Business Plan
This business plan pertains to a new Traditional Chinese Medicine (TCM) clinic, to be located in Koreatown, Los Angeles. The clinic will primarily target the area’s sizeable Korean population, as well as draw from other areas of the city. The clinic will be set up in a small, three room office. Initially, there will be no staff, only practitioner Mr. Ahn. After six months, revenues will be sufficient to hire a part-time receptionist.
The financing of the venture will come from Mr. Ahn, who has $200,000 in personal savings. The initial startup costs are estimated to be around $10,000 but could range upwards of $15,000. There will be no need for bank financing given the cost structure and estimated time to breakeven for this venture.
Marketing operations will consist mainly of word-of-mouth and ads in the areas two Korean newspapers. This is expected to run about $500 per month. If the marketing is effective, we will be able to grow the clinic at a rate of 10% per month until it reaches capacity halfway through the second year.
The daily operation of the clinic will be the purview of Mr. Ahn. Thus, the business will be set up as a sole proprietorship. All aspects of the company will be conducted by Mr. Ahn, until business is sufficiently strong that a part-time receptionist/administrator is required.
Our estimates show that the business will be profitable by the end of the first year, and will continue to generate strong profits for Mr. Ahn through the second year of growth and the maturity phase.
Introduction
Traditional Chinese medicine (TCM) is a branch of medicine dating back more than 2000 years. This type of medicine is based on the Eight Guiding Principles – cold/heat, interior/exterior, deficiency/excess, and yin/yang. Another key component is the concept of qi, “the energy that gives us the ability to move, think, feel and work.” (Alternative Medicine Foundation, 2007). Another principle is the five element theory, which holds that “everything in our universe, including our health, is governed by five natural elements: wood, fire, earth, metal and water.” (Ibid.) TCM places strong emphasis on prevention, diet and exercise, rather than intense treatments with artificial drugs. Diagnosis is conducted via interview, multiple pulses and a tongue examination.
To become a TCM practitioner requires several years of study, in a multitude of disciplines. These include acupuncture, herbal medicine, energy work, manual therapies, mind/body medicine, massage and naturopathy. It requires between 2000 and 3000 hours of training in a 4-year program just to learn acupuncture (Medscape, 2005).
Competitive Analysis
TCM in the United States has a strong following, particularly among Asian-Americans. In a 2002 National Health survey, an estimated 8.2 million Americans claimed to have used acupuncture, including 2.1 million in the previous year. Furthermore, 18.9% of adults had used herbs, botanicals and enzymes in the previous year as well (Department of Health and Human Services, 2008). The Los Angeles market is one of the strongest markets. Asian-Americans make up slightly over 10% of the population of the City of Los Angeles, with Koreans in particular accounting for 2.4% of that (U.S. Census Bureau, 2000).
This business plan outlines my strategy to create a new TCM business in Los Angeles. I am a South Korean national who conducted my first degree in London before obtaining my MB, M.sc in Traditional Chinese Medicine at the Beijing University of Traditional Chinese Medicine. There, I specialized in musculoskeletal disorders, sports injury and elderly problems. I have strong English skills, as well as conversational Chinese and Japanese, in addition to my native Korean. I feel that my multilingualism gives me a source of competitive advantage. Many of the Korean practitioners cannot speak English well, which precludes them from serving non-Korean patients, or the growing contingent of third or fourth-generation Koreans who have no problem dealing in English.
I intend to set up my practice in Los Angeles, either in downtown LA or Koreatown. Downtown is ideal because it has good transportation links with other areas, broadening the potential target market. Furthermore, Koreatown is one of the nation’s highest-density neighbourhoods. Of LA’s almost 90,000 Koreans, 46,000 live in this area, a total of around 20% of the district’s population (Cal State LA, 2003). In Los Angeles County, an estimated 178,000 people identified Korean as their mother tongue, with some communities having significant concentrations (U.S. Census Bureau, 2000). The result is a substantial potential market for the clinic, which can thrive with only a few thousand patients.
Also, Mr. Ahn, the practitioner, has strong ties with a local church and a basketball team there, which could provide some of the initial patient base. Initially, Mr. Ahn will want to rent an office space, in order to provide the ability to move or leave the business should either become necessary.
The clinic will have one staff member, a part-time receptionist, in order to assist Mr. Ahn in the day-to-day administration and client care requirements. The office will require three rooms, some equipment and some decor. There will also be an initial outlay for supplies. Initially, the cost of these will come from the personal funds of Mr. Ahn, as outlined in more detail below.
The TCM business carries a high markup on services. As with traditional medicine, there is a high cost of training that is involved and this must be recouped. Moreover, the service has tremendous value to the customers. Additionally, unlike with traditional medical practitioners, TCM practitioners and clinics do not receive significant compensation from pharmaceutical companies. Chinese medicine supply stores meet this market need.
PEST Analysis
The external environment can be evaluated using a PEST analysis – political, economic, social and technological. Of these, the social is perhaps the most important. The TCM is driven by two major social considerations. One is the growing interest in alternative medicine, which may provide opportunities outside of the Korean market if need be for the clinic. The other is a backlash against the use of parts from threatened or endangered animals, which could result in restrictions of trade that make that component of TCM difficult to practice. A more localized social factor is the multicultural neighbourhood, which can drive non-Korean traffic to the clinic, a result of the open-mindedness of the citizens of the area.
The political environment largely contains threats. At present, TCM practitioners operate relatively free of government involvement. However, there is a degree of conflict between TCM and the Western medicine community that could result in political interference, either in terms of the animal parts trade, or in terms of increased regulation in general.
The economic environment appears to be favorable for TCM practitioners. The rapidly escalating cost of health care appears to be driving growth in TCM as Americans wishing to reduce their health care expenses turn to alternative medicines, especially those specializing in prevention such as TCM. The worsening economy is likely to escalate this trend as more people lose their jobs, more employers reduce health care coverage and fewer Americans in general can afford health care.
The technological environment has little impact on TCM, a millennia-old discipline with techniques and ingredients that do not rely on modern technology.
Financials
Mr. Ahn intends to finance the venture with $200,000 that he has saved up. This will go towards initial expenses. It will take time for the clinic to build a sufficient customer base to ensure profitability, but this is expected to occur within the first couple of years. Exhibit a illustrates the cash flow statement for each month of the first year. These figures reflect a number of assumptions. We estimate that the business will grow by 10% per month, starting with a small customer base of family and friends. The clinic will not require any staff for the first six months, until the business has grown to the point where Mr. Ahn can no longer reasonably meet all of the business’ needs himself.
The cost of the clinic’s initial supplies and fixtures was estimated to be $10,000. Initial marketing is going to be done through the local Korean language newspapers, the Korea Central Daily and the Korea Times. We determined that running ads in these publications would cost around $500 per month, but assumed quadruple that for the first month in order to generate additional publicity for the new clinic. As well, we are investigating the possibility of Google ads, which can be targeted to Korean-language users from Los Angeles-area IPs. The cost of revenue was assumed to be 30%, which includes the use of supplies, power and other ancillaries.
Exhibit a: Cash Flow Statements
The net profit for the first year will therefore be a loss of $9,962. However, the business is expected to achieve profitability by the twelfth month. The break-even point, assuming the $1,000 receptionist expense, is at a revenue point of $5,286 per month. Exhibit B. shows these assumptions carried into the second year. We feel that the maximum revenue potential for a clinic with one practitioner is around $12,000 per month, which would occur at month eight of the second year. The office and administrative expenses would remain constant even to that point, as would the insurance expense.
Exhibit B: Cash Flow Statement, Year Two
At this point, the business is earning a healthy return and Mr. Ahn is receiving will be able to bring in a reasonable salary. The nature of the business may well change at this point. At the maximum revenue of $144,000 per year the pretax profit would be $63,600. As a result, it is likely that a clinic will be formed with other practitioners in order to minimize expenses and increase profitability.
We did not include taxes in our cash flow examples because the company is going to be set up as a sole proprietorship. This means that the income from the company will be rolled into the income for Mr. Ahn, as well as his liabilities. Mr. Ahn’s personal expenses are therefore not included in the model, which is intended to solely illustrate the finances specifically relating to the clinic itself.
Exhibit C: Balance Sheet
Y1
Y2
Assets
Liabilities
Equity
The balance sheet reflects the $10,000 startup cost plus the loss in year one. The profit in year two is then accounted for. It is important to note that Mr. Ahn will not draw a salary directly from the clinic for the first two years of operation. His wife has a full-time job and will meet his basic living expenses while he establishes the business.
Marketing
The target market for the venture will be mainly Koreans living in the downtown/Koreatown area of Los Angeles. Because of Mr. Ahn’s language abilities in English, Chinese and Japanese, it is expected that the clinic will be able to draw customers from other groups as well, depending on the visibility of the location. Koreatown is a high-density, multiethnic area and its residents are knowledgeable and open to ideas from other cultures. This means that there is a market for an English-speaking TCM practitioner; few in the Los Angeles area are, particularly not in Koreatown, an area in which Korean immigrants can live for years without developing English language proficiency.
The narrow market consists of the estimated 46,000 Koreans living in the area. The broader market consists of the English-speaking area residents with an interest in TCM, and Koreans from other parts of Los Angeles, particularly those who commute to the area for Korean-specific services such as TCM, restaurants, groceries and entertainment. This broader market is estimated to amount to between 100,000-150,000, as there are other major Korean population centers in the area from which few such commuters can be expected.
The two primary channels used for marketing will be word of mouth and print. The print ads will run in the city’s two main Korean newspapers. The ads will be basic black and white ads. The tone will be informational, containing the clinic’s address, Mr. Ahn’s background and experience, the value proposition the clinic offers, its convenient location and the multilingual aspect.
Word of mouth forms a crucial aspect of the business plan. Korean society is relatively conservative and family-oriented. Both Mr. Ahn have family and community ties in the Koreatown area, which will help them to establish a strong word-of-mouth network for the business. Extensive networking will also be conducted in order to maximize potential.
A key component of the marketing strategy will be the launch of the clinic. Additional funds above and beyond the basic marketing budget will be dedicated to this. Part of the launch will be larger, full-page ads in the newspapers. In addition, approximately $500 will be spent on leaflet and poster advertising in the Koreatown area. Also during the launch phase, extensive publicity will be undertaken. Mr. Ahn will attempt to secure time on Korean programs on LA’s local Asia-market television outlet and on community radio as well. Moreover, it is expected that the high advertising spending in the newspapers will be reciprocated with stories highlighting the arrival of the new clinic.
In the future, the advertising budget may be increased, particularly if sales do not meet expectations. Alternative marketing tactics that are being considered are Google ads targeted towards Korean-language Internet users with Los Angeles-based IPs. Also, the English-language market is another potential target for supplementary marketing campaigns. The size of this market is unknown as are the best means by which to reach it; therefore, this market is considered secondary and will not be given a marketing budget unless needed.
Works Cited
No author (2007). Traditional Chinese Medicine. Alternative Medicine Foundation. Retrieved December 18, 2008 at http://www.amfoundation.org/tcm.htm
No author (2005). Regulation of TCM in the United States. Medscape Today. Retrieved December 18, 2008 at http://www.medscape.com/viewarticle/511877_7
No author (2008). HIV / AIDS, the U.S.-China Partnership for Public Health at Work, and Traditional Chinese Medicine in the U.S. Fact Sheet. U.S. Department of Health and Human Services. Retrieved December 18, 2008 at http://www.hhs.gov/news/facts/chinahiv.html
Census information from U.S. Census Bureau. Retrieved December 18, 2008 at http://factfinder.census.gov/home/saff/main.html?_lang=en
No author. (2003). Population Change by Race and Ethnicity, 1990-2000, USA, California, Los Angeles County, Orange County, Koreatown. California State University, Los Angeles & Korean-American Coalition-Census Information Center. Retrieved December 18, 2008 at http://www.calstatela.edu/centers/ckaks/census/7203_tables.pdf
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