Starting and managing an NP practice takes motivation, desire and talent. It also requires research and planning to increase the probability of success.
A business plan is a formal document that explains plans to develop a financially successful practice. Business planning analyzes whether there is a need for the nurse practitioner to fill, whether there will be enough business to support a practice financially, the barriers the practice must overcome to be successful, and the business skills the nurse practitioner needs to operate a practice. Business planning also allows a person to consider how practice ownership will affect his or her life.1
As a blueprint of the practice, a good business plan provides detailed information about all aspects of the business and makes projections about the practice over the next few years. Potential adversities, competitors and other vulnerable areas are pointed out, along with plans to prevent failure. A business plan provides tools to implement changes and foster profitability. For greatest value, the plan needs to be updated regularly.1,2
A Financing Plan
Most lenders require a business plan when financing is sought. Because lack of planning is a principal reason for business failure, lenders want to know upfront how borrowers will maintain cash flow and repay the loan. The business plan must display in detail how the money will be used for the practice. Solid data such as estimates, industry norms and rate sheets should support projections.1-3
A good business plan provides detail about practice operations and forces an answer to the question, "What business are you really in?"1-3 The success of a practice is closely related to several factors that should be researched prior to opening the practice. They include:
- the need for the services
- community interest in the services
- the size of the potential patient pool
- the willingness of the community to use NP services
- the willingness of third-party payers to reimburse NP services.
While nurse practitioners may have confidence in their professional ability to be independent practitioners, success depends on knowing the practice climate, the competition, laws governing NP practice, and the public's perceptions of nurse practitioners. A good business plan, therefore, takes the big picture into account.1
Sources of Assistance
A written business plan may run 25 to 40 pages and, if consultants are involved, can be expensive. While using a consultant is an excellent strategy to assist with plan development, less expensive assistance is available through the Small Business Administration, the Service Corps of Retired Executives, graduate business students who do plans as components of coursework, business-oriented community groups, professional journals, libraries and business plan software programs.1
Consider tax and legal issues early in the planning stages. Seek the advice of an experienced corporate attorney and an accountant. Laws vary from state to state, so choose advisers familiar with the state where the practice will be located. Financing has a direct bearing on the legal business form the practice will take, since the type of legal structure (e.g., sole proprietor, partnership, limited liability company, or corporation) has implications for the ability to protect personal assets while dealing with lenders. Tax issues include corporate and personal taxes, reasonable compensation limits, retirement plans, and title to any real property owned.2
Elements of the Business Plan
The body of a business plan should be organized in four major sections:
- the description of the business
- the marketing plan
- the financial plan
- the management plan.
Additional elements include the cover sheet, table of contents, executive summary, supporting documents and financial projections.4
Description of the Business. This section describes in detail the business, its services, and what makes it unique. This section may have several divisions that address various components, including the business description, service description, legal structure, insurance and security.4
When businesses are formed, they usually fall into one of three categories: merchandizing and retailing, manufacturing and distribution, or service.
Primary care practices are service-oriented. In this section, explain the type of service the practice provides, why this practice is able to provide these services, who will provide them, and where they will be provided. Describe what will make this NP practice unique, competitive and profitable. Describe future growth as well as anticipated problems in delivering services, along with an action plan to minimize such problems.1,4
Explain the legal structure chosen for the practice and why it is the most advantageous option for the business. Describe any licenses, permits and legal agreements necessary for operation, such as a collaborative practice agreement.1,4
The practice location may be included in this section or in the marketing plan. When decisions are made about where to locate the practice, consider accessibility to patients and the target market. Location is crucial, and serious consideration must be given to disability laws, laboratory options and fire issues, as well as overall size and space. A poorly planned location can impact practice income potential.1,4
A good practice description will include the physical address, square footage, accessibility and business hours. Include lease agreements. If owned, include the property value. Also mention anticipated costs such as utilities, improvements, furniture and equipment.
The Marketing Plan. Marketing is essential for successful business ventures. The key elements of a marketing plan are an explanation of customers' likes and dislikes and a marketing strategy that targets their needs.
The marketing plan identifies customers by demographics (e.g., age, sex, income, educational level and residence), psychographics (i.e., where the patient pool typically obtains services and how they spend their income) and niche markets (i.e., potential patient groups the practice might tailor a specific service to, such as women, elders or a specific ethnic group).4 Market analysis may also include survey data from target markets to examine the feasibility of success.
The marketing plan examines competitors as well. Assess competitors by looking at their success, fee structures and unique services. Periodically examining a competitor's promotional materials, pricing strategies and where they advertise is important, too. Give careful consideration to the type and level of advertising planned, and whether or not to hire an advertising firm.4
The Financial Plan. Each year thousands of potentially successful businesses fail because of poor financial management. How finances are managed is critical to every business venture. As a practice owner, it is important to identify and implement policies that will ensure financial obligations are met. Experts often advise consultation with a financial adviser or accountant as this section of the business plan is developed.1,2,4
The financial section of the business plan includes any loan applications filed, a capital equipment and supply list, a balance sheet, a breakeven analysis, profit and loss income projections and a cash flow analysis. The income statement and cash flow projections should include a 3-year summary detailed by month for the first year, and detailed by quarter for the following 2 years.4
Include the accounting and inventory system planned for the practice in the financial plan. Devise a realistic budget to manage finances by determining up front the amount of money needed to open the practice (i.e., start-up costs) and the amount needed to keep the practice open (i.e., operating costs).4
The Management Plan. Managing a practice requires more than just a desire to be the boss. Employees play an important role in the total operation of a practice. Owners must assess what skills they possess and lack, and hire personnel to cover their shortcomings. Additionally, it is imperative to know how to manage and treat employees. Employees should be viewed as team members. They often have excellent ideas that can lead to expanded markets, innovations to existing services, and new services that can improve the practice's overall competitiveness.4
The management plan answers questions such as how will the owner's background and business experience help this particular business? What are the owner's weaknesses and how can they be compensated for? Who will comprise the management team and what are their strengths and weaknesses? What are the management team's duties and are they clearly defined? What are the current personnel needs of the practice and what plans are there for hiring and training personnel? The management plan also outlines proposed salaries, benefits, vacations and holidays.4
The management plan, combined with the marketing and financial management plans, sets the foundation and facilitates the success of the practice.
The Executive Summary
The executive summary is about two pages long, appears after the cover page and table of contents, and is written last after practice concepts are well developed and all of the financial data is complete.2
The executive summary is essentially a concise statement about the practice and includes information about the owner, the proposed practice and plans for the practice. If the business plan is being used to seek funding, the executive summary should include the amount and purpose of the funding, justify the feasibility of the business plan for the lender, and provide a repayment statement.2
The executive summary is a summation of the business plan, and the rest of the business plan must back up what it presents.2
Packaging the Business Plan
A well-written business plan takes thought and work. It is important to present the plan in a well-organized manner. The table accompanying this article lists the contents of the finished plan. Contents may vary depending on the complexity of the business plan. The plan, however, should be complete, concise, and well thought out. While fill-in-the-blank software programs are available, potential lenders usually recognize generic statements and financial projections that come from a specific piece of software. Using it may send a message that tailored planning has not occurred and the unique aspects of the practice have not been thoroughly considered.2
Use a nice cover to bind the document. A three-ring binder allows for easy additions, updates and replacements. Use a blue, brown or black cover, since lenders are usually conservative.
Be concise and limit the plan to 25 to 40 pages, including supporting documents. Potential lenders do not want to search through volumes of data to get to the information they need.2
It is not necessary to hire a professional word processing service unless the writer lacks the skill to make a presentable document. Paying for frills could be construed as frivolous by some lenders. Also, include a table of contents and make a copy for each lender to be approached. If the loan is refused, try to retrieve the business plan.2 Analyze the weaknesses that prevented successful funding and revise the plan. Perseverance is essential for obtaining funding and operating a successful practice.
Finally, when the plan is complete, use it as a guide for practice operations, to anticipate changes, and to keep up to date.2
Sally Reel, a family nurse practitioner with a PhD in nursing, is a clinical professor and coordinator of the nurse practitioner programs at the University of Arizona in Tucson.
1. Buppert C. Nurse Practitioner's Business Practice & Legal Guide. Gaithersburg, Md.: Aspen Publishers; 1999.
2. Pinson L. Anatomy of a Business Plan, 5th Ed. Chicago: Dearborn Trade Books; 2002.
3. Small Business Administration. First Steps: How to Start a Small Business. 2002. Available online at: http://www.sba.gov/starting/indexsteps.html.
4. Small Business Administration. Business Plan Outline. 2002. Available online at: http://www.sba.gov/starting/indexbusplans.html.
Sample Outline of a Business Plan
- Cover sheet
- Table of contents
- Executive summary
- Detailed description of the business
- Market analysis
- Financial plan
- Management or organizational plan
- Financial documents
- Supporting documents