A feasibility study in healthcare is part of a strategic plan designed to address an inpatient or outpatient facility, service expansion, or other new development. The healthcare feasibility study and strategic planning process encompass several components. First, there is the market study identifying where the customers are and how they may get connected to your service. Second, is a financial feasibility analysis, typically encompassing three to five years of pro forma financial statements. And 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 should prevent you from undertaking a likely unsuccessful venture, saving you considerable money and heartache.
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 should account for the financial performance of the proposed project from the time of launch until twelve 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, the 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, you need to do thorough vetting in advance. And conducting a detailed feasibility study for your next healthcare venture is the way to do it.