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Laboratory Administration & Management of Pathology Practices

Planning

Creating a business plan

Author: David A. Novis, M.D.

Editorial Board Member: Patricia Tsang, M.D., M.B.A.

Last author update: 1 June 2020

Last staff update: 6 May 2021

Copyright: 2020-2024, PathologyOutlines.com, Inc.

PubMed Search: Business plan[TI] full text[SB]

Table of Contents

Cite this page: Novis DA. Creating a business plan. PathologyOutlines.com website. https://www.pathologyoutlines.com/topic/managementlabbusinessplan.html. Accessed December 21st, 2024.

What is a business plan?

Definition
- Narrative blueprint describing the nature of an intended business
- Road map describing the implementation of an intended business
Deliverable value
- Defines activities by which to implement a business
- Exposes financial pitfalls
- Provides documentation for lenders, investors
Applicability
- Business plans are generic templates applicable to any industry: manufacturing, technical, service, health care, etc.
- See Appendix: special considerations for pathology and laboratory services
- Not all elements listed in business plan below will be applicable to every business
- Elements described below may not be all encompassing for every business

Why write a business plan?

It can clarify what you are getting yourself into (i.e. tell you whether you are doing the right thing or the wrong thing)
If you need capital or risk-sharing partners, reputable lenders and risk seekers will demand that you present them with a business plan
It will help you determine whether or not your venture can achieve your goals, especially profitability

Before you begin

Know why businesses fail (Entrepreneur: 10 Reasons Why 7 Out of 10 Businesses Fail Within 10 Years [Accessed 4 May 2020])
Familiarize yourself with standard business metrics (process.st: 53 Essential Business Metrics You Need to Be Tracking in 2018 [Accessed 4 May 2020])
Understand why a business plan is necessary (U.S. Small Business Administration: 5 Reasons You Need a Business Plan [Accessed 4 May 2020])
Know what resources are available to business startups (Score: List of Startup Resources [Accessed 4 May 2020], Iowa State University: Business Development - Starting a Business [Accessed 4 May 2020])
Discuss your concept with key advisors:
- Spouse, friends, colleagues, attorneys, business advisors, stakeholders, potential partners
All principals in the proposed venture should answer the following questions:
- Why exactly am I doing this? Are you doing this because you have a need to be better tomorrow than you are today? Because you are worried about your future? Because you require greater income? Because it just seems like the right thing to do? Because you wish to seek new challenges? Answering this question honestly will keep you focused on achieving your goal.
- What are my goals - exactly what do I hope to accomplish? Greater income? Greater peace of mind? Greater respect in the community?
- Can I accomplish the same goal another way? What ways other than launching a new business might you be able to achieve your goals? Rethink your end point and whether other paths to it might be easier, more economical and more rewarding.
- What sorts of data will I need to make decisions? We don’t know what we don’t know. What sorts of information are you missing to arrive at your business decisions?
- How will I obtain that data? Will you be able to do your own research? Will you need help? Who will be your go to advisors and how will you engage them?
- Where will I procure capital? Will you need to put your personal assets on the line to secure a bank loan? Will you be comfortable engaging venture capitalists? Will your family be able to provide capital and are you comfortable in asking them?
- How do I know if I will have enough capital? The time will come when your business plan includes the capital you will need. How will you determine the accuracy of that figure?
- What is my comfort level for risk? Will you be willing to list your home as collateral on a bank loan? Can you tolerate bankruptcy?
- What are my key metrics for measuring success and failure? Given the goals you have stated above, how will you determine whether or not you are succeeding or failing?
- At what milestones of time will I assess success and failure? How long will you wait until you determine whether or not you are achieving your goals; whether you should continue or cease pursuing your goal?
- What are my contingencies for failure? If it becomes clear that you will not reach your goal, what will you do?
- Where are the weak spots of my proposed goal? Are there unintended negative consequences in achieving the goal you have laid out?
- Have I successfully and honestly neutralized skeptical arguments to the goal I would like to attain? Have others voiced skepticism to the goal you hope to attain and if so, are you being honest and realistic in your reaction to that skepticism?
- How will I eliminate bias in my assumptions and projections? Have you examined your bias in formulating your goal? Are you overly optimistic?
- Do I really know my market? Do you understand that you are not the market? Are you contemplating launching a service or a product that you would use but for which there is not widespread consumer interest?
- What is the intended lifespan of the business? Do you plan to grow your business over your lifetime or to exit early based on a finite timeline?
- What is my exit strategy? Regardless of the lifespan, how do you plan to terminate your business? Sell it? Retire?

First step - the feasibility study

What is it:
- Study to:
  - Determine the viability of an idea
  - Answer the questions above
- Not a business plan but comprises many elements that will become part of a business plan:
  - Feasibility - evaluates several options to accomplish business goals
  - Business plan - provides specifications (i.e. roadmap, blueprint) for single final selected option
Feasibility study elements
- Description of product / service: the product or service you would like to provide, e.g. an outreach laboratory performing molecular pathology for other pathology groups and billing patients directly.
- Projected income statement (e.g. revenue minus investment to achieve goal): the revenue will comprise volume times net reimbursement. The investment will include all the costs (e.g. labor, equipment, supplies, etc.) required to generate that revenue. This figure will determine in a nutshell whether or not the venture may be worthwhile. For your molecular lab, the investment in building the lab may be dependent on the volume. An unfavorable patient mix or less demand than you anticipated may terminate your proposal and keep you from getting in over your head.
- Market survey / research: this will determine the number of tests you will do and the revenue you will derive from them. It must be performed meticulously and consider the worst-case scenarios.
- Marketing and sales strategy: this strategy will determine how you obtain customers. Your laboratory will likely be competing against labs that have been doing this for a while. Be realistic as to how customers will prefer your service to that of others.
- Organization / management: the wrong people running your lab will sink it. Determine how you will choose your management wisely.
- Operations: know how you plan to run your lab—how will laboratory operations meet the demands of your customer?
- Staffing: this will be your single largest operational expense. To avoid unrealistic optimism, estimate on the high side.
- Scheduling: plan and budget laboratory scheduling to meet not your convenience but rather the needs of the customer.
- Opening day balance sheet: this is a summary of your assets and liabilities on your first day of business. It will tell you if your lab has the legs to walk to the break-even point.
- Technical, economic, regulatory, legal, operational, temporal and other considerations: this will be a compendium of the important considerations that may impact your laboratory. For example, are your molecular reagents verified for the application you are using them for or will you need to engage in costly and time consuming validation studies? Will that delay opening your laboratory?
- Findings / recommendations: this should be a summary of your feasibility study. It may contain recommendations for modifications of your plan if you decide to move forward with the lab. For instance, transporting specimens from the airport to your downtown location may be problematic and hence recommendations might include setting up your lab in an airport industrial park.
  - Technical, economic, regulatory, legal, operational, temporal
- "Go or no go" to move onto a business plan: this is the self-explanatory endpoint of the feasibility study.

Basic information

List concisely

Business name, address and contact information
Legal form of ownership and reason for selection:
- Sole proprietor
- Partnership, corporation
- Limited liability corporation (LLC)
- Other
Nature of business / service or product provided
Mission statement
Vision, goal, objectives (what the successful end point looks like)
Basic strategies to:
- Achieve goal
- Take advantage of business environment / industry viability
- Neutralize competition
Business culture or philosophy
Markets: primary and secondary
End game
- Continuous growth / maintenance to retirement
- Sale, acquisition
- Other
Business environment
- Favorable
- Unfavorable
- In flux
Industry viability
- Long term
- Short term
Key company strengths, assets, competencies, expertise
Key competitive strengths, assets, competencies, expertise

Products and services

Describe in detail

Description of products and services
- Your view - defining features
- Customers’ view - defining benefits
Competitive advantages or disadvantages
Proprietary elements
Patents, intellectual property
Special features:
- Delivery
- Warranty
- Refund policy
- Satisfaction guarantees
- Service and support
  - Associated with sale
  - Ongoing
- Other

Customer description

Retail - personal
- Location (of customers)
- Age
- Gender
- Income
- Social class
- Occupation
- Education
- Other, special
Retail business and wholesale
- Scope
  - Industry
  - Industry segment
  - Specific business
- Location (include drawings)
- Quality
- Technology
- Pricing
- Other

Operations: methods and costs

Location (include drawings)
- Home
- Brick and mortar
  - Location strategy (relationship to competition)
  - Physical requirements
  - Amount of space
  - Type of building and zoning
  - Power and other utilities
  - Building costs with debt service
  - Access
    - Customers
    - Employees
    - Deliveries
    - Shipping
- Lease / rent
- Maintenance
- Elements of importance to customers and employees
  - Convenience
  - Parking
  - Interior space
  - Image
Hours of operations
Production model
Equipment
Service delivery
Personnel
- Organizational chart
- Type and number each:
  - Skilled
  - Nonskilled
  - Professional
- Recruiting
- Onboarding
- Skill assessment and ongoing competency testing requirements
- Productivity assessment
- Retention methods / policies
- Pay structure
- Training methods and requirements
- Task assignment
- Schedules
- Policies and procedures
Inventory
- Amount
  - In stock
  - Turnover
  - Seasonal
- Value
- Cost
- Ordering
  - Lead time (scheduling)
  - Contingencies for delays / failures
- Suppliers
  - Names, address
  - Type and amount of supplies
  - Credit
  - Delivery policies
  - History / reliability
- Quality / quality control
- Customer service
- Inventory control and reagent shelf life
- Research and development
Subcontracting

Professional and advisory support and expenses

Board of directors: a board of directors provides the governance that guides you to achieving your corporate goals. Often the boards of medical practices comprise doctors only. In doing so, they are unable to benefit from the objective advice of individuals who possess experience and expertise that the physician directors may not. For instance, an outreach molecular laboratory might include directors who are in the medical insurance, medical product retail and financial industries. Because board members have fiduciary responsibilities, unlike consultants they are legally responsible for the advice they bestow.
Management advisory board: similar to a board of directors but without fiduciary responsibilities, a management advisory board can provide valuable critique of daily operations, sales, marketing, etc.
Financial, banker
Legal
- Licensing and bonding requirements
- Permits
- Patents, patent protection
- Trademarks, copyrights or patents (pending, existing or purchased)
- Contracts
- Sales agreements
Regulatory (federal, state, municipal)
- Health
- Proficiency survey subscription
- Workplace (e.g. OSHA)
- Environmental (e.g. waste disposal)
- Zoning or building code requirements
Accounting and bookkeeping
Insurance coverage
Consultant(s)
Other mentors and key advisors

General industry economics

Market
- Size
- Your proposed share
- Demand for product / service
- Trends
  - Customer preference
  - Product development
  - Regulatory
Growth potential and opportunity
Barriers with mitigating plans
- Costs: plan on cost overruns in the acquisition and cost of capital, operations, sales and marketing, shipping, supplies, etc.; have access to additional capital or plans to cut costs without affecting quality or service
  - Capital
  - Production
  - Marketing
  - Shipping
- Consumer acceptance: be prepared to alter you product or services if your customers do not like them; for instance, if your drawing station closes at 4 p.m. but patients get off work at 5 p.m., be prepared to extend your hours
- Brand recognition: if customers recognize the brand of a competing laboratory but not yours, be prepared to boost your marketing.
- Training: if medical demand requires that you add a new test, consider how you will train your staff to perform it.
- Labor availability: it is often difficult to find experienced technologists. Have a plan and incentives to attract high quality labor if labor is in short supply.
- Technology: at one time, radioimmunoassay (RIA) seemed to be the future of chemical analysis in clinical laboratories. When other techniques replaced RIA, labs were stuck with expensive gamma and beta counters. Be flexible and have contingencies for methods that outdate unexpectedly.
- Patents: may prevent your laboratory from performing a test; do you find another test to replace it or just not do the test?
- Unions: union agendas might not advance your agenda. Know how you will interact with them.
- Tariffs and quotas: your laboratory instruments may be manufactured abroad; a sudden tariff can erode your bottom line.

Competition

Competitors: list for each competitor
- Name and location
- Products and selection
- Scope of competition for products / services
  - All
  - Some
  - Contingent: location, demographics, etc.
- Direct / indirect competitor
- Price and credit policies
- Quality and service
- Selection
- Service
- Reliability
- Stability
- Expertise
- Reputation, image and advertising
- Location
- Appearance
- Sales method
- Credit policies
- Other
For each element, list company's:
- Strengths
- Weaknesses
- Importance to customer
- Importance to you
- Your relative position scaled according to your preference:
  - Among competitors
  - Among importance to customers
- Your niche

Sales and marketing

Market research reports
- Primary
  - Professional outsource
  - Self
- Secondary
  - Published information:
    - Industry profiles
    - Trade publications
    - Trade association data
    - Business association, chamber of commerce data
    - Internet and media data
    - Census, demographic data
Marketing strategy
- Promotion
  - Budget, one time and ongoing
  - Advertising
    - Media
      - Visual
      - Print
      - Live
    - Frequency
    - Cost
  - Branding
  - Logo
  - Ancillary material
    - Cards, letterhead, brochures, signs, other
  - Customer identification methods
Sales
- Model
  - Retail, wholesale or both
- Distribution
  - Direct
  - Indirect (wholesale)
  - Lease
  - Franchise
  - Venues
    - Face to face
    - Web / mail order
    - Catalog
    - Brick and mortar
    - Wholesale
    - Internal sales force
    - Agents
    - Independent representatives
    - Contract bid
- Pricing and fees
  - Strategy
  - Actual numbers
  - Discounts
  - Credit
    - Credit policies: check credit worthiness and terms
    - Cost of credit
  - Policies for slow paying / defaulting customers

Finances

Startup expenses, capitalization
- Personal financial statement(s)
- Detailed itemization
- Sources of capital
  - Loan
    - Amount
    - What for / how used
    - Repayment terms
    - Interest, debt service
    - Use of funds
    - Collateral and liens
  - Equity
    - Short term needs
    - Long term needs (2 - 5 years)
    - What for / how used
    - Estimated return on investment
    - Exit strategy
      - Buyback, sale, IPO, other
    - Percentage of ownership
    - Conditions
    - Financial reporting to be provided
    - Involvement on board or in management
Projections
- 12 month profit and loss projection
  - Sales and volume forecasts
    - Best guess
    - Worst case
  - Cost of goods sold
  - Expenses
  - Monthly profit / loss for 1 year
- 4 year profit and loss projection
- Monthly cash flow (worksheet) with assumptions
  - Sales
  - Inventory purchases
  - Equipment purchases
  - Payroll
  - Cash outlays
  - Taxes
  - Regulatory fees, licenses, etc.
  - Maintenance, repairs
  - Loans
  - Other expenses
- Balance sheet (assets and liabilities)
  - Opening day
  - End of year
Break even (BE) calculation: break even point (units) = fixed costs ÷ (revenue per unit - variable cost per unit)

Ancillary information

Brochures and advertising materials
Industry studies
Blueprints and plans
Maps and photos of location
Magazine or other articles
Detailed lists of equipment owned or to be purchased
Copies of leases and contracts
Letters of support from future customers
Market research studies
Other

Executive summary

Last document to write
5 minute presentation: watch Shark Tank. Summarize the most important points in a 5 minute “elevator” presentation. Coring down to 5 minutes should allow you to present most efficiently, your concept to those who can help you with funding and resources. Don’t worry about including everything. Investors and stakeholders will fill the gaps with their questions.

Reality check

Before you launch the business plan, revisit questions from above and confirm / reject / modify initial answers

Appendix: special considerations for pathology and laboratory services

What is a business plan?

Definition
- Narrative blueprint describing the nature of an intended new service
- Road map describing the implementation of an intended new service
Deliverable value
- Defines activities by which to implement new service
- Exposes financial and institutional budgetary pitfalls
- Provides documentation for lenders, investors, administrators, other stakeholders
Applicability
- Generic template that must be modified for specific service (e.g. outreach laboratory, molecular and genetics laboratories, point of care testing, etc.)
- Not all elements listed below apply to every service
- Elements listed below may not be all encompassing

Before you begin

Extrapolate knowledge of why businesses fail in relation to pathology and laboratory services (Entrepreneur: 10 Reasons Why 7 Out of 10 Businesses Fail Within 10 Years [Accessed 4 May 2020])
Know what consulting resources are available to laboratory startups
Discuss your concept with key stakeholders as necessary and appropriate:
- Administration, hospital trustees, physicians, nursing, other health care providers, patients and other uses of the service, others
Understand that patients and healthcare providers are the market, not the laboratory or pathology service providers
Ask yourself the following questions:
- Why do we / the institutional leaders want to do this?
- What are our goals - exactly what do we hope to accomplish?
- Can we accomplish the same goal another way?
- What sorts of data will we need to make decisions?
- How will we obtain that data?
- Who will be funding this project?
- What are the key metrics for measuring success and failure?
- At what milestones of time will we assess success and failure?
- What are our contingencies for failure?
- Where are the weak spots of our proposed service?
- Have we successfully and honestly neutralized skeptical arguments to our service?
- How will we eliminate bias in our assumptions and projections?
- Do I really know our market?
- What is our exit strategy?

First step - the feasibility study

Same as above

Basic information

In addition to those listed above, as appropriate, list concisely

Nature of service provided
Key service strengths, assets, competencies, expertise

Products and services

In addition to those listed above, as appropriate, describe in detail

Description of service
- Providers’ view - defining features
- Service users’ view - defining benefits and expectations
  - Patients
    - Patient safety and error reporting protocol
    - Direct to consumer testing
    - Specimen acquisition, phlebotomy
    - Hours of service
    - Pricing tolerance
    - Billing policies (e.g. network provider, insurance acceptance, "surprise bills")
  - Health care providers
    - Pathologist consultation
    - Critical value notification
    - Teaching and conferences (e.g. tumor board, specialty, other)
    - Delivery schedules
    - Billing policies (same as for patients)
    - Quality and satisfaction
    - Access: order entry and result retrieval (e.g. LIS, electronic order entry, electronic result, office interface)
  - Proprietary elements or subspecialty expertise
  - Special features if different from existing (main) laboratory

Customer description

In addition to those listed above, as appropriate, describe in detail

Patients
- Ethnic breakdown that can influence:
  - Disease prevalence
  - Service patronage
- Insurance / payer mix
- Other, special
Referring providers
- Scope
  - Specialists
  - Employed and private physicians
  - Nonphysicians
- Location
  - Main health system campus
  - Peripheral / non main health system facility
  - Free standing facility
  - Other facility (e.g. physicians’ offices, mobile units, etc.)

Operations: methods and costs

In addition to those listed above, as appropriate, describe in detail

Location (include drawings)
Personnel
- Organizational chart
- Type (as per CLIA designation) and number each:
  - Skilled (e.g. medical technologists)
  - Less skilled (e.g. laboratory assistants and clerical staff)
  - Unskilled (e.g. loading dock, maintenance, etc.)
  - Professional (CLIA directorship, board certification, subspecialty training)
- Verification
  - CLIA mandated credentials
  - Onboarding
  - Ongoing competency testing (technologists, pathologists)
Specimen access
- Phlebotomy service
- Courier
- Specimen receiving and accessioning
Specimen processing
- Test menu, scope of services
- Instruments and platforms
- Specimen and reagent storage
Result reporting, critical value notification
Information technology, LIS
Quality control and performance improvement
Safety
- Handicapped access
- Hazardous material / waste handling and disposal
- Laboratory plant, policies, procedures
Client services / call center
Inventory
- Inventory control and reagent shelf life
- Supply chain
- Hazardous materials
Regulatory (federal, state, municipal)
- CLIA license as per laboratory complexity
- Laboratory accreditation (e.g. CAP, Joint Commission, ISO, AABB)
- Mock inspections
- Proficiency testing
- HIPPA
- Fraud and abuse compliance
- Workplace (e.g. OSHA)
- Environmental (e.g. waste disposal)
- Occupancy codes and building safety
Pathologist partnership (policies and financial issues)

Professional and advisory support and expenses

In addition to those listed above, as appropriate, describe in detail

Health system administration
Laboratory advisory board

General industry economics and trends affecting economics

Billing and insurance reimbursement
Technology
- IT, LIS electronic interface
- Testing platforms
- Instrumentation
Health care trends
Legislation
Regulatory

Competition

Same as above

Sales and marketing

Same as above

Finances

In addition to those listed above, as appropriate, describe in detail

Source of capital
- If self funded (e.g. private lab) - as above
- If institutionally funded (e.g. hospital outreach lab or new service):
  - Parent corporation, if applicable
  - Charitable foundations and grants
Projections
- 12 month profit and loss projection
  - Specimen volume forecast
  - Revenue projection: by payer reimbursement / self pay per CPT codes
    - Best guess
    - Worst case

Executive summary

Last document to write
5 minute presentation: watch Shark Tank. Summarize the most important points in a 5 minute “elevator” presentation. Coring down to 5 minutes should allow you to present your concept most efficiently to those who can help you with funding and resources. Don’t worry about including everything. Investors and stakeholders will fill the gaps with their questions.

Reality check

Before you launch the business plan, revisit initial questions above

Board review style question #1

Which of the the following statements about a business plan is true?

It is a narrative blueprint describing the nature of an intended business
It does not include details regarding how the business is to be implemented
It never exposes financial pitfalls
It provides the necessary documentation for the Internal Revenue Service
It is not generic but differs substantially for every industry

Board review style answer #1

A. It is a narrative blueprint describing the nature of an intended business

Comment Here

Reference: Creating a business plan

Board review style question #2

Which key financial projections are necessary to include?

Competitors’ 12 month profit and loss projections
3 year inflationary trends
Monthly cash flow worksheet
National gross domestic product (GDP) projections
Only best case scenarios

Board review style answer #2

C. Monthly cash flow worksheet

Comment Here

Reference: Creating a business plan

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