Park Square Family Medicine

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Family Medicine Clinic Business Plan

Financial Plan

It is estimated that start-up expenses will be $22,732. This amount of money will be used to purchase office equipment, medical supplies, furniture, stationary, and other start-up expenses. This amount, and a starting cash balance of $10,000, will be financed by General Medical Center.

In addition, we are in the process of acquiring a building worth $225,000 with a 15 year mortgage, which will be repaid from the company's cash flows. As a sole proprietorship, this loan is guaranteed by Dr. Detroit's personal assets, and General Medical Center does not assume responsibility for it.

The physician's salary will be paid by General Medical throughout the first year. They will also provide us with $24,000 a month for business expenses, for 12 months.

At the end of the first year, subsidies from General Medical will end. Although sales are projected to increase steadily, and the physician will take reduced salary in the second through fourth years, we project a loss in the second and third years. This is due to the loss of expense subsidies, and the additional expense of the physician's salary and related taxes. We expect to begin breaking even in the fourth year, and have budgeted a cash balance to carry us through the years of loss.

Important notation/limitations in viewing the financial plan:

  1. The physician salary is considered a constant in the first year and therefore has not been included in this overall financial plan.

  2. The $32,732 in start-up subsidies, and the $288,000 in first-year subsidies is forgiven and not subject to reimbursement unless Park Square family medicine fails...which will not happen. "Failure" is defined in the grant agreement as inability to achieve patient load goals for five months in a row during the first year.

Start-up Funding

The start-up requirements, with the exception of the building loan, are to be financed by General Medical Center. This is in addition to the $288,000 they will be providing over a 12 month period as expense subsidies in the first year, and the physician's salary for the first year.

The purchase of the building will be financed by the owner, Dr. Detroit, with a 15-year mortgage (listed under Long-term Liabilities). This loan will be repaid from the clinic's cash flows and guaranteed with his personal assets.

Start-up Funding
Start-up Expenses to Fund $22,732
Start-up Assets to Fund $235,000
Total Funding Required $257,732
Assets
Non-cash Assets from Start-up $225,000
Cash Requirements from Start-up $10,000
Additional Cash Raised $0
Cash Balance on Starting Date $10,000
Total Assets $235,000
Liabilities and Capital
Liabilities
Current Borrowing $0
Long-term Liabilities $225,000
Accounts Payable (Outstanding Bills) $0
Other Current Liabilities (interest-free) $0
Total Liabilities $225,000
Capital
Planned Investment
Grant from Marshall Medical $32,732
Other Investment $0
Additional Investment Requirement $0
Total Planned Investment $32,732
Loss at Start-up (Start-up Expenses) ($22,732)
Total Capital $10,000
Total Capital and Liabilities $235,000
Total Funding $257,732

Break-even Analysis

The Break-even Analysis shows that in the first year (with no physician salary), we need bring in $11,605 in revenue per month to break even. We will pass this mark by the sixth month.

However, in the second and third year, with increased expenses including the physician's salary, and increased patient load, we will need to bring in roughly $21,400 per month to break even. We do not anticipate reaching this level of patient care payment until the middle of the fourth year, which will end with a modest profit.

Break-even Analysis
Monthly Revenue Break-even $11,013
Assumptions:
Average Percent Variable Cost 0%
Estimated Monthly Fixed Cost $11,013

Projected Profit and Loss

The profit and loss statement shows our increasing ability to cover the expenses of the business over the first year. Although we will operate at a loss for much of this year, our cash balance will be maintained by subsidies from General Medical.

In the second year, Park Square Family Medicine will assume the full expense of the physician/owner's salary, as well as related payroll taxes. This increase, combined with small increases in operating expenses due to increased patient load, will keep us operating at a loss in the second and third year, but we expect to begin turning a small profit in the middle of the fourth year. Again, these losses will not cause us to go into a negative cash position at any point.

Without the physician/owner's compensation, we would show a profit of $85,000 in the second year, and $114,000 in the third year. Should patient load not meet expectations in these years, the owner will reduce his own salary to keep the business on track.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3 Year 4 Year 5
Sales $148,000 $220,000 $250,000 $270,000 $290,000
Direct Cost of Sales $0 $0 $0 $0 $0
Other Costs of Sales $0 $0 $0 $0 $0
Total Cost of Sales $0 $0 $0 $0 $0
Gross Margin $148,000 $220,000 $250,000 $270,000 $290,000
Gross Margin % 100.00% 100.00% 100.00% 100.00% 100.00%
Expenses
Payroll $47,400 $159,400 $161,400 $163,800 $165,800
Marketing/Promotion $36,000 $10,000 $10,000 $10,000 $10,000
Depreciation $0 $0 $0 $0 $0
Payroll Taxes $0 $0 $0 $0 $0
Medical Supplies $6,750 $8,000 $9,000 $9,500 $10,000
Office Supplies $4,500 $5,000 $5,500 $6,000 $6,200
Printing $2,000 $2,000 $2,000 $2,000 $2,000
Other Professional Services $1,000 $1,000 $1,000 $1,000 $1,000
Answering Service $3,000 $3,000 $3,000 $3,000 $3,000
Telephone $2,000 $1,500 $1,500 $1,500 $1,500
Medical Waste $2,000 $2,100 $2,200 $2,300 $2,400
Repairs and Maintenance $1,500 $1,500 $1,500 $1,500 $1,500
Janitorial Service $1,500 $1,500 $1,500 $1,500 $1,500
Dues Books and Subscriptions $1,000 $1,000 $1,000 $1,000 $1,000
Medical Billing $20,000 $20,000 $20,000 $20,000 $20,000
Commercial Insurance $3,500 $3,500 $3,500 $3,500 $3,500
Total Operating Expenses $132,150 $219,500 $223,100 $226,600 $229,400
Profit Before Interest and Taxes $15,850 $500 $26,900 $43,400 $60,600
EBITDA $15,850 $500 $26,900 $43,400 $60,600
Interest Expense $20,875 $18,000 $15,000 $13,500 $13,500
Taxes Incurred $0 $0 $0 $0 $0
Net Profit ($5,025) ($17,500) $11,900 $29,900 $47,100
Net Profit/Sales -3.40% -7.95% 4.76% 11.07% 16.24%

Projected Cash Flow

This table shows the ongoing financial relationship between General Medical and Park Square Family Medicine. Park Square Family Medicine will receive $24,000 dollars a month to subsidize business expenses over the first 12 months. This plan does not show physician's compensation for the first year, which will be paid directly from General Medical to Dr. Detroit.

Pro Forma Cash Flow
Year 1 Year 2 Year 3 Year 4 Year 5
Cash Received
Cash from Operations
Cash Sales $14,800 $22,000 $25,000 $27,000 $29,000
Cash from Receivables $71,730 $168,096 $212,540 $234,693 $252,693
Subtotal Cash from Operations $86,530 $190,096 $237,540 $261,693 $281,693
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0 $0 $0
New Current Borrowing $0 $0 $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0 $0 $0
New Long-term Liabilities $0 $0 $0 $0 $0
Sales of Other Current Assets $0 $0 $0 $0 $0
Sales of Long-term Assets $0 $0 $0 $0 $0
New Investment Received $288,000 $0 $0 $0 $0
Subtotal Cash Received $374,530 $190,096 $237,540 $261,693 $281,693
Expenditures Year 1 Year 2 Year 3 Year 4 Year 5
Expenditures from Operations
Cash Spending $47,400 $159,400 $161,400 $163,800 $165,800
Bill Payments $96,925 $80,381 $76,815 $76,333 $77,034
Subtotal Spent on Operations $144,325 $239,781 $238,215 $240,133 $242,834
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0 $0 $0
Principal Repayment of Current Borrowing $0 $0 $0 $0 $0
Other Liabilities Principal Repayment $0 $0 $0 $0 $0
Long-term Liabilities Principal Repayment $30,000 $30,000 $30,000 $0 $0
Purchase Other Current Assets $0 $0 $0 $0 $0
Purchase Long-term Assets $0 $0 $0 $0 $0
Dividends $0 $0 $0 $0 $0
Subtotal Cash Spent $174,325 $269,781 $268,215 $240,133 $242,834
Net Cash Flow $200,205 ($79,685) ($30,675) $21,560 $38,859
Cash Balance $210,205 $130,520 $99,845 $121,405 $160,264

Projected Balance Sheet

The Balance Sheet shows our liabilities and assets, including the cumulative Cash Balance from the previous table. The Paid-in Capital of $320,732 represents subsidies from General Medical Center during the Start-up period and the first year of operations. This is a grant, and does not have to be repaid unless the clinic fails - defined in the grant agreement as failure to achieve patient load goals for five months in a row.

The change in Cash Balance in the second and third years reflects the end of the first year subsidies from General Medical, and Park Square Family Medicine's payment of the physician's compensation. This decrease in assets is balanced by the repayment of our building loan. We expect Net Worth to begin rising again in years four and five.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3 Year 4 Year 5
Assets
Current Assets
Cash $210,205 $130,520 $99,845 $121,405 $160,264
Accounts Receivable $61,470 $91,374 $103,834 $112,141 $120,448
Other Current Assets $0 $0 $0 $0 $0
Total Current Assets $271,675 $221,894 $203,679 $233,546 $280,712
Long-term Assets
Long-term Assets $225,000 $225,000 $225,000 $225,000 $225,000
Accumulated Depreciation $0 $0 $0 $0 $0
Total Long-term Assets $225,000 $225,000 $225,000 $225,000 $225,000
Total Assets $496,675 $446,894 $428,679 $458,546 $505,712
Liabilities and Capital Year 1 Year 2 Year 3 Year 4 Year 5
Current Liabilities
Accounts Payable $8,700 $6,419 $6,304 $6,271 $6,337
Current Borrowing $0 $0 $0 $0 $0
Other Current Liabilities $0 $0 $0 $0 $0
Subtotal Current Liabilities $8,700 $6,419 $6,304 $6,271 $6,337
Long-term Liabilities $195,000 $165,000 $135,000 $135,000 $135,000
Total Liabilities $203,700 $171,419 $141,304 $141,271 $141,337
Paid-in Capital $320,732 $320,732 $320,732 $320,732 $320,732
Retained Earnings ($22,732) ($27,757) ($45,257) ($33,357) ($3,457)
Earnings ($5,025) ($17,500) $11,900 $29,900 $47,100
Total Capital $292,975 $275,475 $287,375 $317,275 $364,375
Total Liabilities and Capital $496,675 $446,894 $428,679 $458,546 $505,712
Net Worth $292,975 $275,475 $287,375 $317,275 $364,375

Business Ratios

Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 8011, Offices and Clinics of Medical Doctors, are shown for comparison.

Ratio Analysis
Year 1 Year 2 Year 3 Year 4 Year 5 Industry Profile
Sales Growth n.a. 48.65% 13.64% 8.00% 7.41% 5.64%
Percent of Total Assets
Accounts Receivable 12.38% 20.45% 24.22% 24.46% 23.82% 13.11%
Other Current Assets 0.00% 0.00% 0.00% 0.00% 0.00% 54.55%
Total Current Assets 54.70% 49.65% 47.51% 50.93% 55.51% 68.11%
Long-term Assets 45.30% 50.35% 52.49% 49.07% 44.49% 31.89%
Total Assets 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Current Liabilities 1.75% 1.44% 1.47% 1.37% 1.25% 21.29%
Long-term Liabilities 39.26% 36.92% 31.49% 29.44% 26.70% 21.02%
Total Liabilities 41.01% 38.36% 32.96% 30.81% 27.95% 42.31%
Net Worth 58.99% 61.64% 67.04% 69.19% 72.05% 57.69%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Gross Margin 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
Selling, General & Administrative Expenses 103.40% 107.95% 95.24% 88.93% 83.76% 52.19%
Advertising Expenses 0.00% 0.00% 0.00% 0.00% 0.00% 0.31%
Profit Before Interest and Taxes 10.71% 0.23% 10.76% 16.07% 20.90% 3.12%
Main Ratios
Current 31.23 34.57 32.31 37.24 44.30 1.72
Quick 31.23 34.57 32.31 37.24 44.30 1.36
Total Debt to Total Assets 41.01% 38.36% 32.96% 30.81% 27.95% 49.35%
Pre-tax Return on Net Worth -1.72% -6.35% 4.14% 9.42% 12.93% 18.06%
Pre-tax Return on Assets -1.01% -3.92% 2.78% 6.52% 9.31% 35.67%
Additional Ratios Year 1 Year 2 Year 3 Year 4 Year 5
Net Profit Margin -3.40% -7.95% 4.76% 11.07% 16.24% n.a
Return on Equity -1.72% -6.35% 4.14% 9.42% 12.93% n.a
Activity Ratios
Accounts Receivable Turnover 2.17 2.17 2.17 2.17 2.17 n.a
Collection Days 76 141 158 162 163 n.a
Accounts Payable Turnover 12.14 12.17 12.17 12.17 12.17 n.a
Payment Days 27 35 30 30 30 n.a
Total Asset Turnover 0.30 0.49 0.58 0.59 0.57 n.a
Debt Ratios
Debt to Net Worth 0.70 0.62 0.49 0.45 0.39 n.a
Current Liab. to Liab. 0.04 0.04 0.04 0.04 0.04 n.a
Liquidity Ratios
Net Working Capital $262,975 $215,475 $197,375 $227,275 $274,375 n.a
Interest Coverage 0.76 0.03 1.79 3.21 4.49 n.a
Additional Ratios
Assets to Sales 3.36 2.03 1.71 1.70 1.74 n.a
Current Debt/Total Assets 2% 1% 1% 1% 1% n.a
Acid Test 24.16 20.33 15.84 19.36 25.29 n.a
Sales/Net Worth 0.51 0.80 0.87 0.85 0.80 n.a
Dividend Payout 0.00 0.00 0.00 0.00 0.00 n.a