare strategic planning process are the business plan components specifying the execution plan for making the project a reality.
A feasibility study aids in transforming an idea into a viable reality
A feasibility study is the process of investigating the viability of a health service, whether it is an expansion of an existing operation or a creation of a ground up project. This study is an essential component of the strategic planning process. The feasibility study analyzes the viability of an idea and answers a myriad of essential questions. Among them:
- What are the primary and secondary markets?
- What is the target audience?
- What are the potential referral sources?
- What competition exists in the primary and secondary market areas?
- How much working capital is required to cover start up losses?
- At stabilization, what are the operating profits?
The above questions are just a few of the issues that are addressed by a feasibility study. If you’re looking to raise financing for your project or perhaps seeking strategic partners, a well conceived and detailed feasibility study is a must. Even if you are in the enviable position of not needing financing or a strategic partner, a feasibility study provides you with an objective vetting process and a road map for a successful venture. Alternatively, the study can also supply you with sufficient warning signs that prevents you from undertaking a potentially unsuccessful venture which can save you lots of money and heartaches.
Financial feasibility analyses demonstrate the ability to reach the desired level of return
The second component of a feasibility study, the financial feasibility analysis, focuses on the development of detailed operating pro forma financial statements. These statements should outline in detail, both revenue and expense items for your project. Since these are pro forma statements, it is important to specify the myriad of assumptions that were utilized in identifying the revenue and expense items in the pro forma. These pro forma statements can project income/loss at the net operating line or can even take into consideration asset related expenses and thus, project down to the net income line.
We tend to recommend that the financial feasibility analysis account for the financial performance of the proposed project from the time of opening until 12 consecutive months of stabilized operations. Doing so allows the analysis to cover the full start up period (which in turn identifies the amount of working capital required to sustain the operations through the period of financial loss) and also identifies the amount of profit at the time of operational maturity.
A healthcare feasibility study is an insurance policy…and peace of mind
Wouldn’t it be great if all ideas had the “field of dreams” result-if you build it, they will come. Unfortunately, the vast majority of the time, reality is far more uncooperative. As I have mentioned before, a feasibility study is a must in the strategic planning process. It represents an insurance policy that can assist in insulating you from making a poor strategic choice or it can give you peace of mind that your idea is indeed a field of dreams. Either way, consider this…a feasibility study, don’t leave home without it!