We are frequently asked for data on the failure rates of urgent care start-ups. Unfortunately reliable data on urgent care failures doesn’t exist. Rarely do urgent care centers fail, but some do evolve into other business models. Despite lack of hard data, we do know the reasons why urgent care start-ups succeed. First is having a firm business plan that shows how the center will drive revenue while controlling all expense items. Second is having a detailed financial pro forma that assures sufficient cash to cover operating expenses until the center achieves break-even revenue. Using an experienced urgent care consultant can help assure clearance of common obstacles and position your center for long-term success. Urgent care consultant Alan Ayers has more...
Good Morning! This is Alan Ayers and I am Just Checking In. Today I am going to address a common question we receive at Urgent Care Consultants and that is "What is the failure and success rate of new urgent care centers?" Unfortunately, there's not good data around that. The fact of the matter is, for urgent care specifically, there is no repository of failed urgent care centers and typically urgent care centers that run into financial troubles typically don't go out of business. They simply evolve into something else. They'll accept primary care patients, they'll implement ancillary services, or they'll change their business model. So when looking for urgent care-specific data, unfortunately the success or failure data for urgent care, really doesn't exist.
Now there is government data around the success of small business, but that data is also highly misleading. We have people sometimes do Google searches, and they'll come up with statistics like 50% of all new startup businesses fail in the first year, 95% fail within five years. But again, that data is really misleading. Government data includes all types of businesses, the majority of which are home-based businesses. 40% are hobbies that do not have employees. Well, of these business start-ups, 40% that don't have employees only constitute 3% of business receipts in the United States. So, the fact that these businesses are started and then later fail, is really not relevant to businesses that start and hire employees. Three quarters of all businesses in the United States have no employees. So if you look at the one-fourth of businesses in the country that make up 97% of business receipts that do have employees, again failure rates are far less. So, fact of the matter is we don't have good data specific to urgent care and we also don't have good government data related to small business success.
Now what we do know are the reasons why urgent care centers are successful and we know the number one reason why urgent care centers fail which basically goes to working capital. Working capital is cash that you need on hand to cover the expenses of your business. So these would be expenses like wages and salaries, benefits, rent, utilities, supplies, any marketing, any other expense related to your business. Well generally in business, working capital comes from your revenues. It comes from cash from operations. So you see patients, you generate revenue, and then that provides money to pay your expenses. Well in a startup business, your expenses are going to be greater than your revenue, so generally you need money put aside, which is going to come either from owner's equity, investments that the owners make in the business, or from bank loans. You need money set aside to cover these expenses until the operation is at a break-even point and the operation starts putting out enough cash to sustain itself and cover is own expenses.
Well the number one reason why urgent care centers fail is that the ramp-up time to those break-even revenues takes longer than anticipated and essentially the urgent care center exhausts its working capital or it runs out of cash. Generally, we expect an urgent care center to break even within six months, although in some cases we would budget eight or even twelve months, depending on the circumstances.
Now there are certain things you can do to assure that your center doesn't run into a cash crunch. First off, you need a plan. You need a financial pro forma that projects your cash needs in every stage of the business, particularly within that first year. And you need some reserve in case your break-even revenues don't hit on the anticipated timeline. You also need a business plan. You need to understand and look at and evaluate every expense in your business to make sure that you're making smart decisions to preserve as much of your working capital as you can.
So we typically see decisions related to an urgent care center's location. We see urgent care centers that fail to get insurance contracts representing at least 75% of the population of the community that they serve. We see urgent care centers that don't spend aggressively on marketing, or don't spend enough money on marketing early on to drive or push that initial revenue or volume through the centers. We see urgent care centers that hire too many employees. They overstaff. We see urgent care centers that spend too much money on the bill out. And we see urgent care centers that pick an opening date that is within the peak season, not giving them enough time to get their marketing spent to generate to spur patient volume.
So the reasons why urgent care centers struggle are very well-known. Ultimately, the one reason for failure goes to cash flow. There are things you can do, starting with a strong business plan that addresses all of these issues and a strong business pro forma that anticipates all your cash needs that can help position you for success in your urgent care practice.
At Practice Velocity and Urgent Care Consultants, these are services we provide our clients and if you're interested in learning about these services, you can certainly contact us at the website you see on your screen. Once again, this is Alan Ayers, Just Checking In.