How to start a medical supply business and get it right

Starting a medical supply business can be a rewarding venture, blending knowledge of healthcare products with sharp business savvy. The market is worth hundreds of billions of dollars, driven by consistent demand for supplies from hospitals, clinics, and home healthcare providers.

This guide will take you through the practical steps of validating your business concept, securing funding, obtaining licenses, and building supplier relationships to help you launch a successful medical supply business in the U.S.

Step 1: Create your business plan and validate the concept

First, define your target market. Will you serve dental offices, nursing homes, or home health agencies? The best research comes from direct conversations. Speak with office managers or procurement staff to understand their needs and frustrations with current suppliers.

With a niche in mind, analyze the competition. You can use healthcare commercial intelligence platforms like Definitive Healthcare to see what facilities buy and from whom. A frequent misstep is trying to sell everything to everyone. It is often better to specialize first.

For example, you could focus on a high-demand area like diabetic care supplies or orthopedic products for physical therapy clinics. This focus helps you manage inventory and build expertise that larger, more general suppliers cannot match.

Estimate your startup costs

Your initial investment can range from $60,000 to over $200,000. The largest portion is your initial inventory, which could require $50,000 to $150,000. Managing this initial outlay is a significant part of your early business strategy.

Beyond inventory, budget for other expenses. These include business licensing and legal fees ($2,000-$5,000), warehouse rent, and an e-commerce website, which can cost between $5,000 and $25,000 for a professional setup.

Here are 4 immediate steps to take:

• Identify a specific customer niche like veterinary clinics or physical therapy centers.
• Interview managers at three local healthcare facilities about their supply needs.
• Research two or three direct competitors that serve your chosen niche.
• Create a preliminary budget that outlines your major startup expenses.

Step 2: Set up your legal structure and get licensed

You might want to consider forming a Limited Liability Company (LLC). It protects your personal assets if the business faces legal issues. An LLC also offers pass-through taxation, meaning profits are taxed on your personal return, which simplifies paperwork early on.

A frequent mistake is mixing personal and business finances. This can erase your liability protection. Open a dedicated business bank account as soon as your LLC is approved and use it for all transactions. This discipline is vital from day one.

Federal and state licensing

The FDA regulates medical devices, so you must follow their rules for storage and record-keeping. For certain device classes, you may need to register your business as a distributor on the FDA website. This is a non-negotiable part of operating legally.

Your primary license will likely be a Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) license from your state's Board of Pharmacy or Department of Health. Application fees can range from $500 to $2,000, and approval can take three to six months.

Finally, check with your city or county for local permits. You will need a general business license and, if you operate a warehouse, a Certificate of Occupancy to confirm the building is safe for commercial use.

Here are 4 immediate steps to take:

• File for an LLC with your state's Secretary of State.
• Apply for a free Employer Identification Number (EIN) on the IRS website.
• Search your state's Board of Pharmacy website for the DMEPOS license application.
• Contact your local city clerk's office to ask about business permit requirements.

Step 3: Secure your insurance and manage risk

You will need several insurance policies. General liability coverage of $1 million is standard, with annual premiums from $500 to $1,500. Professional liability, which protects against product failures, often requires another $1 million in coverage and costs $1,000 to $3,000 per year.

If you hold inventory, you also need commercial property insurance. For employees, workers’ compensation is mandatory. A frequent mistake is to secure only a basic policy, which leaves you exposed if a product malfunctions or causes harm. This risk is too great to ignore.

Find a specialized insurance provider

Work with an agent who understands the medical supply industry. A generalist may not grasp the specific risks, like HIPAA compliance or product recall liability. This can lead to coverage gaps. You might want to consider providers like The Hartford, CNA, or Chubb for their healthcare industry expertise.

Here are 4 immediate steps to take:

• Request quotes for $1M general and professional liability policies.
• Evaluate your need for commercial property insurance based on your inventory value.
• Contact an insurance agent who specializes in the healthcare sector.
• Create a written plan to manage potential product recalls or spoilage.

Step 4: Set up your location and equipment

Plan for a warehouse space of 1,000 to 2,500 square feet. Look for properties with commercial or light industrial zoning. Climate control is a must to protect inventory like diagnostic kits and sterile supplies from temperature fluctuations.

Many new business owners accept a standard lease without question. You might want to negotiate for a "gross lease" where the landlord pays taxes and maintenance. Also, ask for a three-month rent abatement to help your cash flow while you get established.

Key equipment and suppliers

Once your space is secured, you can outfit it. Industrial steel shelving runs $150 to $300 per unit, and a used pallet jack costs around $250. You will also need a computer and printer for managing orders and printing shipping labels.

When you approach major distributors like McKesson or Medline, be prepared for minimum order quantities (MOQs). These often range from $1,000 to $5,000. It is often best to start with one or two primary suppliers to meet these thresholds.

Here are 4 immediate steps to take:

• Research commercial properties with light industrial zoning in your target area.
• Draft a list of lease terms to negotiate, including a gross lease and rent abatement.
• Price out industrial shelving units and a used pallet jack from local suppliers.
• Contact two potential distributors to inquire about their account setup and MOQ policies.

Step 5: Set up your payment processing

Many of your clients, like clinics and hospitals, will expect to pay on terms. Net 30 or Net 60 are standard, meaning you get paid 30 or 60 days after invoicing. You will need an accounting system to track these purchase orders and receivables.

For smaller practices or direct sales, you should accept credit cards. A frequent oversight is relying only on bank transfers or checks, which can slow down your cash flow and inconvenience customers who prefer to pay immediately by card. For large orders, consider requiring a 50% deposit.

When you choose a payment solution, look at more than just the transaction fee. Consider setup costs, hardware requirements, and how quickly you can access your funds. Flexibility is important, especially if you plan to have sales reps in the field.

For medical supply businesses that need to accept payments on-site or on-the-go, JIM offers a streamlined solution. With JIM, you can accept debit, credit and digital wallets directly through your smartphone - just tap and done.

At just 1.99% per transaction with no hidden costs or extra hardware needed, it's particularly useful for sales reps closing deals at a client's office. Other payment solutions often have average commission rates between 2.5% and 3.5%.

• Get Started: Download JIM app for iOS
• Make a Sale: Type the sales amount, hit sell, and ask your customer to tap their card or device on your phone
• Access Funds: Your money is available right on your JIM card as soon as the sale is done - no waiting for bank transfers

Here are 4 immediate steps to take:

• Decide on your payment terms, such as Net 30, for institutional clients.
• Compare two to three payment processors based on their fees and hardware costs.
• Download the JIM app to see how it could work for on-the-go sales.
• Create a policy for requiring deposits on large or custom orders.

Step 6: Secure your funding and manage finances

Explore your funding options

The SBA 7(a) loan is a popular choice. Lenders typically offer $50,000 to $250,000 for medical supply startups, with interest rates often from the Prime rate plus 2.75% to 4.75%. You will need a strong business plan and good personal credit to qualify.

Some business owners only secure funds for initial inventory, which can strain cash flow later. You should budget for at least six months of working capital. If your monthly operating costs are $15,000, aim for an additional $90,000 in your funding target.

Also, consider equipment financing if you need a delivery vehicle. Since the equipment acts as collateral, these loans can be easier to obtain. For innovative business models, the federal Small Business Innovation Research (SBIR) program offers grants, though they are highly competitive.

Manage your money from day one

Once you have funding, disciplined financial management is vital. Use accounting software like QuickBooks or Xero to track every transaction. This helps you monitor cash flow, manage invoices with Net 30 terms, and prepare for tax season without last-minute scrambles.

Here are 4 immediate steps to take:

• Research SBA 7(a) loan requirements on the SBA website.
• Calculate your working capital needs for the first six months of operation.
• Look into equipment financing if you plan to purchase a delivery vehicle.
• Set up an accounting software account to track income and expenses.

Step 7: Hire your team and set up operations

Your first hires

You will likely need two key roles to start. A Warehouse Associate manages inventory and order fulfillment, with a typical salary of $35,000 to $45,000. A Customer Service Representative handles orders and client questions, earning $40,000 to $55,000.

Some owners try to handle both roles themselves, but this can quickly lead to burnout and shipping errors. Hiring one or two people lets you focus on growing the business. No specific certifications are mandatory, but experience with inventory software is a plus.

Streamline your daily operations

To manage your inventory and orders, you can use software like Zoho Inventory or Fishbowl. These systems help you track stock levels and generate purchase orders, which prevents stockouts on popular items.

As you grow, a good benchmark is to have one employee for every $200,000 to $300,000 in annual revenue. This ratio helps you maintain profitability while ensuring you have enough staff to manage the workload without delays.

Here are 4 immediate steps to take:

• Draft job descriptions for a Warehouse Associate and a Customer Service Rep.
• Review pricing for inventory management software like Zoho Inventory.
• Create a staffing budget based on projected salaries for your first year.
• Outline a simple training plan for new hires covering order fulfillment.

Step 8: Market your business and acquire customers

Build your digital presence

Your website is your digital storefront. It should have a clean design, a searchable product catalog, and a clear "Request a Quote" form. Many new owners neglect their site, but it is often the first impression you make on a potential client.

Next, use LinkedIn to connect with decision-makers. You can use its search filters to find procurement managers or office administrators at your target facilities. Avoid generic connection requests; instead, send a personalized note that shows you understand their practice's needs.

Use direct outreach and networking

Targeted email campaigns can be very effective. A well-crafted message to a specific person can achieve open rates of 20-25%. Follow up with a phone call a few days later. This direct approach often works better than broad, impersonal advertising.

Also, consider attending local healthcare trade shows or association meetings. These events put you in the same room as your ideal customers. A reasonable Customer Acquisition Cost (CAC) for a new clinic account might be between $300 and $500, so track your spending carefully.

Here are 4 immediate steps to take:

• Create a list of 25 potential clients using LinkedIn search filters.
• Draft a short email template for outreach to procurement managers.
• Outline the key pages for your business website, including a product catalog.
• Research one regional healthcare trade show to attend in the next six months.

Step 9: Set your pricing and manage inventory

Develop your pricing strategy

Your price must cover the product cost, shipping, and overhead, plus your profit. A standard markup in the medical supply industry is 30-50% over your wholesale cost. For high-volume consumables like exam gloves, the margin might be tighter, perhaps 15-25%.

Some new owners make the mistake of just matching a competitor's price without knowing their own cost structure. You should first calculate your "landed cost"—the total expense to get a product to your warehouse. This number is your foundation for sustainable pricing.

Establish your inventory system

With pricing set, you can focus on managing the stock itself. Use the First-In, First-Out (FIFO) method, especially for items with expiration dates like sterile kits. This practice ensures you sell older stock first and minimize losses from expired products.

You will also want to set reorder points in your inventory software. For example, if you sell 20 boxes of bandages a week and your supplier takes one week to deliver, you might reorder when you have 30 boxes left. This buffer prevents stockouts during unexpected sales spikes.

Here are 4 immediate steps to take:

• Calculate the landed cost for your top 10 products.
• Set a target markup for both high-volume and specialized items.
• Research the prices of two competitors for five of your key products.
• Establish a reorder point for your best-selling item.

Step 10: Implement quality control and scale your operations

Maintain service and product quality

While full ISO 9001 certification is for manufacturers, you should adopt its principles. Follow the FDA's Quality System Regulation (QSR) guidelines for handling, storage, and distribution. This shows clients you are serious about quality, even if it is not mandated for distributors.

You can measure quality with a few key metrics. Track your order accuracy rate, with a goal of 99.5% or higher. Also, monitor your on-time shipment rate, and aim for over 98%. A simple spreadsheet is enough to start logging this data.

Know when to grow

Many owners hire based on gut feelings, which can hurt profits. A better approach is to use revenue benchmarks. Plan to hire a new employee for every $200,000 to $300,000 in annual revenue. This keeps your team lean but effective.

The same data-driven approach applies to your physical space. Once you consistently operate at over 85% of your warehouse capacity, it is time to look for a larger facility. This prevents fulfillment delays as your order volume increases.

As you scale, your initial software may not keep up. When you manage multiple sales channels and a larger team, you might explore an Enterprise Resource Planning (ERP) system. A platform like NetSuite for Healthcare can integrate your finances, inventory, and sales.

Here are 4 immediate steps to take:

• Create a quality checklist for your order fulfillment process.
• Set up a spreadsheet to track your order accuracy and on-time shipment rates.
• Use the revenue-per-employee benchmark to forecast your next hire.
• Research the features of an ERP system for future growth planning.

Conclusion

Starting a medical supply business is about building trust with providers who rely on you. Your reputation for quality and on-time delivery is your most valuable asset. The path requires diligence, but creating a business that supports the healthcare community is a worthy goal.

As you build those client relationships, a simple payment process helps manage cash flow. With JIM, your smartphone becomes a card reader, so you can accept payments on the spot without extra hardware for a flat 1.99% fee. Download JIM to simplify your sales from day one.