A good Financial Analysis involves consideration of current contracts, funding models and fee schedules, as well as the broader financial situation and priorities of the organisation. Drawing on this information, Innovative Rehab will conduct an assessment of the financial viability of any proposed service developments or modifications, which can be used to inform discussion with key stakeholders.
Building a Foundation
The first step in the process is understanding the nature of the proposed service development project. Is it an extension of a service you already offer? Or an attempt to get into an identified “growth sector” (that you don’t really have much practical knowledge about)? If it’s the latter, you’ll need to start broad, and source industry data from high performing sectors. If you’re building on an existing service (which is arguably a bit easier), it makes more sense to look at what the facility currently offers and see if there is a more efficient way of doing it.
Put simply, financial analysis starts with a breakdown of income and expenditure. This means going into detail with funding arrangements (don’t forget contract details) for each patient and matching this up against expenses. These might include staff time, administration requirements, possible “on-costs”, and expenditure on equipment and facilities (such as room hire).
What’s your Plan B?
Once you have these estimates, it’s important to factor in allowances for things not always going to plan (for example, patient non-attendance). Identify the best and worst case scenarios, then see if you can determine the most likely. The advantage of conducting a financial analysis for a service in a sector that you have some familiarity with, is that you already have some idea of the kind of issues likely to impact on income and expenditure, which makes your analysis more realistic. If you’re trying to collate figures for a sector that you don’t know much about, it’s probably best to allow more of an error margin.
Few things are more accurate than reality itself, so it may be worth running a pilot program to assist with financial modelling – or even trialling a couple of different program structures if you are able to. Another option is to draw on data from another service (that already does what you want to do) and use some of their discoveries as a starting point. Be aware of the characteristics of your particular patient population and geographical area when considering how much to invest on an idea modelled from elsewhere though – and if you decide to invest in equipment, it’s worth giving some thought to how easy it will be to shift it if all doesn’t go to plan (i.e. solvency).
Review of efficiency is essential to ongoing service development – and financial efficiency is an important part of that. Adding dollar figures to service delivery models can make it easier to differentiate between the different options. In addition, being sure that you will make – or at least not lose money – does wonders for creativity once program development is underway. So get clear about the level of profitability the organisation requires for a program to be sustainable – and find out how much time you have to get there.
Directing Profit – Get Yourself a Road Map
Finally, it can be useful to consider what might happen to any profit generated. Initial re-investment in a service (for example, via staff training and development, resources, etc.) can be a huge boost toward long-term growth and stability. However, it’s not always possible to do this. Senior management input into the final stages of the financial analysis process is essential. In particular, there needs to be a frank discussion about the business context surrounding service development initiatives and clarity regarding the organisational capacity to re-invest in services under development. If there’s no capacity to re-invest, then aiming small in the short-term might make more business sense. On the other hand, if the willingness to re-invest is present, then a clear understanding of service development needs and likely return on investment will help to prioritise surplus spending.
Don’t forget to consider other sources of short- to medium-term funding. For example, is it within the scope of the organisation to apply for a service development grant or tender? Can existing contacts and contracts be leveraged to generate service demand? And of course, ongoing monitoring and review is essential to ensure that financial estimates are accurate and that targets are consistently being met.
Innovative Rehab works with health services to design and implement quality allied health programs. We specialised in service development in populations where recovery from chronic illness is complicated by psychosocial barriers. We partner with health and community organisations to prepare grant and tender applications for service development.
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