How to write a business plan for a dermatology practice?
Writing a business plan for a dermatology practice can be an intimidating task, especially for those just starting.
This in-depth guide is designed to help entrepreneurs like you understand how to create a comprehensive business plan so that you can approach the exercise with method and confidence.
We'll cover: why writing a dermatology practice business plan is so important - both when starting up, and when running and growing the business - what information you need to include in your plan, how it should be structured, and what tools you can use to get the job done efficiently.
Let's get started!
Why write a business plan for a dermatology practice?
Being clear on the scope and goals of the document will make it easier to understand its structure and content. So before diving into the actual content of the plan, let's have a quick look at the main reasons why you would want to write a dermatology practice business plan in the first place.
To have a clear roadmap to grow the business
Running a small business is tough! Economic cycles bring growth and recessions, while the business landscape is ever-changing with new technologies, regulations, competitors, and consumer behaviours emerging constantly.
In such a dynamic context, operating a business without a clear roadmap is akin to driving blindfolded: it's risky, to say the least. That's why crafting a business plan for your dermatology practice is vital to establish a successful and sustainable venture.
To create an effective business plan, you'll need to assess your current position (if you're already in business) and define where you want the business to be in the next three to five years.
Once you have a clear destination for your dermatology practice, you'll have to:
- Identify the necessary resources (human, equipment, and capital) needed to reach your goals,
- Determine the pace at which the business needs to progress to meet its objectives as scheduled,
- Recognize and address the potential risks you may encounter along the way.
Engaging in this process regularly proves advantageous for both startups and established companies. It empowers you to make informed decisions about resource allocation, ensuring the long-term success of your business.
To maintain visibility on future cash flows
Businesses can go for years without making a profit, but they go bust as soon as they run out of cash. That's why "cash is king", and maintaining visibility on your dermatology practice's future cash flows is critical.
How do I do that? That's simple: you need an up-to-date financial forecast.
The good news is that your dermatology practice business plan already contains a financial forecast (more on that later in this guide), so all you have to do is to keep it up-to-date.
To do this, you need to regularly compare the actual financial performance of your business to what was planned in your financial forecast, and adjust the forecast based on the current trajectory of your business.
Monitoring your dermatology practice's financial health will enable you to identify potential financial problems (such as an unexpected cash shortfall) early and to put in place corrective measures. It will also allow you to detect and capitalize on potential growth opportunities (higher demand from a given segment of customers for example).
To secure financing
A detailed business plan becomes a crucial tool when seeking financing from banks or investors for your dermatology practice.
Investing and lending to small businesses are very risky activities given how fragile they are. Therefore, financiers have to take extra precautions before putting their capital at risk.
At a minimum, financiers will want to ensure that you have a clear roadmap and a solid understanding of your future cash flows (like we just explained above). But they will also want to ensure that your business plan fits the risk/reward profile they seek.
This will off-course vary from bank to bank and investor to investor, but as a rule of thumb. Banks will want to see a conservative financial management style (low risk), and they will use the information in your business plan to assess your borrowing capacity — the level of debt they think your business can comfortably handle — and your ability to repay the loan. This evaluation will determine whether they'll provide credit to your dermatology practice and the terms of the agreement.
Whereas investors will carefully analyze your business plan to gauge the potential return on their investment. Their focus lies on evidence indicating your dermatology practice's potential for high growth, profitability, and consistent cash flow generation over time.
Now that you recognize the importance of creating a business plan for your dermatology practice, let's explore what information is required to create a compelling plan.
What information is needed to create a business plan for a dermatology practice?
Writing a dermatology practice business plan requires research so that you can project sales, investments and cost accurately in your financial forecast.
In this section, we cover three key pieces of information you should gather before drafting your business plan!
Carrying out market research for a dermatology practice
Before you begin writing your business plan for a dermatology practice, conducting market research is a critical step in ensuring precise and realistic financial projections.
Market research grants you valuable insights into your target customer base, competitors, pricing strategies, and other crucial factors that can impact the success of your business.
In the course of this research, you may stumble upon trends that could impact your dermatology practice.
Your market research could reveal that your dermatology practice may be seen as a trusted provider of medical care in the community, which could drive an increased demand for your services. Additionally, it might show that there is a growing need for specialized dermatological care in the area, which could present an opportunity for your practice to expand and become a leader in the field.
Such market trends play a pivotal role in revenue forecasting, as they provide essential data regarding potential customers' spending habits and preferences.
By integrating these findings into your financial projections, you can provide investors with more accurate information, enabling them to make well-informed decisions about investing in your dermatology practice.
Developing the marketing plan for a dermatology practice
Before delving into your dermatology practice business plan, it's imperative to budget for sales and marketing expenses.
To achieve this, a comprehensive sales and marketing plan is essential. This plan should provide an accurate projection of the necessary actions to acquire and retain customers.
Additionally, it will outline the required workforce to carry out these initiatives and the corresponding budget for promotions, advertising, and other marketing endeavours.
By budgeting accordingly, you can ensure that the right resources are allocated to these vital activities, aligning them with the sales and growth objectives outlined in your business plan.
The staffing and equipment needs of a dermatology practice
Whether you are at the beginning stages of your dermatology practice or expanding its horizons, having a clear plan for recruitment and capital expenditures (investment in equipment and real estate) is vital to ensure your business's success.
To achieve this, both the recruitment and investment plans must align coherently with the projected timing and level of growth in your forecast. It is essential to secure appropriate funding for these plans.
A dermatology practice might incur staffing costs such as salaries for nurses, receptionists, and medical assistants, as well as costs for benefits and payroll taxes. They may also need to purchase medical equipment such as microscopes, lasers, and skin analyzers. Additionally, the practice may need to pay for office supplies, cleaning services, and IT support.
To create a financial forecast that accurately represents your business's outlook, remember to factor in other day-to-day operating expenses.
Now that you have all the necessary information, it's time to dive in and start creating your business plan and developing the financial forecast for your dermatology practice.
What goes into your dermatology practice's financial forecast?
The objective of the financial forecast of your dermatology practice's business plan is to show the growth, profitability, funding requirements, and cash generation potential of your business over the next 3 to 5 years.
The four key outputs of a financial forecast for a dermatology practice are:
- The profit and loss (P&L) statement,
- The projected balance sheet,
- The cash flow forecast,
- And the sources and uses table.
Let's look at each of these in a bit more detail.
The projected P&L statement
Your dermatology practice forecasted P&L statement enables the reader of your business plan to get an idea of how much revenue and profits your business is expected to make in the near future.
Ideally, your reader will want to see:
- Growth above the inflation level
- Expanding profit margins
- Positive net profit throughout the plan
Expectations for an established dermatology practice will of course be different than for a startup. Existing businesses which have reached their cruising altitude might have slower growth and higher margins than ventures just being started.
The projected balance sheet of your dermatology practice
Your dermatology practice's forecasted balance sheet enables the reader of your plan to assess your financial structure, working capital, and investment policy.
It is composed of three types of elements: assets, liabilities and equity:
- Assets: represent what the business owns and uses to produce cash flows. It includes resources such as cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: represent funds advanced to the business by lenders and other creditors. It includes items such as accounts payable (money owed to suppliers), taxes due and loans.
- Equity: is the combination of what has been invested by the business owners and the cumulative profits and losses generated by the business to date (which are called retained earnings). Equity is a proxy for the value of the owner's stake in the business.
Your dermatology practice's balance sheet will usually be analyzed in conjunction with the other financial statements included in your forecast.
Two key points of focus will be:
- Your dermatology practice's liquidity: does your business have sufficient cash and short-term assets to pay what it owes over the next 12 months?
- And its solvency: does your business have the capacity to repay its debt over the medium-term?
The cash flow forecast
A projected cash flow statement for a dermatology practice is used to show how much cash the business is generating or consuming.
The cash flow forecast is usually organized by nature to show three key metrics:
- The operating cash flow: do the core business activities generate or consume cash?
- The investing cash flow: how much is the business investing in long-term assets (this is usually compared to the level of fixed assets on the balance sheet to assess whether the business is regularly maintaining and renewing its equipment)?
- The financing cash flow: is the business raising new financing or repaying financiers (debt repayment, dividends)?
As we discussed earlier, cash is king and keeping an eye on future cash flows an imperative for running a successful business. Therefore, you can expect the reader of your dermatology practice business plan to pay close attention to your cash flow forecast.
Also, note that it is customary to provide both yearly and monthly cash flow forecasts in a business plan - so that the reader can analyze seasonal variation and ensure the dermatology practice is appropriately funded.
The initial financing plan
The initial financing plan - also called a sources and uses table - is an important tool when starting a dermatology practice.
It shows where the money needed to set up the business will come from (sources) and how it will be allocated (uses).
Having this table helps understand what costs are involved in setting up the dermatology practice, how the risks are distributed between the shareholders and the lenders, and what will be the starting cash position (which needs to be sufficient to sustain operations until the business breaks even).
Now that the financial forecast of a dermatology practice business plan is understood, let's focus on what goes into the written part of the plan.
The written part of a dermatology practice business plan
The written part of the business plan is where you will explain what your business does and how it operates, what your target market is, whom you compete against, and what strategy you will put in place to seize the commercial opportunity you've identified.
Having this context is key for the reader to form a view on whether or not they believe that your plan is achievable and the numbers in your forecast realistic.
The written part of a dermatology practice business plan is composed of 7 main sections:
- The executive summary
- The presentation of the company
- The products and services
- The market analysis
- The strategy
- The operations
- The financial plan
Let's go through the content of each section in more detail!
1. The executive summary
The first section of your dermatology practice's business plan is the executive summary which provides, as its name suggests, an enticing summary of your plan which should hook the reader and make them want to know more about your business.
When writing the executive summary, it is important to provide an overview of the business, the market, the key financials, and what you are asking from the reader.
Start with a brief introduction of the business, its name, concept, location, how long it has been in operation, and what makes it unique. Mention any services or products you plan to offer and who you sell to.
Then you should follow with an overview of the addressable market for your dermatology practice, current trends, and potential growth opportunities.
You should then include a summary of your key financial figures such as projected revenues, profits, and cash flows.
Finally, you should detail any funding requirements in the ask section.
2. The presentation of the company
As you build your dermatology practice business plan, the second section deserves attention as it delves into the structure and ownership, location, and management team of your company.
In the structure and ownership part, you'll provide valuable insights into the legal structure of the business, the identities of the owners, and their respective investments and ownership stakes. This level of transparency is vital, particularly if you're seeking financing, as it clarifies which legal entity will receive the funds and who holds the reins of the business.
Moving to the location part, you'll offer a comprehensive view of the company's premises and articulate why this specific location is strategic for the business, emphasizing factors like catchment area, accessibility, and nearby amenities.
When describing the location of your dermatology practice, you could emphasize the potential of the area to draw a large customer base. You may highlight the city's access to major roads and public transportation, as well as its proximity to other medical facilities. You might also emphasize the city's population growth and potential for future growth, as well as its cultural amenities such as parks, museums, and restaurants. All of these factors could be persuasive to a third party financier when considering investing in your dermatology practice.
Lastly, you should introduce your esteemed management team. Provide a thorough explanation of each member's role, background, and extensive experience.
It's equally important to highlight any past successes the management team has achieved and underscore the duration they've been working together. This information will instil trust in potential lenders or investors, showcasing the strength and expertise of your leadership team and their ability to deliver the business plan.
3. The products and services section
The products and services section of your dermatology practice business plan should include a detailed description of what your company sells to its customers.
For example, your dermatology practice may offer medical services such as skin cancer screenings, removal of moles, and acne treatment to ensure the skin health of your customers. You may also provide cosmetic services such as Botox injections and laser hair removal to improve the appearance of the skin. Additionally, you may offer products such as sunscreens, moisturizers, and cleansers to your customers to help maintain the health of their skin.
The reader will want to understand what makes your dermatology practice unique from other businesses in this competitive market.
When drafting this section, you should be precise about the categories of products or services you sell, the clients you are targeting and the channels that you are targeting them through.
4. The market analysis
When outlining your market analysis in the dermatology practice business plan, it's essential to include comprehensive details about customers' demographics and segmentation, target market, competition, barriers to entry, and relevant regulations.
The primary aim of this section is to give the reader an understanding of the market size and appeal while demonstrating your expertise in the industry.
To begin, delve into the demographics and segmentation subsection, providing an overview of the addressable market for your dermatology practice, key marketplace trends, and introducing various customer segments and their preferences in terms of purchasing habits and budgets.
Next, shift your focus to the target market subsection, where you can zoom in on the specific customer segments your dermatology practice targets. Explain how your products and services are tailored to meet the unique needs of these customers.
For example, your target market might include people with existing skin conditions. This could be people with acne, eczema, or psoriasis, for example. These customers may need regular treatments, medication, or other services from a dermatologist. Additionally, they may also be interested in cosmetic treatments or procedures to help improve their skin.
In the competition subsection, introduce your main competitors and explain what sets your dermatology practice apart from them.
Finally, round off your market analysis by providing an overview of the main regulations that apply to your dermatology practice.
5. The strategy section
When you write the strategy section of your dermatology practice business plan, remember to cover key elements such as your competitive edge, pricing strategy, sales & marketing plan, milestones, and risks and mitigants.
In the competitive edge subsection, elaborate on what makes your company stand out from competitors. This becomes especially important if you're a startup, aiming to carve a place for yourself amidst established players in the marketplace.
The pricing strategy subsection should demonstrate how you plan to maintain profitability while offering competitive prices to attract customers.
Outline your sales & marketing plan, detailing how you'll reach out to new customers and retain existing ones through loyalty programs or special offers.
For the milestones subsection, outline your company's achievements to date and your main objectives for the future, complete with specific dates to set clear expectations for progress.
Lastly, the risks and mitigants subsection should address the main risks that could affect your plan's execution. Explain the measures you've put in place to minimize these risks, assuring potential investors or lenders.
Your dermatology practice could face the risk of a data breach or cyberattack. Criminals might exploit weaknesses in your security system to gain access to confidential patient information, credit card details, or other sensitive information. This could lead to legal and financial repercussions and damage to your business's reputation.
Your dermatology practice may also face the risk of medical malpractice. If one of your employees makes a mistake in providing medical care, you could be held responsible and face costly litigation. A medical malpractice claim could also damage your practice's reputation and lead to decreased patient trust.
6. The operations section
The operations of your dermatology practice must be presented in detail in your business plan.
Begin by addressing your staff, specifying the main roles and your recruitment plan to support the anticipated growth. Outline the qualifications and experience needed for each role and discuss your recruitment strategies, which may involve using job boards, referrals, or headhunters.
Next, clearly state your dermatology practice's operating hours, allowing the reader to gauge the adequacy of your staffing levels. Additionally, mention any considerations for varying opening times during peak seasons and your approach to handling customer queries outside regular operating hours.
The key assets and intellectual property (IP) required to run your business should also be highlighted. If you rely on licenses, trademarks, physical structures like equipment or property, or lease agreements, ensure they are well-documented in this section.
You may have key assets such as patient records and medical equipment. Additionally, you could have intellectual property related to the practice, such as any proprietary treatments or protocols you have developed. All of these things might be integral to the success of your dermatology practice.
Finally, provide a comprehensive list of suppliers you intend to collaborate with, along with a breakdown of their services and main commercial terms, such as price, payment terms, break clauses and contract duration. Investors often seek insight into the reasons behind your supplier choices, which may include a preference for higher-quality products or established relationships from past ventures.
7. The presentation of the financial plan
The financial plan section is where we will include the financial forecast we talked about earlier in this guide.
Now that you have a clear idea of the content of a dermatology practice business plan, let's look at some of the tools you can use to create yours.
What tool should I use to write my dermatology practice's business plan?
In this section, we will be reviewing the two main solutions for creating a dermatology practice business plan:
- Using specialized online business plan software,
- Outsourcing the plan to the business plan writer.
Using an online business plan software for your dermatology practice's business plan
Using online business planning software is the most efficient and modern way to create a dermatology practice business plan.
There are several advantages to using specialized software:
- You can easily create your financial forecast by letting the software take care of the financial calculations for you without errors
- You are guided through the writing process by detailed instructions and examples for each part of the plan
- You can access a library of dozens of complete business plan samples and templates for inspiration
- You get a professional business plan, formatted and ready to be sent to your bank or investors
- You can easily track your actual financial performance against your financial forecast
- You can create scenarios to stress test your forecast's main assumptions
- You can easily update your forecast as time goes by to maintain visibility on future cash flows
- You have a friendly support team on standby to assist you when you are stuck
If you're interested in using this type of solution, you can try The Business Plan Shop for free by signing up here.
Hiring a business plan writer to write your dermatology practice's business plan
Outsourcing your dermatology practice business plan to a business plan writer can also be a viable option.
Business plan writers are experienced in writing business plans and adept at creating financial forecasts without errors. Furthermore, hiring a consultant can save you time and allow you to focus on the day-to-day operations of your business.
However, hiring business plan writers is expensive as you are paying for the software used by the consultant, plus their time, and their profit margin of course.
From experience, you need to budget at least £1.5k ($2.0k) excluding tax for a complete business plan, more if you need to make changes after the initial version (which happens frequently after the initial meetings with lenders or investors).
You also need to be careful when seeking investment. Investors want their money to be used to grow the business, not spent on consulting fees. Therefore, the amount you spend on business plan writing services (and other consulting services such as legal services) needs to be negligible relative to the amount raised.
The other drawback is that you usually don't own the business plan itself: you just get the output, while the actual document is saved in the consultant's business plan software - which makes it difficult to maintain the document up to date without hiring the consultant on a retainer.
For these reasons, outsourcing the dermatology practice business plan to a business plan writer should be considered carefully, weighing both the advantages and disadvantages of hiring outside help.
Ultimately, it may be the right decision for some businesses, while others may find it beneficial to write their business plan using online software.
Why not create your dermatology practice's business plan using Word or Excel?
Using Microsoft Excel and Word (or their Google, Apple, or open-source equivalents) to write a dermatology practice business plan is a terrible idea.
For starters, creating an accurate and error-free financial forecast on Excel (or any spreadsheet) is very technical and requires both a strong grasp of accounting principles and solid skills in financial modelling.
As a result, it is unlikely anyone will trust your numbers unless - like us at The Business Plan Shop - you hold a degree in finance and accounting and have significant financial modelling experience in your past.
The second reason is that it is inefficient. Building forecasts on spreadsheets was the only option in the 1990s and early 2000s, nowadays technology has advanced and software can do it much faster and much more accurately.
And with the rise of AI, software is also becoming smarter at helping us detect mistakes in our forecasts and helping us analyse the numbers to make better decisions.
Also, using software makes it easy to compare actuals vs. forecasts and maintain our forecasts up to date to maintain visibility on future cash flows - as we discussed earlier in this guide - whereas this is a pain to do with a spreadsheet.
That's for the forecast, but what about the written part of my dermatology practice business plan?
This part is less error-prone, but here also software brings tremendous gains in productivity:
- Word processors don't include instructions and examples for each part of your business plan
- Word processors don't update your numbers automatically when they change in your forecast
- Word processors don't handle the formatting for you
Overall, while Word or Excel may be viable options for creating a dermatology practice business plan for some entrepreneurs, it is by far not the best or most efficient solution.
- A business plan has 2 complementary parts: a financial forecast showcasing the expected growth, profits and cash flows of the business; and a written part which provides the context needed to judge if the forecast is realistic and relevant.
- Having an up-to-date business plan is the only way to keep visibility on your dermatology practice's future cash flows.
- Using business plan software is the modern way of writing and maintaining business plans.
We hope that this practical guide gave you insights on how to write the business plan for your dermatology practice. Do not hesitate to get in touch with our team if you still have questions.
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