Business , Columns

Want to build a hospital?

Veterinarians tend to be good risks for lenders, so doctors with excellent credit and a detailed business plan are a step ahead.

Want to build a hospital?
Getting to this point in a hospital’s construction will take time. The payoff comes later.
Photo courtesy of BDA Architecture

After practicing for years in hospitals run by other veterinarians, you decide it’s time for your own place. You know where the hospital should be located and maybe what it should look like. But what now? Where do you start?

Meet Dr. Kate. She’s been out of school for eight years and for much of that time has dreamed of opening a clinic. Financially conservative, she’s worked and saved her way out of most debt. She’s been with three small animal general practices and loves the work. Together with a colleague, she’s decided it’s time to take control of her future and make something new.

Dr. Kate lives in a middle-class suburb of a Midwestern city. She has her eye on a commercial strip center close to nice neighborhoods, a new school and two subdivisions under development.

Her wish list includes:

  • A small animal general practice that keeps pace with the latest medical developments and focuses on patient wellness
  • High-tech offerings as well as three alternative modalities: acupuncture, therapeutic massage and physical therapy
  • 5 full-time-equivalent veterinarians at the start but 2.5 or 3 FTEs within five to seven years. Her colleague is a new mom and is looking for a half-time schedule.

Clients love Dr. Kate. She’s developed a following, but not enough of one to sustain a clinic. Having grown up in the age of social media, she’s comfortable with the idea of marketing and hospital promotion.

Dollars and Cents

About a year ago, Dr. Kate visited her banker to see about qualifying for funding to support her venture. She had been with the bank a lot of years and had a very good credit score. She managed to save about $75,000 in seed money, which her business plan indicated would cover about 10 percent of the project’s total budget and pay for initial operating expenses.

The meeting was not encouraging. The bank wanted an owner’s contribution of at least 20 percent, plus assets to collateralize at least half of the remaining debt. Her dream appeared to be on hold for a few years.

A month later, she stopped by a specialty lender’s booth at a veterinary conference. She learned that unlike conventional banks, these lenders focus on the specific needs of the veterinary profession.

She also learned:

  • Veterinarians statistically have among the lowest default rates of any profession.
  • Her business pro-forma would be a key basis for the loan amount rather than how much equity and collateral she could muster.
  • The U.S. Small Business Administration offers programs for startups.

After review and approval of her business plan, it was game on again.

Veterinary Math

Seeking space in a popular and growing strip center was the right choice for Dr. Kate. Now she needed guidance on how to build and fill her clinic.

After identifying her funding source, she engaged a specialty design firm. She didn’t know how many exam rooms, treatment tables, cages and runs would be needed, and in how many square feet. She knew her target caseload, but how would she translate that into the physical requirements? Companies with wide experience provide the expertise and answers.

First is the project definition: how big, how much and on what schedule? The design firm takes the number of FTE DVMs and other information, including the projected caseload and hours of operation, and determines the required number of exam rooms. Similarly, other components are quantified, resulting in the overall size need.

The firm also can consult on trends in veterinary medicine: growing acceptance of dental care and wellness programs; digital records and real-time data entry; feline-friendly features; customer service; advances in imaging, diagnostic and treatment modalities. They all influence an efficient flow pattern.

What quickly became apparent was the need to minimize initial capital costs. A new practice has a lot of expense items, so the budget for each category must remain reasonable and be as tight as possible.

A Matter of Timing

Often overlooked is the project schedule. This is especially critical for a startup. Cash and debt management is paramount if Dr. Kate is to survive the initial months before profitability. Once a project is started and debt incurred, the goal must be to generate income as fast as possible.

The time needed for revamping a building versus constructing one from scratch is much shorter: on average, three to four months compared with eight to 10 months. That’s just the build phase. Design and engineering approvals and permitting are faster and less expensive with an existing, quality commercial space. But caution: This may not hold true when renovating an older property. The last thing you need is to be saddled with asbestos mitigation or a failing foundation.

Newer commercial spaces offer great advantages but come with their own cautions, chief among them zoning. Not all commercial properties allow veterinary use, especially if the boarding of animals is desired. This is where commercial real estate agents will be useful. A good agent will know the area’s zoning limitations and will limit offerings to spaces where a clinic is allowed.

Be cautious of locations that require a variance or special-use permit. The process is often lengthy and costly. In the end, the project could be denied.

Choosing the Builder

After site selection and soon after the design work starts, the next order of business is searching for a contractor. A good contractor is a valuable resource for budget and constructability issues.

What makes a good contractor? The obvious factors include a reputation for quality construction and for meeting schedules and budgets. The not-so-obvious red flags may involve communication, dedication to the goal, and generally caring about you and your dream.

Ask for recommendations from veterinarians who recently completed a project. Read local business publications; companies winning awards are usually the quality builders. Don’t assume a big company isn’t interested in smaller projects. Cast a wide net and then work to a shortlist of two or three candidates.

So, it’s time — financing in place, design done, builder selected, permits in hand. Today the action begins as trucks, tools and workers show up. Over the next weeks and months, Dr. Kate’s hospital begins to come together.

One day the jumble of studs, wires and pipes has been transformed into exam rooms. For the first time, Dr. Kate is able to walk through what looks like a clinic. Her clinic. It’s still rough, still dusty, but she feels it. Her dream is close to becoming a reality.

Future articles will describe these steps in more detail along with strategies for getting the hospital you’ve always wanted.

Constructive Criticism columnist Paul Gladysz is the principal architect at BDA Architecture. The firm specializes in the planning, design and construction of animal care facilities.

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