Maximize Profitability: Essential Finance Tips for Allied Health Businesses in 2024

In 2024, small business owners in Australia are finding it more challenging than ever to secure financing. The post-pandemic economy, characterised by rising interest rates and inflation, creates significant obstacles for allied health businesses looking to grow and thrive. 

Just like a strained muscle, prevention is the best cure.

Cash flow concerns? It might be time for a checkup

Cash flow is the lifeblood of a small business, essential for paying employees, purchasing supplies, and investing in new equipment, training, technology, and business growth. As a business owner, there are various reasons or contexts where you may need to seek external finance to ensure you have sufficient cash flow. 

External finance can help ease the pressure on your cash reserves by making funds available until the payments from customers reaches the business’ bank account.

Understanding the right small business loans and financing options can significantly impact your success.

Here is a breakdown of some of the most common external finance solutions you may consider for your allied health business. 

Four types of external finance solutions

1 - Lower risk finance for small businesses

These finance options are more common in the allied health sector due to their lower risk and lower cost. These should be the first things that come to mind when considering external finance solutions.

Bank loans for allied health professionals

Traditional bank loans are among the most common finance options, with many options available for lenders and competitive terms and rates. These loans typically have longer repayment periods and are ideal for purchasing property or expensive equipment, often secured against the business premises or the owner's personal assets.

Overdraft and cashflow solutions for healthcare businesses

An overdraft is a financial tool often used in combination with a traditional bank loan, that is suitable for short-term financing needs. Unlike a traditional loan where you receive a lump sum upfront, an overdraft allows you to withdraw funds up to a certain limit set by the bank when needed. It provides flexibility and quick access to funds without formal approval processes, making it convenient for managing day-to-day financial fluctuations. 

However, it is essential to monitor and manage overdraft usage carefully to avoid incurring high-interest charges and fees. Used properly, an overdraft can serve as a valuable financial cushion during periods of cash flow uncertainty.

Equipment financing for allied health 

Equipment finance (also known as a chattel mortgage) is a specific financing solution that your allied health business could consider for a major equipment purchase such as specialist medical equipment or a vehicle. 

In this financing arrangement, the purchased asset itself serves as collateral for the loan, providing security to the lender. Chattel mortgages offer businesses and individuals a structured approach to acquiring expensive equipment while spreading out the cost over time. 

This type of financing can be particularly advantageous for those looking to invest in high-value assets without depleting their working capital. Furthermore, chattel mortgages often come with flexible terms and repayment options, making them a popular choice for businesses seeking to expand their operations or upgrade their equipment without straining their finances.

2 - Uncommon finance options that are medium risk and have higher costs

Much like MRI’s, CT’s and X-Rays, these finance solutions should be reserved for situations where other finance is unavailable.

Credit card

For emergency short-term financing, credit cards are a type of unsecured loan, meaning they aren't tied to collateral, which is why they typically have high interest rates. A small business might use a credit card to cover unexpected expenses such as equipment repairs, urgent supply purchases, or sudden staffing needs. By having a credit card on hand, the business can quickly access funds to address these emergencies without disrupting cash flow or dipping into savings. 

However, it is important to be mindful of the high interest rates associated with credit cards and to use them sparingly and responsibly to avoid accumulating too much debt.

Private investment for healthcare professionals

Financing through a private investor is available only when there is no requirement to conduct business under a company structure. Private investors may include family, friends, or other unrelated individuals.

3 - High risk, high cost finance solutions

Unsecured loan

These high interest loans are a last resort, to be considered when no other options are available - like cutting off a limb. 

Invoice/Debtor financing

Invoice and debtor financing are generally not applicable to allied health businesses. This would involve selling your unpaid customer invoices to a business. You would get paid upfront, but only for a portion of the debt owed to you. 

A better business practice is to prioritise efficient processes to ensure timely payments. It is common practice for allied health businesses to expect payment before the patient leaves.

4 - Industry & government support

Government grants for allied health businesses
There are many federal, state, and local small business grants that may be appropriate to support your allied health business. You don’t get what you don’t ask for, so it's a good idea to do some research on what grants are available for your industry and region. If you're not sure where to look, RSM has a dedicated government grants team who can help.

Other ways to boost your cash flow include careful planning to lower your tax obligations, which might be through offsets such as the research and development tax incentive or GST exclusions. It is a good idea to ensure your accountant has the appropriate knowledge and available resources to support you, particularly if your business is in regional Australia.

The best finance solution is good cashflow management

Cashflow management for allied health businesses

Cashflow is essential for every allied health business as it ensures that there is enough cash available to meet your obligations and operate smoothly. It is important to plan your budget and review your finances regularly to stay on top of your finances.

• Implement clear payment policies to maintain cash flow and avoid financial challenges. Communicating payment terms upfront can streamline billing and allow you to focus on quality care instead of following up on overdue payments.
• Consider investing in technology such as electronic invoicing and online payment portals to optimise your revenue cycle management and create a better financial experience for your patients and your business.
• If you are have cashflow concerns, seek professional advice early to gain a good understanding of the financial needs of the business.
• Prepare a budget to determine the future cashflow needs of business.
• Consult a finance/mortgage broker to find the most appropriate loan at a competitive rate.
• Have a clear understanding between each practitioner in the business about what they will be paid, when, and how.
• Review the income and expenses of the business regularly, and compare it to the budget.

Following these steps will offer you peace of mind, and give you more time to dedicate to providing healthcare solutions to your community. 

FOR MORE INFORMATION

Speak with your local RSM adviser today to explore tailored solutions that support the growth and success of your allied health business.