How to Finance an ABA Therapy Practice
Starting, buying, or expanding an ABA therapy practice can require significant capital, particularly because staffing and operating expenses can begin before the practice reaches its full revenue potential. For owners and providers exploring behavioral health practice financing, understanding the different ways an ABA practice may be financed can help with planning.
What Can ABA Practice Financing Be Used For?
Financing can potentially support many different stages of an ABA business.
Depending on the transaction, funding may be used for:
- Starting a new ABA therapy practice
- Purchasing an existing ABA practice
- Opening a new location
- Facility build-outs and renovations
- Equipment and technology
- Hiring and staffing costs
- Working capital
- Commercial real estate
- Business expansion
The appropriate financing structure depends on the purpose of the funding and the financial circumstances of the business.
Financing an ABA Practice Startup
A new ABA practice may require capital before it begins generating consistent revenue.
Startup expenses can include licensing and professional costs, insurance, technology, recruiting, training, office space, furniture, clinical supplies, marketing, and other expenses.
A startup financing plan should account for both the initial costs and the period between opening the practice and generating stable cash flow.
Buying an Existing ABA Practice
Acquiring an established ABA practice can require a different financing strategy.
Instead of building a business from the beginning, the buyer is purchasing an existing operation that may already have providers, patients, payer relationships, revenue, and operating systems.
The lender may evaluate the historical financial performance of the practice along with the buyer’s financial profile and the proposed purchase price.
ABA Practice Acquisition Financing
For an acquisition, financing may potentially cover some or all of the eligible costs associated with purchasing the business, depending on the financing program and transaction.
The lender may review revenue, profitability, cash flow, accounts receivable, payer mix, provider structure, and other financial information.
The buyer’s credit, liquidity, experience, income, and existing debt may also be considered.
Staffing Can Be a Major Financial Consideration
ABA practices are heavily dependent on clinical professionals.
BCBAs, RBTs, and other employees represent an important portion of the operating expenses for many practices.
A growing ABA practice may need to hire additional staff before the additional revenue from those employees is fully realized.
This makes staffing and cash-flow planning important parts of the financing strategy.
Insurance Reimbursement Can Affect Cash Flow
ABA practices may receive payments from insurance companies and government programs.
There can be a delay between providing services, submitting claims, receiving authorization, processing the claim, and collecting payment.
Because of this timing, an ABA practice may need sufficient liquidity to cover expenses while waiting for reimbursement.
Working Capital Can Support Growth
Working capital financing may help an ABA practice manage normal operating expenses and periods when cash collections do not immediately match expenses.
Potential uses can include payroll, rent, insurance, technology, recruiting, marketing, and other ongoing costs.
Working capital can be particularly important when the practice is growing rapidly or adding new providers.
Financing a New ABA Location
An established ABA practice may eventually want to open another location.
A new location can require expenses for leasing or purchasing space, build-out, furniture, technology, recruiting, marketing, and other startup costs.
The owner should develop a realistic budget that considers the time required for the new location to build its patient base and reach sustainable cash flow.
Commercial Real Estate Financing
Some ABA practice owners may want to purchase the building where the practice operates rather than continue leasing.
Commercial real estate financing can potentially be used to purchase an owner-occupied property, depending on the property and financing program.
Purchasing real estate can also create a larger overall financing requirement, so the property should be evaluated separately as part of the transaction.
Equipment and Technology Financing
ABA practices may also need funding for technology, computers, security systems, furniture, clinical equipment, and other business assets.
Equipment financing can potentially allow an owner to spread the cost of larger purchases rather than paying for everything upfront.
Expansion Financing
Growth can create additional financing needs.
An ABA practice may need capital to hire more providers, expand its facility, add treatment rooms, improve technology, increase administrative capacity, or enter a new market.
The financing should be structured around the existing practice’s financial strength and the expected economics of the expansion.
What Do Lenders Look At?
The financing process can involve an evaluation of both the ABA practice and the owner.
Depending on the financing program, lenders may review:
- Business revenue and profitability
- Historical cash flow
- Payer mix
- Accounts receivable
- Provider staffing
- Business experience
- Personal credit
- Existing debt
- Liquidity and available assets
- Business plan and financial projections
Prepare Your Financial Information
Having financial information organized before applying can help make the financing process more efficient.
Depending on the transaction, a lender may request personal tax returns, financial statements, bank statements, business tax returns, accounts receivable information, ownership documents, leases, and other records.
Don’t Underestimate the Capital Needed
One of the most common financing mistakes is focusing only on the immediate expense.
For example, an owner planning to open a new ABA clinic may budget for the build-out and equipment but overlook payroll, recruiting, credentialing, insurance, rent, and other expenses that occur before the business reaches stable collections.
A complete financing plan should account for the entire launch or growth period.
Choose Financing Based on the Purpose
There is no single financing product that is appropriate for every ABA practice.
An acquisition may require acquisition financing. A building purchase may require commercial real estate financing. A new location may require expansion capital, while ongoing cash-flow needs may call for a line of credit or working capital solution.
The financing structure should match the actual use of funds.
Start Planning Before You Need the Capital
ABA practice owners and buyers should consider discussing financing before a major transaction or expansion is underway.
Early planning can help identify potential funding requirements, organize financial information, and determine whether the proposed project is financially realistic.
Final Thought
Financing an ABA therapy practice can involve much more than paying for an office or purchasing equipment.
Whether you are starting an ABA practice, acquiring an existing business, opening another location, purchasing real estate, or expanding your provider team, the financing strategy should account for the practice’s cash flow, staffing requirements, reimbursement timing, and long-term goals.
By planning the capital requirements early and choosing financing based on the specific use of funds, ABA practice owners can be better positioned to fund growth while maintaining financial flexibility.
