Urgent message: Sound finances and proven business management skills may be the most valuable assets for the urgent care operator looking to capitalize on past successes by expanding.
by Michael Gotlieb
Introduction
Urgent care owners, like many other entrepreneurial businesspeople, have great opportunities in front of them, yet need assistance at times. Sometimes, that “assistance” is purely financial. Most often in inflection point cases like expansion; however, it is a combination of financial and business acumen that provides the most benefit to the business.
For the purposes of this article, expansion would mean adding locations or expanding the services and associated equipment. If you are looking to do any of these in the hopes of increasing your revenue/bottom line, or just improving your business model, you should be aware of the impact of these decisions from a business perspective.
Both you (as the owner) and external sources of capital will look for strong financials and solid fundamentals when considering any investment opportunity. These two items together are essential to support a sound return on precious investment dollars.
Even owners with ample capital to fund their own businesses may wish to consider partial outside funding to maximize their capital structure or reduce risk.
Additionally, although often difficult, the owner should try to look at things with an “investor’s eye” when deciding whether to expand into new services or increase the number of locations. Many well-capitalized businesses have been brought to the brink of insolvency by expansion because did not truly understand the risks, or did not employ the fiscally responsible actions.
Once the decision to expand is made, the process of deciding how to fund the effort becomes important. Banking-related companies and private investors provide two obvious choices, but their focus and benefits to you are very different.
Sources of Money (Funding)
Banks and private investors look at many of the same financial metrics (e.g., revenue, profit margins, cash flow) when deciding to invest or not to invest. However, their risk tolerance, payback time, and ownership stake may be factors that encourage urgent care owners to pursue one over the other.
In today’s environment, investors and banks are also looking critically at the fundamental picture (e.g., demographics, governmental impact, skill set, and experience of the management team) to assess whether they feel the opportunity makes sense for their focus. In general, investors and banks look to ensure the business owner can make good business decisions (especially with the bank’s or investors’ money) and that the money the investor or bank provides, specifically, supports funding “hard” assets—those that have value, should unforeseen issues force a catastrophic event. Hard assets may include real estate, delivery trucks, equipment, etc.
The urgent care owner may think that obtaining money is the only need they have; however, it is equally important to make sound business decisions with that capital. While this is a tough area in which to recognize weakness (you have done well so far, after all), expansion creates greater complexity. Thus, aligning the right type of money source with your business needs is a critical.
Investor Types
Private investors can come in several permutations, but mainly two forms: silent, or “passive,” partners and active partners.
Silent investors
Silent investors can take the form of your relatives, professional friends with extra capital, or other money sources who do not want to engage in the business or do not have the ongoing skills that the business needs.
If you choose to use funds from relatives, they, too, should be paid back with an appropriate interest rate and in a timely manner so as not to abuse their kindness. (And, as a practical mater, you may need it again.)
In a broad sense, banks can also be classified as silent investors since they typically do not actively participate in the day-to-day parts of the business. They do, however, take an ownership option on parts of the business that can be resold to reclaim the money invested should a catastrophic event occur.
Some banks also want periodic reviews of the business to ensure you are on-track to repay the loan or to seek other lending opportunities. Silent partners can be a sound option if you have a highly efficient business model, sound and scalable business skills on your team, and the bandwidth to do it all. Complementing this funding alternative with targeted consultants may provide the solution you need.
Active investors
The other private investor alternative, active investors, is often more difficult to find. However, active investors tend to bring much more to the business than just money, and they have “skin” in the game like you do.
Matching their skills to the needs of your business and your personality is crucial during the selection process. Active investors usually have highly tuned skills that can be very helpful to the business owner and the staff. Whether coming from a large Fortune 500 company with a solid background in building businesses or possessing the proper training background and experience within the industry, active investors may be able to provide additional skills that currently do not exist within your team.
Beyond adding money to the business, active investors are able to help the business meet or set growth objectives, improve operational performance, and fine tune the business strategy to better compete with all industry players and developments. They also may have a large business network that can be utilized to further reduce costs in several areas of the business.
Depending on the skill set and arrangement, active investors proactively perform more in a partnership capacity when making business decisions and, typically, have a vested interest to grow the business as it aligns with your talents. They are usually paid a quarterly management fee and often profit as the business profits, making this partnership beneficial to you, as well.
Though they regularly (monthly or quarterly) engage on the business side to help you make better strategic business decisions and improve business processes of the staff, one should not expect the active investor to perform the day-to-day tasks of your staff.
Summary
Your medical training and business intelligence may be enough to start your business and potentially grow it with a loyal staff and well-intentioned supporters. This is not an easy task and you should be commended for making the effort to fulfill your dreams and provide a much-needed service to the community.
In general, if your business is providing consistent excess cash flow and you feel you are ready to tackle additional complexity, then expanding services and/or locations may be the next logical step as you try to fully leverage all that you have built.
As the opportunity in urgent care grows, more existing owners look to gain market share through additional sites and services. Expansion is a natural step of a successful business, and that usually requires both additional funding and greater business acumen.
The financial part of expansion can be satisfied through self funding, a banking company, or a private investor. Each will look at the financials and fundamentals of the business with a critical eye when deciding whether to invest or not to invest.
Upon deciding to invest, silent investors and banks mainly provide funding, with little other support for the business; this can be fine if the business can support the added complexity.
Another alternative is an active investor with whom you feel comfortable, and one who possesses the skills your business needs to help you make the best decisions possible. The active investor operates more like a partner, providing the complementary skills your business needs and has the faith in those skills and your business to provide some or all of the funding for a successful expansion and on-going business.
Each financial avenue can provide a benefit and should be given careful consideration based on a true assessment of your current business needs and the direction you wish to take your business. Talk with your banker and a private investor to best ensure the success your company deserves.
Michael Gotlieb is lead partner at MtAspiringPartners.com. Previously, he was an executive in Strategic Marketing & Corporate Strategy at Motorola/Freescale. He has also started several successful retail and technology entrepreneurial business in his 20+-year career.