[I:http://www.naturmeds.info/wp-content/uploads/2010/07/SeamusDavis49.jpg]Dermatologist medical spa success starts with a business plan: A good business plan will help you get a handle on all of the things that get glossed over in the excitement of starting a new business. If you don’t have one. Write one.
Remember, your plastic surgery medical spa is a ‘medical’ business, not a spa, and comes with special requirements. Non-physicians can not employ physicians, medical oversight, HIPPA compliance, and a host of other regulatory issues need to be addressed. Play fast and loose with these rules and you’re asking for trouble. (One of our local competitors in Utah was not providing adequate physician oversight. The state walked in one day, confiscated all of their technology and patient records and closed them down.)
Plastic surgery medical spa financing: Say “medical spa” as a physician and you’re everyone’s best friend. If you’re not a physician it’s not going to be as easy.
Your bank will probably be your first stop. Banks provide the best rates but are the most rigorous in investigating borrowers and have the least tolerance for risky loans. Banks will require that you have spotless credit and that the entire loan is secured. In most cases, everyone who owns 10% or more of the business will be personally responsible for the loan and have to provide two or more years of tax returns. Banks will want to see your personal financial statements, cash flow, a business plan (although they don’t read it), and have a visit.
Your bank is going to want to know how the funds are intended to be used and will want to see tangible assets that have a market and can be sold if the business fails or you can’t make the payments (IPL, lasers, Thermage, Fraxel, etc.). They don’t want to hear that you need more money for marketing and advertising or salaries that don’t have any resale value.
For a plastic surgeon owned medical spa, banks will extend a loan or line of credit. Loans have a set schedule and payments. A line of credit is somewhat different. The idea is that the bank extends a line of credit that you may draw on. Interest is paid only on the amount of money that is used. However, banks usually require that the entire balance is paid off and unused for one month every year. If you can’t meet this requirement, your credit line may revert to a loan.
Some bankers are at least moderately helpful. (At one time a local branch manager told one of our accountants that wanted some information that “he didn’t need our business and we could just live with that”.) Avoid these types if you can. A friendly banker can go a long way in securing loans and providing a little flexibility if things don’t go exactly as you planned. If you find a great banker, send him some cookies once in a while.
Banks often suggest (or apply on your behalf for) an SBA (Small Business Administration) loan that’s partially guaranteed by the government.
If you’re going to need more money than you have in IPLs, Thermage devices and lasers, you still have a couple of options like partnerships, joint-ventures, venture loans or equity.
Most medical spas with partners involve some form of equity exchange. Partnerships are a good example. It’s common for entrepreneurs to take little or no money, sometimes for years, until the business is cash flow positive. Sweat equity at this stage usually extends only to the founders but may extend to badly needed partners.
Medical Spa Equity: The simple rule is… the more money you need and risk you entail, the more equity you’re going to give.
Small are the first stop for most entrepreneurs. Angel financing is usually raised from friends and family or “high net-worth” individuals. In some cases you may find “Angel Groups” that meet together and look for investments.
Venture debt is basically a venture loan. The lender charges a higher interest rate than banks are allowed to (often around 14%) and accepts more risk. You will have to give up a small percentage of your company in what are called warrants. This small percentage (usually less than 5%) allows the lender to share in any potential upside.
Medical Spa Venture Capital: When most people think of raising large amounts of money, they’re thinking of venture capital. For medical spas or laser clincs, venture capital is not an option. VC money has some downsides though. It is hard to get and extremely expensive. When you add up the entire enchilada, you’re looking at about 80% compounding interest each year in return for that money. VC’s are looking for an investment term of three to five years and a ROI (return on investment) of 700% or more. Whew. You’re also going to loose complete control of your company and have someone constantly looking over your shoulder. There are cases where this actually makes sense. Many VC are extremely well connected and bring these resources to the table.
Now that you’ve got the money you need, what to do?
Most medical spas are grown from an existing cosmetic or medical practice. The idea of having IPLs and laser technicians and estheticians producing revenue, low additional overhead, increased patient flow, and the feel that “I could do that” is attractive to a large number of doctors who are tired of the grind of medicine. (We’ve been approached by a surprising diversity of physicians looking to enter this market including; anesthesiologists, cardio-thoracic surgeons…)
Medical Spa Locations: After some success, many physicians and MedSpa owners attempt to open additional locations. These second locations never achieve the success of the first clinic for a very simple reason; their a completely different animal. If you’re thinking of opening multiple locations you’re work load just tripled. Multiple location sites are outside the abilities of most physicians and involve a much greater financial risk. Staffing and human resources, legal issues, medical oversight… most fail within the first year.
Great medical spas are built around great systems. If your first medspa doesn’t run without you there for a month, you’re not ready for a second. Expanding fast is a sure why to overextend your resources and get yourself into trouble. If you’ve closed a second clinic, lenders are going to be very wary of lending you money.
Medical spa franchises: The “Turn Key Solution”: Medspa Franchises and consultants love to drop this phrase. The idea is attractive. Experts will guide your steps: Marketing, financing, training, everything will be delivered with a nice little box with a bow on top. Knowing a number of franchise owners and the problems they’ve had, beware.
The current crop of medical spa franchises have problems. Medical spa franchises are attractive because they claim to have all the answers. If you’ll just write the checks all of your troubles will be over. What you’ll really get are some manuals, pre-written scripts for sales, and bad ad-slicks. You’ll also get: locked into specific technologies that might be second-tier (the franchise gets kick-backs), spend money you could use elsewhere, and pay royalties on all of your income. (The franchises that offer a flat fee are an even worse idea. They have absolutely no motivation to help you.)
Rules of thumb for your medical spa or laser clinic – Big dogs eat little dogs. In this marketplace. Large, well-financed medical businesses with smart physicians and high-quality care are going to open up next door to you. These businesses will be category killers and if you’re not well established with a broad market presence and multiple revenue streams, you’ll be gone.
The $80,000 towel dryers. Choosing the right technology is one of the things that will let you move ahead a step, or put you in cement boots where you stand. I always think of the way one physician described the pair of IPLs [Intense Pulsed Light devices] that he’d bought; as $80,000 towel dryers. Before you decide on which system to buy you’re going to need to crunch the numbers. How many shots will the IPL heads last for until they need to be rebuilt? How much support is included? What kind of training is provided? Does the device work better than its competitors? Before you sign your next few house payments away, make sure of your technology decisions.
Buy your cosmetic laser, or lease. Leasing your cosmetic laser is the best way to go if you want to pay for your equipment as you use it. Many of the technology companies have delayed payment plans as long as six months. Buying used equipment is often the best way to save money if cash flow is not an issue. You can often save up to 40% off the price of a new machine if you have the cash.
Cash flow is a problem for many new medical spas. Med spa revenues and growth projections are exaggerated. Before you invest in embroidered leather spa tables, make sure you can pay your phone bill.
Plastic Surgery & Medical Spa Finances:
The Golden Rule is correctly translated as: He with the gold makes the rules.
You will end up being personally responsible for the money: Physicians sometimes think that they can use equity in their medical practice or future earnings as security. Not a chance in hell.
Be savvy: It’s tempting to take as much money as you can get. Don’t. All the money you take will come with strings attached.
But take enough money: Lenders hate it when you need additional money.
Competition is fierce. If your medical spa market is already “owned” by a competitor, think carefully before going into debt to compete in a market you can’t win.
Financing your medical spa is like anything else. In order to really find the best solutions you’re going to need to do some research. Remember, the most common reason that businesses fail is not lack of capital, its poor decision making.
For anyone finding out exactly what plastic surgeons and various physicians leading laser clinics think about the most up-to-date IPL and skin fractional laser systems out of Solta, Palomar, Candela, Cynosure, Lumenis, Syneron, Sciton, Alma, Cutera , or skin treatments like Thermage, Slim Lipo, Botox and Dysport, mesotherapy and IPL treatments, remember to stop by all the cosmetic laser community discussions on Medical Spa MD, a network of physicians in aesthetic medicine.
SwitchMD.com is a cosmetic medical spa marketing community of plastic surgeons, dermatologists, laser clinics and medspas with more than 5,500 physician members and hosts the most active physician discussion forums on laser liposuction and non-surgical cosmetic medical technologies.