Posted by Shrirang Tambe
28 Oct, 2015
Priyanka Pani | Mumbai | Updated on 28 Oct, 2015
In India, one of the industries that is witnessing massive growth in entrepreneurship is the healthcare industry. It is expected to become a USD 280 billion juggernaut by 2020 from the current size of USD 100 billion. Imagine the number of jobs it will create! Imagine its addition to the overall GDP of India! Government can even fund significant part of its fiscal deficit if it decides to bring a small part of the industry under the current GST regime!
However, the industry has one Achilles heel, one stumbling block to its growth – its attitude towards financial management!
The industry needs a lot of catching up to do when it comes to financial management; specially for the small and medium sized outfits. A good financial management can go a long way in maximizing the Return on Investment (ROI) for the expansion carried out.
Here are my 10 mantras that can help you maximize your return on investment
Mantra 1: Keep it simple
Do not create a cobweb of companies to deliver healthcare solution. Keep your corporate structure lean, simple and easy to administer. Doctors and medical practitioners should spend more time with their patients rather than their chartered accountants!
Mantra 2: Budget for working capital requirement
In most of the greenfield and expansion projects, all the capital expenditure costs are accurately considered. What is missed out is the requirement of working capital to run the new outfit. Budgeting for working capital will not lead to delays in starting the operations. When you are thinking of investment, don’t think only of land, building and equipment; think also of working capital.
Mantra 3: Dream big but gradually
Financial management is best achieved when growth rate is calibrated. Aggressive expansion can bring significant amount of stress to the financials of the existing establishment. It also forces individual doctors to pile up unsecured loans which can impact their CIBIL score.
Mantra 4: Analyse financial viability while taking loans
Today there is a tendency of medical professionals, hospitals etc. to add more and more loans since most of the times, financial institutions do not ask for a collateral from medical fraternity. It is important that a detailed analysis of the future cashflows is done to ensure that the repayment is not affected. Taking a loan to pay EMIs of the earlier loan can have serious consequences.
Mantra 5: Choose the right type of capital
One of the most critical points in maximizing return on investment is to lower cost of financing. Lowering it comes when you select the right kind of capital for the right nature of expense. Ideally equity should finance people and marketing, leasing and debt should finance equipment and working capital should finance day to day operations and cashflow mismatch.
Mantra 6: Use technology in other areas
Everyone uses state of the art technology when it comes to selection of medical equipment. However, accounting, HR and other routine processes are done manually. It is important that small and medium sized medical establishments automate all the routine and support functions to increase the productivity and bring in scale. It will also save time of the key management team on monitoring all the non medical related activities.
Mantra 7: Focus on books of accounts
It is important to focus on books of accounts and keep them as simple as possible. Multiple accounting entries among multiple entities can increase your risk profile with the financiers. The easier it is for a leasing company or lender to understand the books of accounts, the faster it is to avail such financing.
Mantra 8: Carry out a good market research
Competition is growing across healthcare segments. Carry out a detailed unbiased market research of the opportunity you are planning to pursue. Please factor in downside scenarios mainly with respect to pricing that you can charge, in light of the competition around.
Mantra 9: Build a good non-medical team and delegate
A lot of medical professionals want to do everything by themselves. Avoid micro management of all the activities. Hire a good team and delegate. It will increase the revenues and profitability in the long run.
Mantra 10: Enter into an agreement between partners/co-founders
Today there is a trend of large number of doctors coming together and starting a large hospital or medical setup. Equally is the trend where there are splits in such partnerships. Kindly have proper documentation among yourself to avoid legal battles and financial losses during exit.
By Shrirang Tambe
Shrirang Tambe is the founder & CEO of ORIGA Leasing, India’s first end to end Asset Life Cycle Management company operating into healthcare segment. It provides services right from selection of the equipment, financing it and recycling it at the end of the tenure. It also provides financial advisory to healthcare setups to streamline its financial management which can help them attract more capital for expansion. For your views and comments, write firstname.lastname@example.org Tweet me on @ShrirangTambe
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