Before building a capital-equipment business plan, it is important to understand its basic elements. The rules that apply to the process change frequently; nonetheless, all capital investments are equations balancing risk and benefit. Capital is derived from profits, from open markets such as bonds, and from other loan vehicles. There is tremendous competition for capital within each organization in health care, but there is also competition for patients among facilities (and enhanced competitive ability can be the result of capital-equipment investment).

The available resources are limited, of course, so it is particularly important to make it clear that an imaging department is a revenue source for the parent enterprise. Because imaging produces cash, any case having a positive net present value should be seen in a favorable light. Building the case in favor of an acquisition involves justifying it through the business plan.


The written plan should outline the reasoning and logic used to arrive at the capital-equipment request. It should cover the objective to be accomplished, why the proposal meets that need, how the objective is related to the mission and/or vision of the organization, and how the proposed acquisition would affect other departments or services within the enterprise. In addition, the management and leadership planned for the acquisition should be specified, and the person who has responsibility for the new service should be named.

Activity that has already taken place related to the proposed acquisition should be summarized, and the current stage of development of any relevant new services should be stated. A broad description of the modality or service (and the availability of personnel with the skills required to offer it) should be provided. How the prospective addition could benefit customers (both clinicians and patients) should be clarified, with particular attention given to the ways in which the proposed service would differ from the current offerings of the institution. Suitable locations for the new equipment should be suggested (with any special site requirements or environmental controls noted). An exit strategy for the service should also be devised.

Accurate data sources, both internal and external, will be needed in determining and validating the market potential of a proposed acquisition. Any entry barriers that exist in the marketplace should be examined. The plan should incorporate a review of the effects of regulation, economic influences, seasonality of demand for the service or modality, and the most advantageous timing for its introduction. Historical volumes, state and local trends, and technological influences should be outlined.

The pro forma section of the business plan should be a list of all operative assumptions. This is especially important because those who best understand the need for new equipment are unlikely to be the individuals who will decide whether to acquire it. By defining all assumptions clearly, the plan’s writers can ensure that all readers will understand the information presented, despite variations in their training and experience. Readers should, of course, be provided with clear, concise, and valid data.

The assumptions covered by the pro forma section should be the standard models and basic parts involved, the gross and net revenues expected, the variable and fixed expenses predicted, any renovations needed, the cost of suitable facilities, depreciation, the cost of capital, and the modified internal rate of return. In addition, starting dates for the project, applicable tax rates, average inventory, and volume forecasts should be noted.

Not every capital-equipment acquisition calls for a business plan, but one is likely to be required for any proposed purchase costing more than $250,000.

The level of approval needed may be based on the total cost of the acquisition, with requirements differing among institutions. Generally, the vice president who oversees the department can approve smaller purchases (perhaps those costing less than $25,000) alone, but the COO may need to approve larger acquisitions. For the largest outlays (typically those of $1 million or more), the approval of the CFO, CEO, and trustees may be required. The minimum expenditure for which a business plan is needed may be as low as $500 or as high as $5,000. Approval due dates for each year’s capital-equipment expenditures will also vary and must be kept in mind. These dates often precede operating-budget deadlines.

Those whose approval will be needed for the proposed acquisition may approach capital equipment from several different angles. The business plan should answer questions specific to each of these perspectives. For example, a vice president may have the best understanding of the department and how it operates, while the COO will be most interested in the interdepartmental ramifications of the acquisition. The CFO will scrutinize positive and negative financial effects to be expected. The CEO and board of trustees will be concerned about strategy, along with the acquisition’s alignment with the mission and vision of the enterprise.

The business plan will address all of these concerns, but each presentation of the plan will vary to reflect the primary interests of the audience. The presenters should not attempt to demonstrate how hard they have worked to prepare the plan; instead, they should focus on getting approval to proceed to the next level of the acquisition process. In a large organization, it is not uncommon to make the presentation more concise as it rises through the executive hierarchy.


The most concise written form that the proposal will take is the executive summary, which should be one to two pages long. Although this appears at the beginning of every copy of the plan, it is written last (in order to incorporate the most important points from every completed section of the plan). It is especially vital that all significant information be summarized here because this is, in many organizations, the only part of the plan that every recipient will read in its entirety. Reading the executive summary alone should provide an overview of what is being proposed, and by whom; where and when it will be implemented; why it is necessary; its financial characteristics; and how it is expected to affect the organization.

A section describing the proposed acquisition (and citing credible information sources) should cover current and projected population demographics, market demand, competing hospitals and joint ventures, market share considered by service line as well as modality, regulatory issues (including any applicable certificates of need), payor trends such as relevant reimbursement levels, productivity, and the life expectancy of the technology. The department’s referral sources should be described, as should any backlogs or other delays that may be causing referral losses.


An examination of the current state of the affected service(s) is needed, and that state should be compared with applicable benchmarks to provide a picture of where the facility now stands.

Figure 1a. Pro forma for a mobile MRI expansion includes income statement.

Carrying out an analysis of the strengths and weaknesses of the organization and the opportunities and threats that it faces (a SWOT evaluation) will often be illuminating. The SWOT matrix, usually displayed on four or six text panels, can point out what needs to be done, and can be helpful in putting problems into perspective. It is a distilled version of the present situation, containing only the most critical points in a concise format, sometimes color coded to enhance clarity. It may also prove enlightening to conduct the SWOT exercise for the organization’s competitors. A SWOT analysis forces an objective analysis of the department and organization’s position in the marketplace. Simultaneously, an effective SWOT analysis will help determine in which areas the institution is succeeding, allowing it to justify the allocation of resources in ways that maintain any dominant positions that it may have.

As strengths, the SWOT matrix should list advantages, what the entity does well, and the resources available to it. Weaknesses include areas needing improvement, what the facility lacks, and activities performed poorly. Depending on the situation, these may be weaknesses or strengths: location, facilities, equipment, staffing, organization, and leadership.

Opportunities listed may be interesting trends and new business prospects. Threats are obstacles, bad debt or cash-flow problems, and weaknesses that seriously threaten the enterprise. Changing technology and competitors’ activities can be opportunities or threats, as can changes in government policy, social patterns, population profiles, and lifestyles.


Figure 1b. Pro forma for a mobile MRI expansion includes net present value calculation.

The financial analysis (see Figures 1a and 1b) summarizes inpatient and outpatient revenues, considered separately if both apply; the capital expense (equipment, building/renovation, and depreciation); and an operating budget for the acquisition. It also consists of financial statements such as a balance sheet; an income statement (including gross patient revenues, contractual allowances, bad debt and charity, salaries, supplies, total operating expenses, direct contribution margin, indirect variables, total inpatient and outpatient volumes, and total contribution margin); and a cash-flow statement. These are accompanied by a breakeven analysis, key ratio projections, and summaries of relevant financial resources (compiled by the CFO) and financial strategy (determined by the CEO and CFO). Possible added costs, such as the need for travelers to augment existing staff, should be discussed here. How the project is expected to create new revenue streams or protect current cash flows should be specified.

Figure 2. A Gantt chart representing each step in the acquisition and implementation of the equipment is a helpful attachment for a business plan.

After the financial analysis is complete, the plan should note the level of support for the project expected from patients and referring clinicians and should emphasize why the acquisition is needed now (and should not be held for a later capital budget). Because capital is limited, why this project deserves funding more than competing proposals should be stated. In the final summary, the authors should indicate the benefits of the proposed acquisition that will be gained outside the radiology department, both within and outside the enterprise.


The final section of the capital-equipment business plan is a series of attachments corroborating the evaluation made in the body of the document. The attachments should include construction quotes, equipment quotes, ramp-up requirements, the pro forma, a timeline, a list of regulatory deadlines, references to data sources cited in the text, and letters of support for the project.

Another helpful attachment is a simple Gantt chart (see Figure 2). This is a useful overview for those who want to see each step of the project quickly, without reading the entire business plan. Constructed as a bar graph using a horizontal time scale, the chart should show the expected duration, cost, and person responsible for each step in the acquisition and implementation processes. 

Richard S. Helsper, RT, MBA, is vice president of operations, Clarian Health Partners, Indianapolis. This article has been excerpted from Creating a Capital Equipment Business Plan, which he presented at the 31st annual meeting of the American Healthcare Radiology Administrators on August 12, 2003, in Anaheim, Calif.