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Become a Venture Capitalist to Fund Your Projects
We are facility people. We like nothing more than opening a panel and looking for those loose connections or programming the controller to make the system sing. If you’re like me, financial discussions are somewhere between root canal and eating brussel sprouts (well maybe that’s just me), but to perform your job, financial selling of your projects is a skill that must be mastered. Systems that keep a healthcare facility operating smoothly are just as important as those that directly impact patient care. You can’t have one without the other, but replacing an air handler is just not nearly as easy of a sell as buying a new patient imaging system when you’re speaking to the CFO.
The language of finance centers on CapEx, OpEx, interest rates, return on investment, internal rate of return and many other terms. That’s uncomfortable territory for most of us. Exercise is uncomfortable too, but it has some great benefits once you get the hang of it. How do we make this less uncomfortable? Speak in their language, but focus the discussion on offense and not defense.
What do you mean by Offense or Defense? This is not some sport so let me expand a bit. Usually we facility folks focus our discussions on repair vs. replace, critical failure costs, time value of money, deferred maintenance costs, and other similar terms. Although these are strong and needed components of any proposal, what gets the attention of the CFO and other C level leaders is a direct link to revenue. Even non-profit hospital managers must take into account the ”R” word. Revenue is the financial engine. Yes, spending less than you are receiving will allow the facility to remain solvent, but you have to generate revenue first. This is where a new CT, MRI or Operating Room equipment will be at an advantage to your chiller or Building Management System upgrade. The former items create billable revenue and managers see them from a perspective of driving revenue. Or, for a lack of originality on my part – they provide offense which puts points (dollars) on the board.
Our changes are important for the hospital as well, you say, and I agree whole-heartedly. Making the link to revenue requires a bit of innovation on how you present your case and creating a clear link to the cash flow business practices of the hospital. How exactly does one generate revenue from say a Building Management System, a meter, a boiler, new lights or integration of different systems? The answer lies in knowing your business model. With lengths of stays being reduced through better healthcare techniques and other pressures, it becomes an effort to appeal to the customer service aspect to attract patients. Can a BMS attract patients? It can if those patients and doctors have comfortable and functional rooms and they know about it. This comfort keeps costs down and improves patient satisfaction, which directly correlates to higher unique occupancy rates. Can improved lighting benefit both patient and worker? Studies have shown the impact on healing from proper lighting in addition to the decades of studies on the impact on productivity. So there is a revenue angle to facility improvements. Can integration investment increase revenue? Absolutely! Sharing information between different systems and correlating that data enhances efficiency for staff and creates higher patient throughput, which increases revenue via available capacity. Couple this revenue stream with the standard efficiency (i.e. cost saving, maintenance reduction, meeting Joint Commission requirements, etc.) business case, you have a very convincing plan for a venture capitalist to see your investment as one that brings revenue to the business at a reasonable or low risk.
Certainly, the language of finance will continue to employ return on investment, cash flow opportunity, time value of money, internal rate of return, cost reduction to name a few. However, once you link your project to the revenue side of the equation, the funders see your project on equal footing with those other items that increase operating capital. Now you are in position to have a discussion on a level playing field. Getting there is not easy and requires a careful strategy, but it is worth every minute to support your efforts to have a modern and reliable healthcare facility.
In other posts, we can delve into specific strategies of funding for your hospital facility improvements to include internal champions, external sources, third party financing, and performance contracting coupled with long-term strategies that keeps access open to your venture capitalists.
How do you present your case for facility improvements or suggestions can you share to speak the language of finance?
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