Healthcare businesses face a number of challenges today, including the residual effects of ongoing inflation and elevated cost of capital due to a higher interest rate environment; the impact of proposed tariffs driving up the cost of materials; and a tight labor market making it challenging to hire skilled workers. These factors combine to make it a tricky landscape for business growth. But with a strategic approach, businesses can navigate unpredictable waters and position themselves for growth in the coming months and years. Here are a few key things to consider.
Tight Labor Market
Despite significant tightening from the Federal Reserve, labor markets remain incredibly tight. This means that small businesses are struggling to find quality candidates at prices that they can afford. This is especially true for part-time and seasonal employees. Staffing shortages across the industry, from hospitals and clinics to home healthcare workers, will be exacerbated by limits on immigration and deportations of undocumented workers. While it is estimated that only 2% of the healthcare workforce is undocumented, a much higher percentage of nurses and doctors are legal immigrants. A reduction in future legal immigration could pose a significant challenge to the industry and drive both prices and wait times higher.
Given the tight labor market, healthcare businesses should consider investing in new equipment, technologies and business processes that will allow them to operate with fewer employees. Upgrading equipment to reduce manual labor and installing software that can better manage jobs and inventory will allow businesses to do more with fewer staff.
For a business’s most critical employees, consider offering additional perks such as flexible work hours, continuing education, or opportunities for career advancement. Strong relationships and the ability to satisfy employees’ career goals can help retain critical personnel in tight labor markets.
Tariffs
President Trump has proposed considerable tariffs on the import of foreign goods and materials from our largest trading partners. Tariffs of this scale and breadth could, over time, make manufacturing in the U.S. more economic relative to importing goods and materials from abroad. However, in the short to medium term, these tariffs are likely to raise the cost of doing business in the healthcare sector. We can expect these tariffs to both spur inflation and lower overall consumption, slowing the economy.
Healthcare businesses that import critical goods and materials from abroad should determine if it is possible to source these goods and materials domestically. If domestic production proves uneconomic, business owners will need to pay close attention to the tariffs being levied and which countries they are impacting most. Working quickly to move production from one country to another could prove valuable should certain countries receive stiffer tariffs than others with similar production capabilities.
Growth and Expansion
Healthcare businesses should be judicious in their expansion plans right now. In uncertain economic times, it is important to focus on services that provide a demonstrated value to customers/patients. Before expanding services or opening new office space, it is important to thoroughly test the market to determine demand and pricing power. Make sure that anticipated sales will more than cover anticipated expenses and be sure to have access to sufficient capital to cover several months of operating expenses in case sales take longer to materialize.
For businesses who borrow money to purchase inventory, acquire equipment, and fund expansion, it is important to maintain multiple financing relationships. Banks have been pulling back from lending to businesses, and having contacts at multiple lending institutions can help secure the fastest and lowest-cost capital when borrowing is required. We have also seen the equipment finance market impacted by banks’ reduced willingness to lend, making it more difficult for business owners to finance their equipment purchases. If businesses are having trouble obtaining financing they should:
- Speak to as many potential financing sources as possible.
- If purchasing equipment, work with the equipment vendor to explore financing options through that vendor’s financing partnerships.
- Talk to the local bank to understand their lending criteria and collateral requirements for commercial loans.
- If those resources don’t prove fruitful, there are a number of independent non-bank lenders that are willing to lend money quickly, albeit at higher rates than a bank.
Fortunately, businesses with strong credit profiles and a history of financing essential use equipment have quality options both with banks and non-bank lenders. However, business owners should expect a higher cost of capital than in years past and therefore should calculate the cost of the financing relative to the expected profits that the financing will generate, to ensure a positive return on investment.
Cutting Costs Through Efficiency
There is no silver bullet for cutting costs without compromising efficiency. However, businesses looking to reduce overhead while maintaining or increasing efficiency will likely need to do so through automation. Accessing new technologies that allow businesses to operate with fewer employees and faster processes will make the business leaner and more scalable.
Examples of scalable technologies being employed by businesses today include: installing software that can better manage inventory; implementing robotic processing tools to perform repetitive tasks inside warehouses or processing facilities; and deploying AI tools to allow employees to access critical information and draft standard communication faster and more accurately. These investments save time and allow the business to operate with fewer employees, reducing friction created by growth and allowing the business to operate at a lower cost base.
With ongoing inflation impacting the healthcare sector, it is prudent for business owners to look for ways to lower overhead costs, capitalize on potential efficiencies, and consider offerings that may be more appealing to customers in a slowing economy. Here are some things to consider:
Inventory
- Assess current inventory levels and review job needs frequently so that you aren’t holding more inventory than you need to operate.
Cashflow
- In uncertain economic times, it is important to pay close attention to cash flow. Businesses should ensure that they have sufficient cash on hand to weather a prolonged period of reduced sales.
- This means exploring improved payment terms with vendors, working with financing companies to understand what financing is available to the business, and looking closely at ways to turn fixed expenses into variable ones.
Reference
[1] Share of Unauthorized Immigrant Workers in Production, Construction Job Falls Since 2007 – In States, Hospitality, Manufacturing, and Construction Are Top Industries. Pew Research Center. March 26, 2015. Online. Last accessed on May 30, 2025.
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