How to Start a Medical Supply Business

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Starting a medical supply business can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn the keys to launching a successful medical supply business.

Importantly, a critical step in starting a medical supply business is to complete your business plan. To help you out, you should download Growthink's Ultimate Business Plan Template here.

14 Steps To Start a Medical Supply Business:

 

1. Choose the Name for Your Medical Supply Business

The first step to starting a medical supply business is to choose your business' name.  

This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your own medical supply business:

1. Make sure the name is available. Check your desired name against trademark databases and your state's list of registered business names to see if it's available. Also check to see if a suitable domain name is available.
2. Keep it simple. The best names are usually ones that are easy to remember, pronounce and spell.
3. Think about marketing. Come up with a name that reflects the desired brand and/or focus of your medical supply business.

 

2. Develop Your Medical Supply Business Plan

One of the most important steps in starting a medical supply business is to develop your business plan. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.

Your business plan should include the following sections:

1. Executive Summary ' this section should summarize your entire business plan so readers can quickly understand the key details of your medical supply business.
2. Company Overview ' this section tells the reader about the history of your medical supply business and what type of medical business you operate. For example, are you a medical equipment retailer, wholesale distributor, or online medical supply store?
3. Industry Analysis ' here you will document key information about the health care industry. Conduct market research and document how big the industry is and what trends are affecting it.
4. Customer Analysis ' in this section, you will document who your ideal or target customers are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing products like the ones you will offer?
5. Competitive Analysis ' here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
6. Marketing Plan ' your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
• Product: Determine and document what products/services you will offer 
• Prices: Document the prices of your products/services
• Place: Where will your business be located and how will that location help you increase sales?
• Promotions: What promotional methods will you use to attract customers to your medical supply business? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization and/or social media marketing.

7. Operations Plan ' here you will determine the key processes you will need to run your day-to-day operations. You will also determine your staffing needs. Finally, in this section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
8. Management Team ' this section details the background of your company's management team.
9. Financial Plan ' finally, the financial plan answers questions including the following:
• What are the startup costs?
• How much does a medical supply business make?/li>
• What are your projected sales and expenses for the next five years?
• Do you need to raise funding to launch your business?

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3. Choose the Legal Structure for Your Medical Supply Business

Next you need to choose a legal business structure for your medical supplies business and register it and your business name with the Secretary of State in each state where you operate your business.

Below are the five most common legal structures:

1) Sole proprietorship

A sole proprietorship is a business entity in which the owner of the medical equipment business and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.

2) Partnerships

A partnership is a legal structure that is popular among small businesses. It is an agreement between two or more people who want to start a medical supply business together. The partners share in the profits and losses of the business. 

The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.

3) Limited Liability Company (LLC)

A limited liability company, or LLC, is a type of business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for a medical supply business include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.

4) C Corporation

A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for a medical supply business is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.

5) S Corporation

An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.

Once you register your medical supply business, your state will send you your official 'Articles of Incorporation.' You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.

 

4. Secure Startup Funding for Your Medical Supply Business (If Needed)

In developing your medical supply business plan, you might have determined that you need to raise funding to launch your business. 

If so, the main sources of funding for a medical supply business to consider are personal savings, family and friends, credit card financing, bank loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in a medical supply business that they believe has high potential for growth.

5. Secure a Location for Your Business

There are a few things to consider when looking for a location for your medical equipment business. First, you'll want to make sure the location is accessible and convenient for your customers. You'll also need to have enough space to store your inventory and equipment. Finally, it's important to find a location that is affordable. 

 

6. Register Your Medical Supply Business with the IRS

Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).

Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.

Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.

 

7. Open a Business Bank Account

It is important to establish a bank account in your medical supply business' name. This process is fairly simple and involves the following steps:

1. Identify and contact the bank you want to use
2. Gather and present the required documents (generally include your company's Articles of Incorporation, driver's license or passport, and proof of address)
3. Complete the bank's application form and provide all relevant information
4. Meet with a banker to discuss your business needs and establish a relationship with them

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8. Get a Business Credit Card

You should get a business credit card for your medical supply business to help you separate personal and business expenses.

You can either apply for a business credit card through your bank or apply for one through a credit card company.

When you're applying for a business credit card, you'll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you're running. You'll also need to provide some information about yourself, including your name, Social Security number, and date of birth.

Once you've been approved for a business credit card, you'll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.

 

9. Get the Required Business Licenses and Permits

You will need a business license, a permit to operate as a medical supply business, and a permit to sell medical supplies. You may also need a sales tax permit. Check with your local business licensing office to find out what licenses and permits are required in your area.

 

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10. Get Business Insurance for Your Medical Supply Business

The type of insurance you need to operate a medical supply business depends on the scope of the operation. 

Some business insurance policies you should consider for your medical supply business include:

• General liability insurance: This covers accidents and injuries that occur on your property. It also covers damages caused by your employees or products.
• Auto insurance: If a vehicle is used in your business, this type of insurance will cover if a vehicle is damaged or stolen.
• Workers' compensation insurance: If you have employees, this type of policy works with your general liability policy to protect against workplace injuries and accidents. It also covers medical expenses and lost wages.
• Commercial property insurance: This covers damage to your property caused by fire, theft, or vandalism.
• Business interruption insurance: This covers lost income and expenses if your business is forced to close due to a covered event.
• Professional liability insurance: This protects your business against claims of professional negligence.

Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs. 

 

11. Buy or Lease the Right Medical Supply Business Equipment

Medical supply companies need essential office equipment, such as computers, phones, printers, and fax machines. You may require other equipment depending on the scope of your operation. For instance, if you operate a warehouse for wholesale distribution, you may need a forklift to move inventory around. If you deliver medical supplies, you'll need a vehicle for transport. It's important to research the specific equipment you need to run your business.

 

12. Develop Your Medical Supply Business Marketing Materials

Marketing materials will be required to attract and retain customers to your medical supply business.

The key marketing materials you will need are as follows:

1. Logo: Spend some time developing a good logo for your medical supply business. Your logo will be printed on company stationery, business cards, marketing materials and so forth. The right logo can increase customer trust and awareness of your brand.
2. Website: Likewise, a professional medical supply business website provides potential customers with information about the products you offer, your company's history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you.
3. Social Media Accounts: establish social media accounts in your company's name. Accounts on Facebook, Twitter, LinkedIn and/or other social media networks will help customers and others find and interact with your medical supply business.

 

13. Purchase and Setup the Software Needed to Run Your Medical Supply Business

To run a medical supply business, you need software to manage inventory, track sales, and manage customer relationships. You'll also need accounting software to manage finances. There are many options available for medical supply business software. Some software companies offer all-in-one programs made specifically for medical supply stores. So, with a bit of research, you should be able to find one that suits your needs. 

 

14. Open for Business

You are now ready to open your medical supply business. If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.

 

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How to Start a Medical Supply Business FAQs

 

Other Helpful Business Plan Articles & Templates

The first-month sales at a new retail home medical equipment business in Walnut Creek, Calif., were $20,000. Another new retail HME location in Lynchburg, Va., sold $1,400 one of the first days it was open. These are impressive results for retail-only stores that are not Medicare Part B providers. I waited on one customer at the California store who wanted to buy a scooter, lift chair and stair glide. (Read more about Allstar Medical Supply in Walnut Creek, Calif., in "Diary of a Retail HME Start-Up.")

How did these retailers make their medical supply business profitable? Why are these new retail HME stores successful? What do they do or offer that is different from traditional HMEs? What can you do differently to capture some of these profitable retail sales? Read on to find out how you can diversify successfully into retail HME.

Four Common Actions of Successful HME Retailers

1. Reduce or eliminate Medicare. These traditional HME providers have had enough aggravation from Medicare, whether the issue is competitive bidding, the PECOS, ZPIC audits or denied claims. They have diversified their revenue stream and either completely eliminated or reduced Medicare to less than 30 percent of their total revenue. The end result is that the ongoing reimbursement cuts and added regulations may affect their bottom line ' but they won't be out of business.
    
2. Stretch your comfort zone. By trying a completely different business model, these HME companies are becoming boutique retailers that happen to sell home medical equipment. HMEs that attempt retailing usually do not have the appropriate location, staffing, product mix or advertising program to be successful.
    
3. Delegate. Successful veteran HME owners and managers are very knowledgeable and capable business leaders. However, when they shift to retail, they delegate the daily operations to retail veterans who are equally competent in their own respective business model.
    
4. Think big, as in multiple locations. Hub-and-spoke business models are the most efficient and profitable in retail. Using their traditional HME as the hub, many retailers open multiple retail locations around the hub to control an entire sales or geographic territory.

Transitioning to Retail

Traditional HME businesses are not equipped to transition into retail without making the following major changes:

• Location, Location, Location. Traditional HME businesses may be hidden in commercial areas or industrial parks where they pay warehouse rental rates. Retail businesses strive for high visibility and easy accessibility. Retail locations for HMEs vary, but usually center around strip malls, shopping centers, medical office buildings and hospital lobbies.
   
• Capturing 80% of Sales. There is no "one-size-fits-all" for home health care product selection, and this is why most retail HME chains have failed. In retail, the front third of the store generates 80 percent of sales. An HME retailer must match demographics and local HME needs with product selection. For example, a senior community would buy patient room, bath safety, incontinence and wound care products. People in a baby boomer community and family caregivers would buy diagnostic and diabetes products, foot care products, orthopedic supports and compression hosiery.
   
• No Chrome! Chrome canes, crutches, walkers, transport chairs and wheelchairs are Medicare-reimbursable items. In retail HME, these products do not belong on the showroom floor. HME retailers display colored aluminum as upgraded ' and more expensive ' products that sell for cash. Why take up valuable showroom display space on reimbursable products that net minimal profit?
   
• Qualify First. When a salesperson immediately asks a new customer what insurance they carry, he is limiting the sale to the least expensive and least profitable reimbursable product. Qualify customers first by determining who the end-user is, and find out about their medical issue or condition. Then the salesperson can demonstrate all of the core and related home health care products that meet this health care need.
   
• Sell High. Start showing customers the most expensive, fully loaded product, and then work your way down to the basic reimbursable product. Car salespeople are notorious for pushing top-of-the-line, fully loaded vehicles on customers. But even with cars, consumers usually don't buy the most or least expensive models but purchase somewhere in the middle. The same holds true for home health care products.

Give customers a choice, starting with the best and working your way down to the basic, and you will find that two-thirds to three-fourths opt for an upgraded product.

• Multiple Products per Sale. Traditional HMEs that are 80-plus percent Medicare/Medicaid still average one product per sales transaction; they are simply processing these prescriptions for reimbursable products. In contrast, profitable retail HMEs today average two to three products per customer. After qualifying the customer and selling high, they not only provide the Medi/Medi product but also sell an upgraded version as well as related, add-on products.
   
• Product Mix. Traditional HMEs simply stock one SKU per product category. But as a retailer, if you do not offer feature and price options, customers will leave your store and shop the competition in order to compare and then make a purchasing decision. Retail businesses usually display a good-better-best product offering in order to give consumers choice ' and close sales in their store. Retail HMEs display at least a basic model and one upgraded model for most core products.
   
• Windows Sell. Your windows are silent salespeople that sell 24/7 for you. Traditional HMEs store rental wheelchairs and beds along their front windows. Retail HMEs use risers and halogen track lighting to make products visible from the parking lot/street day and night. They display big-ticket cash products such as lift chairs, scooters, transport chairs and rollators, and rotate these products on a monthly basis from window to window to maintain the interest of people walking and driving by.
   
• Room Sets Bundle Sales. No one needs only one grab bar. By displaying all of the bath safety products on the floor, including a tub and commode with all of the related bath safety equipment, retail HMEs visually educate their customers. By displaying all of the products that someone will need at home to be independent in the bathroom, they sell a package rather than a single product.
  The same holds true for the bedroom. In your patient room display, add on everything someone might need at home: sheets, chucks, memory foam overlay, wedges, cervical pillows, reachers, bedpan, urinal, skin care, bed rails with backpacks and/or grab bars, over-bed table and bedside commode.
   
• Show More, Sell More. Strange as it may sound, the more you display of any given product category, the more you will sell. Whether you are selling wheelchairs, rollators, beds, lift chairs, CPAPs or orthopedic supports, it doesn't matter what the product is as long as you create a destination in that respective category. Feature all of the product models with every option, and you are making a visual statement to your customers that you are the experts and community resource for that category.
   
• New Referral Sources. In traditional HMEs, the key referral sources are discharge planners, case managers and physicians. But in retail HMEs, the referral base changes in relation to individual cash sales. The prime referral sources become chain pharmacists and independent and assisted living centers.

Profitable Retail HME by the Numbers

The traditional benchmarks for HME are tied to Medicare diagnosis related groups (DRGs) and hospital utilization. But these fail to account for retail cash sales in HME locations, pharmacies, drug chains, mass merchandisers and online.

For over 20 years, fellow consultant Bruce Brothis and I have collected operational numbers from accounts we visit in our weekly travels. Following are "Best Practices" benchmarks for retail HME:

• Showroom. The average retail showroom size is 1,500 sq. ft. This equates to a 2,000- to 2,500-sq. ft. space that also includes a small (i.e. 400 sq. ft.) storeroom/lunchroom, fitting room, bathroom and optional manager's office. Average cost for this retail space in our recession is $2/sq. ft. per month, or $24/sq. ft. per year.
   
• Sales. Gross sales per sq. ft. have dropped during the recession from $1,000/sq. ft. per year to $800/sq. ft per year. Multiply your showroom's square footage times this number to determine your expected annual gross sales. (Note: these numbers reflect retail HMEs that incorporate Medicare/Medicaid coverage either at this retail location or through their original DME "hub" location. For independent retail-only HMEs, the gross sales numbers average from two-thirds to half this amount due to the respective number of Medicare/Medicaid customers who are turned away.)
  
  Usually new retail HMEs break even between the 10th and 12th month. First-year sales gross between $500,000 and $600,000, while second-year sales usually break $1 million.
   
• Profits. Retail HME businesses average 45 percent gross profit margin (GPM), which translates into 55 percent cost-of-goods sold (COGS). Some of the leaner, more profitable operations average 47 to 50 percent GPM. Net profits average from 8 to 12 percent, while the more efficient HMEs (i.e. paperless) average 15 percent or higher.
   
• Revenue Mix. The average revenue mix of a profitable retail HME is from 30 to 45 percent Medicare/Medicaid, 25 to 50 percent cash and 20 to 35 percent private pay/third-party insurance. A profitable retail HME business that is also a Part B provider remains under 40 percent Medi/Medi. But a growing number of retail-only HME businesses today are 100 percent cash, and their annual sales are growing to keep on par with the full-service retail HMEs.
   
• Staffing. Another benchmark of a profitable retail HME is the gross sales generated per employee. While most industries average $100,000 per employee annually, successful retail HMEs average $140,000 per employee annually because most small staffs are highly cross-trained.
   
• Commission or Bonus. All salespeople are more productive when they are offered incentives through commissions and bonuses. They are usually paid a minimal base salary and then given a commission on all sales that ranges from 3 to 10 percent based upon a respective category's profitability. Good salespeople make 50 percent of their base in commissions, while excellent salespeople double their base salary from commissions.

But in retail HMEs, every sale depends upon most of the "front-line" employees ' everyone who touches the customer. A team bonus has become the most popular option, in which all employees receive a quarterly bonus of 2 to 3 percent of gross profits. This helps foster a team spirit for the entire staff.

A commission for multiple-product sales also works extremely well to increase sales-per-customer and profitability. For each customer transaction with two products, a 3- to 5- percent or 5- to 7-percent commission is paid; for each transaction with three products, a 5- to 7-percent or 7- to 10-percent commission is paid. These commissions are usually correlated to each product category's respective profit margins.

Retail HME Location Features

• Customer visibility and accessibility
• Store signs that are visible from the street
• The words "medical equipment," "home care products" or some other variation of HME in large, easy-to-read letters included on signs
• HME paintings, drawings, photographs or window film on the front of the building so potential customers know instantly what products are sold
• Enough parking spaces reserved for customers
• One or two disabled parking spaces adjacent to the front or rear door
• Double or automatic front doors to allow easy access

Jack Evans is president of Malibu, Calif.-based Global Media Marketing, an HME consulting firm specializing in retail sales, layout and operations. You can reach him at or 310/457-.

Are You Still Insurance-Driven ?

  Traditional HME Retail HME Product purchased Medical necessity Lifestyle Av. no. products purchased 1 2-3 Employee function/title Insurance intake Sales Purchasing influence Medicare coverage Personal benefit/brand DSO 46 days 0 days Av. cash sale 0 $160

 

Retail Rollator ROI

 

No. on the floor = Turns/month

1-2 displayed = 1/mo.
2-3 displayed = 3/mo.
5-6 displayed = 6/mo.
10-12 displayed = 12/mo.

Profitability/ft.

1 = 4 sq. ft.
Cost = $79
Retail = $149
Gross profit = $70
Rent = $40
Net = $30

Fully Loaded

Gross profit = $150
Net = $110

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