Doing your homework before opening any business is essential, and especially so in the very competitive but potentially lucrative medical aesthetic world. Within that initial study and planning phase, a sound financial model must be developed in order to insure success. What are some of the specific steps that should go into building your financial model?
• the first section of the financial model it to identify the capital investment needed to launch the concept as it relates to the scale and scope of the practice (this has to be done even before this step). There are four “buckets” of capital investment:
– Leasehold Improvement
– Furniture & Equipment
– Start-up Costs
– Working Capital
It is important to realize that launching an aesthetic practice is more costly than a regular medical practice and/or typical spa. Let me take each one of the above buckets and review the cost drivers:
– Leasehold Improvement: Once you add a descriptor such as aesthetic, spa, medspa, or cosmetic to your name (XYZ, Aesthetic Center) there is an expectation built into your message that needs to be met if you’re going to have satisfied customers (patients). Thus your investment into the physical plant needs to be higher than a typical medical practice. The per square foot cost runs between $100 – $150 to build out a practice that has visual impact and is functional. This is approximately $50 – $70 more per square foot than a standard medical practice.
• Furniture & Equipment: Lasers are an important component of an aesthetic practice. If you are seeking to invest in a laser (with multi-functionality) from one of the top ten laser companies you will typically spend between $125K – $185K. If you plan on doing laser lipo (one of the most requested procedures), then it’s an additional $150K between the laser and the other equipment necessary to perform the procedure. This is hard to pass up because of the high demand non-invasive body contouring if offering providers, but the device costs around $80K. For example, we have launched Ultherapy at one of our practices and their sales paid for the device in the first two months. If that excites you then add another $80K. This brings the total, just for aesthetic procedure technology, to $460K for the package I just described. I’m not saying you have to launch your business with all of this technology day one, but you do have to make a significant investment into technology to be competitive.
• Start-up Costs: Unlike traditional medicine where your leads are generated from physician referrals and your insurance carriers, aesthetic medical leads are generated by your marketing program. This is one of your major start-up costs. Prior to opening your practice, you need to develop a brand identify, website, brochure, digital communications, and an advertising campaign. This can cost between $25K – $50K. Also included in start-up costs are pre-opening rent, payroll, inventory, supplies, cost of financing, and consultants. So often these costs are overlooked when adding up the total investment and they can add up to over $150K.
• Working Capital: Finally, in order to successfully implement your operating and marketing plan, you will need money in the bank day-one to cover any operating losses which will be incurred in the first 3-9 months. We typically see a need for $30K – $75K available to fund the “runway to profitability.” Similar to start-up costs, working capital is oftentimes overlooked in the planning process.
Too often when we work with clients or discuss business development with prospective clients, they totally underestimate the investment necessary to be successful in today’s competitive aesthetic medical field. Being under-capitalized is the number one reason why new businesses fail. Inevitably, an under-capitalized business is more costly (to salvage the business) than a fully capitalized business. Several times in the past we’ve had clients move forward with their project without being full-funded (against our advice). One ended in divorce and the other drained their savings completely.
What is exciting about aesthetic medicine is the success that can be achieved. The market continues to expand and for a well-planned and capitalized venture, the return on investment is excellent. Over the years, Colleen and I have invested in day spas, health clubs, hair salons, wellness centers, skin care lines, and medical spas. To this day, our highest return on investment (by far) has been in aesthetic medicine.