The Association is committed to promoting the highest degree of professionalism and ethical standards for its members. In addition to mandating members adhere to a strict professional code of ethics, NAMB provides its members with the highest levels of professional knowledge and education.
Whereas Cash Flow is the “life blood” of any business, recording, collecting and analyzing your business’ operations is the “heart.” The goal, always, is Continuity and Diversity of Income. Therefore, successful practices start their fiscal year with a plan that describes the strategic goals of the organization, its financial and other resource needs. Capital partners such as banks may require a formal business plan before approving credit. GPA Capital has developed a Planning Tool to help our followers and clients. You will benefit by reviewing these Top 10 Strategies:
Strategies I: Strategic plan
Strategies II: Budget
Strategies III: Legal
Strategies IV: Finance
Strategies V: Insurance
Strategies VI: Credentialing/Third-party payors
Strategies VII: Facilities
Strategies VIII: Staffing
Strategies IX: Practice Management
Strategies X: Banking Relationship
For further assistance and direction, feel free to complete GPA Capital’s brief Medical Practice Questionnaire at no cost or obligation.[Start Here]
Whether expanding your existing practice, purchasing a practice or planning your exit, at some point you will be planning to borrow funds for your Medical Practice. Each loan is like “going to battle” with a bank. Listening to the horror stories of our clients who have come to us after being shot down for their commercial loan request, we felt that it would help future borrowers to share what we have learned. Below is the short list and attached is the whitepaper.
Applying with the wrong lender. Simple, but the number one reason.
Lack strong “compensating factors”
Can’t properly document your income
Inexperienced loan officer or mortgage broker
Your reasons for seeking a long don’t make sense.
You don’t have a solid business plan.
The outside conditions are too risky.
Picked the wrong type of venture or initiative
Sandbagged by a know-nothing appraiser
Bushwhacked by new rules
GPA Capital tailors each unique loan for its providers to best serve their needs. Equally as important, we structure the loan package for minimum chance of being declined. Plus, we always have backup plans 2 and 3. Funding to a conclusion is our goal. Please review the material and should you decide, you can get started here.
As commercial financiers with decades of experience, we recognize that successful healthcare borrowing requires both “art and science.” Unfortunately, many providers don’t understand this and after weeks spent rounding up documents and filling out forms (then more weeks of waiting), 62% of loan applications still get turned down due to inadequate paperwork or poor communication.
Producing a successful commercial loan package requires 2 different skill sets. In school, most people are either good in English/Creative Writing classes (art) or good in Math classes (science) – or if not good, at least prefer one or the other. However, a successful commercial financier must excel in both.
Writing: Clearly summarizing a borrower’s past (especially details surrounding issues like bankruptcy), the current status of the practice and then presenting future goals that lender’s buy into is crucial. Two fundamental rules in writing are “know your audience” and “know your subject.” By having an MBA in Finance and decades as both a commercial loan officer and commercial loan broker, Chuck Pope at GPA Capital has both rules covered. Knowing how loan officers analyze loan packages and the skill developed from writing hundreds of them himself provides the skill required to focus on each application’s highlights and downplay any deficiencies. Like any good biography, the story must lineup with the facts – in this case, the attached financial documents.
Math: Analyzing and extrapolating critical data from often thousands of pages of various personal and business financial documents going back years is hard. Then repackaging that data into clear and concise documentation that even the busiest loan officer can quickly find is even harder. By understanding exactly what data loan officers and underwriters are looking for, GPA Capital knows that, with a multitude of loan types and access to hundreds of lenders, with the right financial documentation, there is a fit for almost every situation.
By working closely with our clients, we craft loan applications that provides the required financial documentation and is framed in the best light possible. The result is a much faster loan with the best rates and terms available.
By understanding the fundamentals of how your banker analyzes potential loans, you become a much more formidable borrower. Plus, an educated and knowledgeable borrower is our best client.
Your banker subscribes to the “5 C’s” which he learned in banking school. We put together this informative eBook that is part of a 5 part series to bring you current with the state of the borrowing industry and how you might leverage your resources to improve your practice’s financial situation. The Five C’s Whitepaper, Educational Series 1 of 5. Enjoy!
Understanding Replacement Reserves in View of Storm Season
The topic of replacement reserves is often confusing for medical practice owners:
How much should be set aside for replacement reserves?
Should replacement reserves be included in net operating income?
How do replacement reserves impact cap rates and value?
What are Replacement Reserves?
Replacement Reserves are funds set aside that provide for the periodic replacement of building components that wear out more rapidly than the building itself and therefore must be replaced during the building’s economic life (short lived items).
These components typically include the replacement of the equipment, furniture, hardware, software, file storage and most assets that are part of your practice.
Now, with the advent of hurricane season in the South and East, tornadoes in the Midwest and the myriad of natural occurrences everywhere in between, an “anticipatory disaster reserve” can now be justified. This is all handled within your budgeting process, i.e. Sources & Uses of Funds.
How much should be set aside for replacement reserves? You should start by working with your insurance agent, what is the “risk rating” in for your area and adjust replacements accordingly. A good rule of thumb is to:
Estimate replacement value along with shipping, labor and training
Subtract the insurance coverage
Add 30 days Gross Earnings (based off your prior years 1120)
Include 3X marketing expense to recapture lost market share.
Replacement reserves are an important line item in any healthcare business. Capital expenditures are necessary for Continuity of Income. Yet, many people gloss over the reserves for replacement line item and often exclude it completely from the NOI calculation. The fact is that, if you include it after Earnings and before Tax it will not affect your capitalized value and it will demonstrate sound management and planning which is critical for your sustainability. This is also an excellent time to “put adversity to work for you” and get up to speed with your practice analysis, diversity of income and compliance measures including payment performance programs.
Some medical practices never manage to establish a budget, and many others establish a budget and never look at it again. As GPA Capital receives a loan request, we have a discovery session which can reveal too much overhead in proportion to the revenue being generated. Failure to identify the problems, and provide appropriate solutions, results in a working capital shortage and inability to meet current debt service not to mention future debt service for practice improvements, practice expansion, and may cause diminished practice value whether selling, purchasing or refinancing.
The science is to understand and implement an easy to maintain flexible budget and not a static budget. Assure that you seek qualified help to create continuous budgeting, not rolling. The art is to use this tool to identify and create diversity and continuity of income. To bring these two together, you must have a flexible, continuous budget which will then open your horizons to predictive financial modeling and achievement of your financial goals.
The bottom line… most physicians are finding it hard to compete in the current healthcare environment and at the same time, they would rather “not” go to work for someone else, retire, or worse yet, sell their practice for pennies on the dollar because it’s not generating the income it should be. Not only is our survey revealing, but so are the comments gleaned from our team of experts.
Consistent with debt coverage and additional cash available at the end of the month, GPA Capital has put together a program which specifically addresses the concerns of today’s independent physicians.
Looking forward to serving your capital needs for your new office, acquisition, expansion or refinance. Complete this short form[Express Loan App]and get it back me, (confidentially, of course). 24 hour loan approval in most cases.
We have reflected in earlier posts the critical importance of achieving a high MIPS score. Reimbursement, practice value, and professional reputation are all directly impacted by a MIPS score. Here is yet another collateral impact of a MIPS score: the ability to obtain and maintain a loan. A tip of the hat to my friends in the healthcare finance business over at Grice, Pope and Associates who alerted me to this pearl of wisdom.
First, a little financial loan lesson from Wikipedia on the infamous debt service coverage ratio:
“The debt service coverage ratio (DSCR), also known as “debt coverage ratio” (DCR), is the ratio of cash available for debt servicing to interest, principal and lease payments. It is a popular benchmark used in the measurement of an entity’s (person or corporation) ability to produce enough cash to cover its debt (including lease) payments. The higher this ratio is, the easier it is to obtain a loan. The phrase is also used in commercial banking and may be expressed as a minimum ratio that is acceptable to a lender; it may be a loan condition. Breaching a DSCR covenant can, in some circumstances, be an act of default.”
So there you have it. The DSCR is based on the documented ability to have enough cash flow to repay a loan. Although there is variation among lenders, a DSCR greater than 1.2 is good enough to obtain a loan. Many providers and practices will find if they are below 1.2 they will have difficulty getting a loan. If your cash available to service a loan should drop, as might occur when a low MIPS score suddenly triggers a reduction in Part B reimbursement, you might be in trouble. You could face difficulty in obtaining a new loan. Even worse, if you have an existing loan with DSCR covenant, you could immediately be in default. In 2019 potential Part B negative adjustments can be up to 4% and will increase 9% in 2022. Forewarned is forearmed.
The reasons to make a priority of achieving a high MIPS score continue to mount. Next week I’ll have another one for you.
High deductibles with increased co-pays are making Working Capital (cash flow) harder to come by. We see this at GPA Capital by the increased number of calls looking for long-term loans. However, many times we are able to help practices with a debt free solution that provides – and even increases – their cash flow.
In the past, Medical Factoring has only been available to hospitals and other large facilities. However, GPA Capital and our investors have created aFactoring Programtailored to small and medium healthcare practices.[1 minute video].
For clarity of the problem and multiple solutions, we dove tailed the summary above with this family physician’s actual case study. Next week we will give you some pointers on how to compete with the “big box” national dental chains moving into your area.
We look forward to serving your capital needs through our wide range available options. Simply complete this short Working Capital Form to get started.