Getting Back to Business: The Road Back to Recovery (and the “New Normal”) for Medical Practices
Even though medical practices were considered “essential businesses” during the worst parts of the COVID-19 Pandemic, stay-at-home orders and general social distancing guidelines kept patient volume down for most practices. This was especially true for those practices that rely on elective-type procedures as their primary source of revenue.
While loans from the CARES Act’s Payroll Protection Program (“PPP”) kept many practices afloat during the Pandemic, those loans have been or will soon be fully used up. Practices must now focus on getting back to business and managing cash flow with the understanding that much uncertainty still exists. Consider the following tips to help you get your practice “back to business”.
Understand the Financial Impact that COVID-19 Had On Your Practice
- Review your revenue, staffing, and overhead expenses over the last twelve months
- Fully understand the impact of furloughs and/or lay-offs and factor into your recovery plan
- Segregate one-time funding, such as PPP, to fully understand the Pandemic’s impact on cash flow
Prepare a Cash Flow Budget for the Next Twelve Months
- Use as a general roadmap to get your practice back to “normal” operating levels
- Base the budget on key drivers, including patient and/or procedure volume, staffing levels, and other fixed and variable overhead costs
- Budget using different scenarios, i.e., back to pre-pandemic levels in 6 months, 9 months, one year
- Include costs associated with re-hiring and/or training new employees
- Plan for new investments, perhaps put on hold during the Pandemic, to grow and/or improve operating efficiencies in your practice; this can include investments in telemedicine, as well as other cloud-based technologies (see New Investments in Technology below)
Determine What Additional Financing May be Needed
- Using your cash flow budget, determine additional financing needed to cover operating cash flow shortfalls as the practice resumes operations and slowly ramps up
- Consider funding from existing lines of credit, new term loan facilities, SBA Economic Injury Disaster Loans (“EIDL”), and/or U.S. Treasury-backed loans (Main Street Lending Program)
Communicate With Lenders and Creditors
- Understanding that your current lender may be your best source of financing, it is important to be transparent with your lender by letting them know your financial and operational challenges
- Depending on cash flow projections and the degree to which you were impacted by the Pandemic, you may need to consider restructuring your existing debt and/or negotiating payment terms with vendors
New Investments in Technology
- The need for practices to provide patient services remotely and for staff to work remotely during the Pandemic pushed practices to re-evaluate their existing technologies
- Now may be the time for practices to consider investing in patient and general office workflow technology such as:
- telemedicine, remote patient monitoring, patient portals
- cloud-based applications for practice management, EMR, and practice analytics
- cloud-based applications for accounting and financial reporting
- applications such as Zoom and Microsoft Teams for improved communications
Update Your Strategic Business Plan
- Even if you never had a formal, written strategic business plan, now may be the time to create one
- Look at the “new normal” as a fresh start
- Start thinking long term, 3-5 years down the road.
- Ask key questions:
- Do I have a succession plan, an exit strategy?
- How will I grow my practice – through practice acquisitions, developing new service lines?
- Is selling an interest to a larger established practice, hospital, health system, or private equity-backed practice platform now a more viable option?
Gettry Marcus is actively looking for ways to assist our healthcare clients during these difficult times. If you would like additional information please contact your Gettry Marcus Advisor or Lee Ferber, CPA, co-chair of Gettry Marcus’ Health Care Consulting Group, and Partner-in-Charge of Gettry Marcus’ Business Advisory Services Group.