Many of our clients come to us when wanting to start an aged care business for the very first time. Whilst many of them have grand ideas of being their own boss, there are some very important initial stages for setting up a business that you need to get through first. We have compiled this blog with the hope of helping you to plan for profit and maintain a healthy cashflow, grow a loyal customer base, find great staff and suppliers, and maximise your presence (both on and offline).
Don’t Spend Any Money Yet!
1. Getting your aged care business plan started
- Don’t overlook the importance of planning for success in the aged care industry. While some may question the need for a business plan, especially if they have previous experience in running a successful business, it’s crucial to engage in at least some level of business planning. Even if you don’t produce a formal document, taking the time to consider key elements is essential.
- First and foremost, you must assess the environment in which your aged care business will operate. This includes understanding the local community and neighbourhood of the specific area that you’re providing an eldercare service to. Don’t forget that part of this assessment involves researching your competitors.
- Once you have analysed the environment and evaluated your competitors, it’s time to identify your own strengths and weaknesses. Remember, these factors are only relevant when compared to those of your competitors.
- Next, be on the lookout for external opportunities and threats within the environment. Opportunities could arise if there are no competitors in your targeted areas/categories, whilst threats could include the presence of numerous competitors, the emergence of new online competitors, or adverse trends in the industry.
- Developing a comprehensive marketing plan and operational plan is crucial for your aged care business. These plans will outline your strategies for reaching and engaging with clients, as well as the operational processes necessary to provide high-quality care.
To keep your business on track, set clear objectives, milestones, and goals. This will provide a sense of direction and enable you to monitor your progress effectively.
- Although not mandatory at this stage, consider defining a mission and vision for your aged care business. These statements can provide a sense of purpose and guide your decision-making process.
2. Getting your legals sorted
- When it comes to aged care businesses, many clients often overlook the importance of determining their legal structure and focus solely on the services they plan to offer. While this mindset is understandable, it is not a wise approach.
- Why does the legal structure matter? Well, in the unfortunate event that your aged care business faces financial difficulties or encounters unforeseen circumstances (like another pandemic), you could find yourself personally liable for the debts incurred. As a sole trader, your personal assets (such as your house, car, and other possessions), can be targeted by banks and creditors seeking to recover the owed money. Even the ATO has the authority to withdraw funds directly from your bank account. On the other hand, if you establish your business as a Company, you have a separate legal entity, and your personal liability is limited.
It’s crucial to make an informed decision early on regarding the legal structure of your aged care business. Choosing between operating as a Company or a sole trader has tax implications and other complexities that you should be aware of. If you would like more detailed information on this topic, click here.
3. Getting yourself out there
- Branding is a crucial aspect to consider when establishing your presence in the aged care market. It’s essential that your messages, imagery, logo, and colours accurately represent the unique features and benefits of your business to your target market. If your research has shown that your target customers dislike pink, for example, it would be unwise to use a pink logo.
- Interestingly, many people create a logo before they’ve conducted a thorough ‘environment scan’ of their consumers and competitors. Without understanding your target consumers’ preferences in terms of colours, shapes, fonts, and imagery – as well as analysing your competitors’ logos in terms of their shapes, colours, and images – it would be careless to randomly come up with a logo concept. We have observed this happening with several of our NDIS clients who named their company or service and chose a logo without considering the essential factors. Consequently, they ended up using generic words like ‘care,’ ‘we,’ and ‘you,’ which failed to differentiate them from their competition. A logo should ideally make you stand out and appear distinct from others. You should seek guidance from a professional graphic designer who can offer valuable insights on contemporary colours, shapes, and imagery. Designs evolve over time, just like any other style.
4. Getting a marketing plan
- While we have, so far, emphasized the importance of having an aged care business plan, it’s worth noting that a concise marketing plan is a vital component within that larger framework. Consider it a dedicated section of your business plan; when you have the opportunity, develop a more comprehensive marketing plan as a separate document. The marketing plan should encompass several key elements: a clear definition of your target market, an in-depth analysis of your competitors, specific targets and goals that are broken down into manageable segments, strategies designed to help you reach those targets, and a monthly evaluation and measurement process. This step allows you to track your progress towards your goals and determine effective methods for attracting customers, whether it’s through physical visits, website engagement, or inquiries. By incorporating these elements into your marketing plan, you can ensure a well-rounded approach to promoting your business and achieving success.
5. Getting your online activities under control
- Online strategies are crucial in the aged care industry. These encompass various elements, like getting a website up and running, search engine optimisation, using informative content (just like this blog) to showcase your expertise and the quality of your services.
- When it comes to online marketing, it’s essential to understand the distinct roles played by platforms like YouTube, Facebook, Instagram, Google My Business, Pinterest, LinkedIn, and Twitter in influencing your customers’ choices between you and your competitors. Once you grasp their significance, determine the amount and type of material/content you should provide on these platforms, tailored to how your customers and potential customers prefer to engage with it.
- Search engine optimisation (SEO) is paramount. It involves incorporating relevant keywords, building links, utilising AdWords, and consistently measuring and evaluating your online presence. If your service requires customer education or the need for preliminary research before contacting you, then SEO is a must. Just as businesses wouldn’t neglect traditional directories like the Yellow Pages, they shouldn’t overlook the importance of SEO in the digital age.
- While AdWords and Facebook advertising are valuable, electronic direct mail remains an effective communication tool when executed correctly. With targeted mailing lists, you can directly email individuals or businesses across Australia at a fraction of the cost of an expensive advertising campaign. Consider leveraging both approaches to maximise your reach.
- Ensure that the quality of your services is on par with, if not superior to, your competitors’. Conduct market research to gather unbiased feedback from strangers on whether your offerings are genuinely better or not. For aged care businesses, the provision of additional services (such as physical and occupational therapies), a customisable menu based on dietary requirements, an above average staff-to-patient ratio, and other qualities may set you apart. Always strive to avoid competing solely on price. If you must, refer to the next point first.
- Pricing is a critical consideration. Based on your earlier environment scan, determine whether you need to be highly competitive or undercut your competitors to establish a foothold in the market. Should you charge less, the same, or can your service command a premium due to its superior value? Research suggests that charging more than 7% above the market average may encounter resistance from customers.
- Expanding your visibility and availability extends beyond online platforms like Facebook, Instagram, and Google My Business. Many aged care businesses overlook the importance of being seen in physical locations and employing methods beyond traditional advertising. If your business is near a medical clinic, for example, consider engaging with potential customers by offering tours of your premises. Leave behind flyers or QR codes to access your website, ensuring that your presence extends beyond online ads. By strategically reaching customers in various locations, your overall reach can increase significantly.
Operations & Services
6. Getting employees
- The recruitment process in the aged care industry should always involve the creation of a detailed job description and a person description. The person description outlines the qualities and characteristics of the ideal candidate who can effectively fulfil the job as described.
- Surprisingly, many people expect to find a unicorn – that is, the perfect candidate who ticks all their boxes without blinking. While such individuals do exist, relying on chance alone is not a prudent approach when people play a crucial role in your operations. Especially when you have staff members interacting directly with clients, engaging in conversations, or communicating via email, it becomes essential to clearly define their values, approach, and style. Aligning these aspects with the job description ensures that you attract candidates who possess the necessary qualities and can fulfil the required tasks effectively.
7. Being an employer
- Your responsibilities towards your employees encompass various aspects, such as ensuring fair compensation, paying superannuation, fulfilling payroll tax obligations to the government, prioritising their safety, and offering them a comprehensive employment agreement that outlines their role. There is a current shortage of skilled workers in many industries, including aged care, leading some businesses to hire individuals who may not fully meet their requirements. To establish your reputation as an employer of choice, it is crucial to prioritise equitable and timely payment for your employees while treating them with respect and care. Recognise that they directly influence the quality of your services and play a significant role in fostering customer loyalty.
Money, Money, Money
8. Bookkeeping & accounts
- Establishing your cloud accounting system is crucial for efficient financial management. While it may be tempting to continue using Excel like you did for planning purposes, it ultimately brings more trouble than benefits. Excel lacks preloaded formulas, up-to-date tax rates, calculations, and charting capabilities that specialised accounting software like Xero, MYOB, or Quicken can provide. It’s essential to set up a comprehensive financial system sooner rather than later. Additionally, the introduction of single touch payroll, a reporting requirement mandated by the ATO, has rendered traditional Excel-based financials inadequate.
- Create a simple system to organize and track bills, receipts, and invoices – don’t overlook managing petty cash.
- If feasible, consider obtaining a dedicated company credit or debit card to separate your personal and business finances. This step will help maintain clarity and prevent any potential confusion or mixing of funds.
9. Getting your books started correctly
- Tax deductions and the ability to carry forward a loss are often overlooked by new aged care businesses, resulting in missed opportunities to save money. It’s important to understand that even expenses incurred during the early stages of your business (such as transportation costs for location visits), can be tax-deductible and contribute to creating a loss that can be carried forward.
- By starting early, you can establish systems to track your expenses and revenue while the volume of transactions is still manageable. As your business grows and transactions become more complex, having a solid system in place from the beginning will make it easier to manage various types of expenses effectively. Taking these proactive steps will not only help you optimise your tax deductions but also streamline your financial processes as your business expands. Don’t delay in leveraging these benefits—start organizing your financial systems and maximising deductions as soon as possible.
10. Start-up costs & expenses
- Begin by creating a comprehensive start-up budget that takes into account both your living expenses and all the necessary purchases for your aged care business. Instead of simply making a list and getting started, it’s advisable to gather information, conduct research, and ensure you have everything you need before opening your doors. This approach helps you stay within budget and ensures a timely setup of your new premises.
- Next, carefully consider your financing options – such as business loans, personal credit cards, equipment leasing, or involving an equity investor who can provide financial support in exchange for a stake in your business.
- When seeking a loan, select the right lender based on factors like loan term and interest rates. Additionally, it’s important to understand the process of submitting a successful loan application.
- In the event that your loan application is rejected, it’s helpful to know what steps to take next. Consider the option of engaging a finance broker who can assist you in navigating the financing landscape.
11. Understanding profit and loss, balance sheet, and cash flow
- Gaining a clear understanding of how a profit and loss report functions, conducting a sales forecast, and meticulously accounting for all costs and expenses are crucial aspects. It’s important to distinguish between costs and expenses: costs fluctuate based on the volume of sales, while expenses are fixed regardless of sales. In an aged care business, for example, catering and medical supplies would be considered costs. On the other hand, wages and utilities (such as internet services) would be classified as expenses in any business.
12. Calculating a margin
- Gross profit represents your earnings after covering the “costs” associated with your business. In an aged care business, for example, once you’ve accounted for expenses like tea, food, medical supplies, and laundry, your gross profit remains. Following this, you deduct your “expenses” to determine your net profit, also known as EBIT. These expenses encompass things like salaries, internet costs, electricity, air conditioning, and other similar expenditures.
- To assess whether your margin is favourable, the ATO provides useful benchmarks, which can be found at www.ato.gov.au/business/small-business-benchmarks.
- Now, how can you estimate your breakeven point and determine when you’ve reached it? The formula is as follows:
Fixed Costs / (Average Sales Price – Variable Costs)
- This formula prompts you to consider your fixed costs, variable costs, and average price to determine the number of services you need to sell per month (or fees you need to collect). Let’s look at an example:
Fixed operating costs: $5,000 per month
Variable expenses: $1,500 per month
Average price: $2,500 per service/patient
$5,000 / ($2,500 – $1,500) = 5 services/patients per month
- In this scenario, you will break even by selling five services (or collecting the fees for five patients) per month at a price of $2,500 each.
13. Keeping on the good side of the ATO
- For businesses generating over $75,000 in turnover, registering for GST is essential, with approximately 90% falling into this category. Delaying the registration process only invites government scrutiny, as they closely monitor those who fail to pay the applicable taxes on their earnings. Their reasoning is straightforward: if you’re earning money, you have a responsibility to fulfil your tax obligations.
- However, other aspects of your aged care business require a more flexible approach, necessitating the implementation of the bookkeeping system mentioned earlier. This allows you to leverage tax deductions, and the more meticulous you are with the details, the greater your potential savings. It’s crucial to keep your bookkeeping system and accountant up to date, ensuring you have a comprehensive understanding of eligible deductions—an endeavour that might pleasantly surprise you. Simultaneously, maintain integrity by refraining from claiming expenses that do not genuinely qualify as business-related.
- At this stage, it becomes vital to separate personal expenses from business ones. This clear demarcation facilitates accurate financial management.
- Additionally, it’s crucial to prepare for timely payment of your quarterly or monthly BAS (Business Activity Statement) and payroll tax obligations. By proactively setting aside funds, you can avoid financial strain when confronted with a sizable bill at the end of the quarter.
Watchouts for Aged Care Business Owners
14. Have you covered all the bases we’ve discussed above? If not, it’s time to prioritise your weakest areas and start an action plan for getting each ticked off.
15. Who is going to do the work?
- During the process of creating a business plan for our aged care clients, we often inquire about the critical tasks involved in their business operations. It is not uncommon for clients to be taken aback and realize they haven’t considered all the different types of work required, not just in the initial setup phase, but also in the ongoing production of their service. A typical response we encounter is, “I’ll handle all of that myself.” While this is a valid approach and quite common, there is a risk associated with one person stretching themselves too thin and attempting to tackle every aspect of the business. In doing so, they may not be able to execute each task to the necessary standard for the business to thrive. They might inadvertently focus excessively on areas they are comfortable with while neglecting areas they find more challenging. Often, one of the areas that suffers is bookkeeping, and another critical aspect that tends to be overlooked is marketing and business growth. There is also the aspect of qualifications to consider – are you qualified to work as an aged care nurse and provide the level of care required?
- By outlining, at least in written form, the specific job or set of tasks required from the outset and periodically reviewing that list, entrepreneurs can remind themselves of the comprehensive scope of work necessary for running a successful aged care business. This practice gently guides them to ensure they stay on top of all these essential aspects. Naturally, once a business is up and running, the importance of this exercise diminishes as they can hire employees to handle these tasks. However, the written description of the work to be done becomes relevant again when onboarding new hires, serving as a reference to provide them with clear instructions. Moreover, having a documented description of the work aids in hiring the right people for the job.
16. Putting profits ahead of people
- One of the most prevalent pitfalls encountered when launching an aged care business, is prioritising profits above all else. Undoubtedly, as a business owner, the aim is to generate revenue. However, adopting a profits-before-people mindset, although potentially advantageous in other industries from a financial standpoint, is a counterproductive approach within the eldercare sector. The success of your business hinges upon enhancing the quality of life for some of the most vulnerable members of your community, a profound responsibility that must never be overlooked or undervalued.
If you want to start an aged care business and want some help getting your business plan sorted, get in touch with us on 1300 644853 or at firstname.lastname@example.org (24/7 website chat and enquiry available).