So...You Want to Start an Ambulance Company?

By Michael Donner
Source: EMS Magazine

I know what you're thinking, "starting an ambulance company is easy."  You probably think anyone who's been working on an ambulance for a few years can do it.  To a certain extent you're right.  It is imperative that you have familiarity with the ambulance industry, or any business, before you start your own.  However, there are a lot of issues that to which most EMTs and paramedics are not exposed that must be considered before embarking on a company start-up.  With that caveat, I'd like to pose a few soul searching questions to you,  and some topics that you must address, before you take the plunge.

Do you dare to start your own company?   If so...  (Questions to ask yourself)

There are a few key questions you have to answer for yourself, and be convinced of, before you make the big decision to start an ambulance company.  First, make sure you are doing it for the right reasons.  Don't start one just to create a "job for life."  Don't do it because you are mad at the management of your current company.  Definitely don't do it because you think it's easy.  Do it because you want to provide a better service, a better work atmosphere, and to offer things currently not available in your town.

The answer to this question may sound obvious, but; what services will you offer?  Ambulance right!  But what else?  Will you offer 911 only, or solely inter-facility transfers, or a combination of both.  Will you offer wheelchair services?  What about offering special events stand-by services?  You may not want to do some of these things, but customers may demand it.  All of these sources of revenue (and expenses) must be addressed in your business plan.

Now that you've decided what services to offer, what niche will you fill?  All communities in the United States have some form of ambulance service.  Why does your community need another?  Something about your company has to set you apart from the existing services.

Why will you succeed?  This sounds like the previous question but it's slightly different.  You may know that your community needs a different kind of service, but why will you be able to make that work?  Why will people leave their current job to come work for you?  What special talents do you have that are conducive to managing your own company.  What experience do you have running your own company?  If you haven't really managed one before, who can you hire to do it for you?  (Hint #1: It's not a good idea to learn management when starting a company.  You need basic management skills going in.)

Here's a big one, will you be able to make money?  No, I mean really make money.  If your business plan calls for a 3% after-tax-profit, you're better off putting your money in the bank.  It's much safer there and you won't risk losing everything to get it.  By the way, have I mentioned yet the potential to lose everything if this doesn't work?  (We'll discuss that in the financing section.)  Now that we've had that little "gut check", do you have the intestinal fortitude to continue?  If so... read on.

The heart of the matter. (The Business Plan)

OK, you're still with me.  Time to get a little technical.  The "business plan" is the key document that you must produce in order to get your company off of the ground, (unless you recently won the lottery).  It is the foundation of your company.  The document that potential investors will use to decide if they want to invest in your dream.  Therefore it must be thorough, exciting and, most of all, realistic. 

The essential components of the business plan are the following: Executive Summary, Funding Requirements, Current Market Conditions, Management Backgrounds, Company Strengths, Company Weaknesses, Financial Analysis and Investor Return Analysis.  These must be laid out in a concise manner that is understandable to people who know nothing about EMS.

There are several software programs available to help you write your plan.  However, we did not find these to be very helpful because they were too general in nature.  Your best bet is to write an outline of your plan and then get it in the hands of someone close to you who's familiar with business plans, (family, college professor, consultant, etc) and let them make recommendations.

Quick quiz: What two topics are the most important? 

Answer:  Management Backgrounds, and Investor Return.  (Who am I investing in? How much will I get?)

If the potential investors don't think the management team is competent, or the potential investment isn't worth the risk, they will not invest.  Once they have looked at the first two major items, the rest of the plan must convince them there is a market opportunity and a need for your service.  (Hint #2: Don't have a plan that requires 100% market share in order to make money.  Even if you get 100%, you'll never keep it.)

Another key component of the business plan is the financial forecast (the dreaded budget).  You must not only prove to the potential investor you know the industry, but also that you know how to budget your finances.  The budget is a roadmap to the investor's (and your) financial return.  Having a detailed budget that is comprehensive, logical and not overzealous is important for the investor and you.  Be as accurate as possible on your original budget.  Your investors will hold you to your forecast and accuracy will make or break your ability to raise more money down the road. 

Hey buddy, can you lend me a dime? (Financing)

You have made the tough decision to start, and you have created a sound business plan, who do you show the plan to?  There are basically four types of potential investors for your company; banks, venture capitalists, "angels" and friends and family.  You will probably end up with at least two or three of these types of investors.

Banks will probably not fund your start-up.  If your plan is good and you are able to raise the initial funds, you will likely use the bank to provide a line of credit.  In doing this they will secure the line of credit with your accounts receivables (A/R).  In other words, when you've started running calls, they'll lend you money based on your collectable accounts.  If you default on the loan, they seize your receivables to pay the loan.

Venture capital investors will not likely be interested in your start-up unless you can show a large return (25-40% annually) and plan to sell your company or take it public within four to five years.  They usually want to control over 50% of the stock as well.  Generally, the potential for losing operational control is not a good option, so be wary.

That leaves us with "angels" and friends and family.  I know what you're thinking, what's an "angel"?  An "angel" is a cross between a venture capitalist and a rich buddy or relative.  They are usually individual investors who, for some reason, have an interest in your industry or just want to invest locally in start-ups.  They generally don't require as high a return rate as the venture guys, but they are not quite as generous as your friends and family.  (Hint #3: Get a subscription to Inc. Magazine.  They have lots of articles about investors.)

Ultimately, we come to friends and family.  This is your most likely source for funding a small start-up.  If you think real hard, you can probably come up with a list of people who may invest.  If they don't want to invest, they may know someone else who will.  Start spreading the word and talk to everyone you can.  When we started Pridemark, we held an "investor party" where we gave a presentation to a group of potential investors.  Some invested and some didn't.  Some of them introduced us to other potential investors, and so on. 

Make sure that your request for capital is reasonable.  Before someone invests, they want to be confident that you are asking for the appropriate amount of capital.  One mistake to avoid is asking for too much.  (If you want to start with only two ambulances and 10 employees, you don't need a million dollars.)  However, an even worse mistake is to ask for too little money.  If you get started on skinny funding and are asking for more money within the first three months, you will lose the confidence of your investors.  If nothing else, you will lose bargaining power. (If you make a panic call to your investors for money to make payroll, the investors will be working on their terms, not yours.)

Other than gaining the confidence of the investors, the most important aspect of your deal is the return the investor will receive.  You must come up with a payback plan enticing to the investor, while leaving room for you to make money.  One way would be for you to offer the investors a majority of the profit until you've doubled or tripled their investment, then you take the majority.  The combinations are endless and it ultimately comes down to risk.  If the investor is not totally comfortable with you, he will want more return to compensate for the added risk.

Speaking of risk, let's revisit the issue of losing everything.  When you commit to starting your company you will also have to commit financially. You will have to sign personal guarantees for just about all of your credit sources.  The bank will insist on personal guarantees on all loans, leasing companies and other vendors will also want them until you establish a track record of making your payments on time.  The personal guarantee is just what it sounds like.  If you default on your loan or other payments, they will try to seize your personal property to pay for it.  It's scary, but you won't lack for motivation to succeed!

Surround Yourself with Smart People (Consultants)

Starting a business is very complicated and takes a lot of work.  Even though you may not think it is worth the money, hire a few consultants to help.  By consultants, I mean an attorney, an accountant and an insurance broker.  No matter what type of business structure you choose you will want an attorney to help you set it up.  I recommend engaging a law firm specializing in business start-ups.  They will know how to best set up your corporation, stock, employment agreements and other important documents that help limit your personal liability.  (They can also be a source of potential investors.)

Hiring an accountant to review your financial documents will ensure you haven't forgotten something or misrepresented something to your potential investors.  You can likely find an accountant who will work a few hours a month to make sure you do the accounting correctly.  They will also be your best friend when it comes around to tax time.  Additionally, they will help you get set up with a payroll company.  From my standpoint, a payroll company is invaluable because they calculate and submit your quarterly payroll taxes for you.  It costs a few bucks each month, but it's well worth it.

Don't forget insurance for your company.  It is best to use an insurance company active in insuring EMS companies.  Everyone has a friend in the insurance business, but only a few of them know what the ambulance business is all about.  Generally speaking, if an insurance company is not familiar with your specific type of business, your rates will be higher.  There are several good companies out there (probably advertising in this magazine).  Not only will an insurance company specializing in EMS be less expensive, they will be a valuable source of information about safety programs and loss prevention.

Another specific type of insurance that you must have is worker's compensation.  Most insurance companies specializing in EMS will be able to place you in a good worker's compensation program.  Expect to pay higher premiums in the beginning.  As you prove to be safety conscious and show a good loss history, your rates will improve.  (Some programs even often dividends to employers with good loss records.)  Conversely, not paying attention to safety will cause increased rates.  If you have trouble locating a good program, you can always get coverage from your state's worker's compensation division.

Oh those acronyms; and other causes of indigestion  (Regulatory Agencies)

Here they are. A list (not necessarily all inclusive) of the regulatory agencies, laws and other things that you need to be familiar with.

            HCFA (Medicare)  | EEOC | GAAP | OSHA | EPA | SBA | FCC | County EMS Agencies | FLSA | FDA | DEA | IRS | ADA…and so on…           

I won't go in to too much detail about these, but rest assured, you better have some basic knowledge of each of these as they pertain to EMS.  If you don't, you will end up doing things illegally and may not know it until it is too late.  A few quick notes on some of these:

  • SBA (Small Business Administration)  Good source of bank loans once you've gotten started.  Talk to your banker.
  • GAAP (Generally Accepted Accounting Principles)  Hire an accountant for a few hours a month to help maintain your financial books.
  • EPA (Environmental Protection Agency)  Regulations regarding your Biomedical Waste.  (A big "No No" if you don't follow these rules.)
  • HCFA (Health Care Financing Administration)  They make the rules regarding Medicare reimbursement.

The backbone of any organization (Employees)

OK, you've got your plan, and your money, what's next?  People!  Employees will be the backbone of your operation.  Where are you going to get them?  If you plan on recruiting employees from your competitor, you will need to offer something they currently don't get.  If you want to hire new graduates from EMT and Paramedic school you better have a field training program.  You will also need to research employee benefits.  Most likely you will need to offer health, dental and life insurance.  Later you can start a 401K or other retirement plan.

As an employer of people, you must be familiar with federal and state labor laws.  In our industry, wage and hour laws can be confusing, particularly regarding overtime calculations for 24 hour shifts.  There are numerous laws about health plans, retirement plans, payroll tax withholding and reporting, discrimination, sexual harassment, etc.  Going blindly into the hiring of employees could set you up for a big problem down the road.  I highly recommend you get a good human resources consultant to help establish sound hiring practices and to assist in the creation of a personnel manual.

Don't let these fall through the cracks (Various topics to consider)

Another thing to be aware of (that will make your life miserable) is the time it will take to get things done.  Raising money will take at least six months (more likely nine).  Getting your Medicare provider number will take a month or two and simply getting your business plan written will take a lot longer than you think.  The general rule of thumb is this: Plan on everything taking twice as long, and costing twice as much as planned.

Since we're talking about all the things that can go wrong, don't make the mistake of taking your billing system too lightly.  As they say on the very first day finance class, "cash is king."  No matter how many transports you do, or how good your employees are, if you are unable to collect cash, you will lose your company.  The most important person you will hire will be your billing manager.  Find someone with medical billing experience that knows about Medicare, Medicaid, and third party billing.  Also, do not get overzealous regarding the percentage of invoices you expect to collect.  The national average ranges from 55 - 65% depending on your local area.  Some areas are much lower and some higher.  (Unless you are starting up in Beverly Hills, don't expect to get 85%.)  We took the approach that it is better to be conservative, and pleasantly surprised, than it is to be aggressive, and have to explain profit shortfalls to your investors.

What does all of this mean? (Summary)

I know we have only brushed the surface of what is needed to start an ambulance company.  I hope you have at least learned about the many facets that need to be considered before embarking on your great adventure.  Clearly, the knowledge you have as a field EMT or Paramedic is invaluable, but you will need a whole new set of skills to be successful as an owner.