Wheatland Health Services

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Home Health Care Services Business Plan

Financial Plan

We want to finance growth mainly through cash flow. We recognize that this means we will have to grow more slowly than we might like.

The most important factor for our financial plan is collection of receivables. Our home health care services will be reimbursed primarily by Medicare, Medicaid, and other private insurances. History indicates that these payors are sometimes slow to reimburse and receivables can get hung up in the automated payment system if not tracked closely. As we broaden our scope of services to include a larger payor base, these lags in collection of receivables will have less impact on cash flow.

Our figures are based on start-up capital as shown in the Start-up and Start-up Funding tables; we will consider an additional loan if needed.

7.1 Important Assumptions

The General Assumptions table, below, shows our important (and conservative) annual assumptions concerning interest rates, tax rates, and personnel burden. In addition:

  1. We assume a strong economy, without major recession.
  2. We assume, of course, that there are no significant unforeseen changes in the federal policy that dictates Medicare and Medicaid reimbursement of Home Health Care Services.
General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 10.00% 10.00% 10.00%
Long-term Interest Rate 8.00% 8.00% 8.00%
Tax Rate 30.00% 30.00% 30.00%
Other 0 0 0

7.2 Break-even Analysis

The Break-even Analysis below is based on monthly fixed costs and an Average Per Unit Variable Cost. This assumption about cost of sales may at first look low, but in our service-based business, payroll is included with other operating expenses in our fixed monthly amounts, so the variable costs relate to the only other cost of service provided: mileage to and from service locations.

At these levels, we need to bill and collect the amount shown below per month to cover our per month costs. We don't really expect to reach break-even until a few months into the business operation.

Break-even Analysis
Monthly Revenue Break-even $17,532
Assumptions:
Average Percent Variable Cost 6%
Estimated Monthly Fixed Cost $16,555

7.3 Projected Profit and Loss

Our projected profit and loss is shown in the following table, with sales increasing throughout the three years of the plan, and profits are notable even for the start-up phase of this business. per month

We are projecting growth and total annual sales very conservatively, with high projected expenses. Our cost of sales is relatively low, as this is a service agency and the primary costs involved in providing the services are those related to payroll. The costs of sales reflects the cost of mileage reimbursement to employees, because the services we provide are home- and community-based and require travel to and from service locations.

The Profit and Loss table also contains our expenses for independently contracted physical, occupational and speech therapists, as well as the owner's and Clinical Director's after-tax draws.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $432,940 $480,074 $533,073
Direct Cost of Sales $24,121 $24,676 $25,245
Other Costs of Sales $0 $0 $0
Total Cost of Sales $24,121 $24,676 $25,245
Gross Margin $408,819 $455,398 $507,829
Gross Margin % 94.43% 94.86% 95.26%
Expenses
Payroll $109,343 $118,322 $121,870
Payroll Taxes $29,920 $30,423 $30,956
Depreciation $0 $0 $0
Rent $2,400 $3,600 $3,600
Heat and Lights $1,800 $1,800 $1,800
Phone $3,000 $3,000 $3,000
Cell Phones $1,800 $1,800 $1,800
Water and Garbage $600 $600 $600
Internet Access $300 $300 $300
Professional Liability Insurance $9,000 $12,000 $12,000
Workman's Comp Insurance $600 $600 $600
Premises and Content Insurance $600 $600 $600
Advertising and Marketing $1,200 $1,200 $1,200
Meals and Entertainment $600 $600 $600
Professional Development $1,200 $1,200 $1,200
Office Equipment and Supplies $4,800 $4,800 $4,800
Contracted Therapists: OT/PT/ST $19,500 $19,500 $19,500
Nursing Supplies $12,000 $12,000 $12,000
Total Operating Expenses $198,663 $212,346 $216,425
Profit Before Interest and Taxes $210,156 $243,053 $291,403
EBITDA $210,156 $243,053 $291,403
Interest Expense $4,000 $4,000 $4,000
Taxes Incurred $61,847 $71,716 $86,221
Net Profit $144,309 $167,337 $201,182
Net Profit/Sales 33.33% 34.86% 37.74%

7.4 Projected Cash Flow

The following cash flow projections show the annual amounts only. Collection of accounts receivable from our sales on credit will greatly affect our cash flow. Cash flow projections are critical to our success. The monthly cash flow is shown in the illustration, with one bar representing the cash flow per month, and the other the monthly cash balance. The annual cash flow figures are included here and the more important detailed monthly numbers are included in the appendix.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $0 $0 $0
Cash from Receivables $341,293 $470,096 $521,854
Subtotal Cash from Operations $341,293 $470,096 $521,854
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0
New Long-term Liabilities $0 $0 $0
Sales of Other Current Assets $0 $0 $0
Sales of Long-term Assets $0 $0 $0
New Investment Received $0 $0 $0
Subtotal Cash Received $341,293 $470,096 $521,854
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $109,343 $118,322 $121,870
Bill Payments $161,040 $196,683 $208,739
Subtotal Spent on Operations $270,383 $315,006 $330,608
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $0 $0 $0
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $0 $0 $0
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $270,383 $315,006 $330,608
Net Cash Flow $70,910 $155,091 $191,246
Cash Balance $115,509 $270,600 $461,846

7.5 Projected Balance Sheet

The balance sheet in the following table shows managed but sufficient growth of net worth, and a sufficiently healthy financial position. The monthly estimates are included in the appendix.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $115,509 $270,600 $461,846
Accounts Receivable $91,647 $101,624 $112,843
Other Current Assets $3,500 $3,500 $3,500
Total Current Assets $210,656 $375,724 $578,189
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $210,656 $375,724 $578,189
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $18,248 $15,979 $17,262
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $18,248 $15,979 $17,262
Long-term Liabilities $50,000 $50,000 $50,000
Total Liabilities $68,248 $65,979 $67,262
Paid-in Capital $20,000 $20,000 $20,000
Retained Earnings ($21,901) $122,408 $289,745
Earnings $144,309 $167,337 $201,182
Total Capital $142,408 $309,745 $510,927
Total Liabilities and Capital $210,656 $375,724 $578,189
Net Worth $142,408 $309,745 $510,927

7.6 Business Ratios

The following table shows the projected businesses ratios, and a comparison of our ratios with standards for the home health care industry (SIC code 8082.000). We expect to maintain healthy ratios for profitability, risk, and return.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 10.89% 11.04% 3.71%
Percent of Total Assets
Accounts Receivable 43.51% 27.05% 19.52% 21.90%
Other Current Assets 1.66% 0.93% 0.61% 45.48%
Total Current Assets 100.00% 100.00% 100.00% 69.58%
Long-term Assets 0.00% 0.00% 0.00% 30.42%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 8.66% 4.25% 2.99% 35.62%
Long-term Liabilities 23.74% 13.31% 8.65% 21.27%
Total Liabilities 32.40% 17.56% 11.63% 56.89%
Net Worth 67.60% 82.44% 88.37% 43.11%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 94.43% 94.86% 95.26% 100.00%
Selling, General & Administrative Expenses 63.87% 67.34% 66.75% 85.34%
Advertising Expenses 0.00% 0.00% 0.00% 0.70%
Profit Before Interest and Taxes 48.54% 50.63% 54.66% 0.35%
Main Ratios
Current 11.54 23.51 33.49 1.52
Quick 11.54 23.51 33.49 1.20
Total Debt to Total Assets 32.40% 17.56% 11.63% 62.84%
Pre-tax Return on Net Worth 144.76% 77.18% 56.25% 1.09%
Pre-tax Return on Assets 97.86% 63.62% 49.71% 2.93%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 33.33% 34.86% 37.74% n.a
Return on Equity 101.33% 54.02% 39.38% n.a
Activity Ratios
Accounts Receivable Turnover 4.72 4.72 4.72 n.a
Collection Days 57 73 73 n.a
Accounts Payable Turnover 9.83 12.17 12.17 n.a
Payment Days 27 32 29 n.a
Total Asset Turnover 2.06 1.28 0.92 n.a
Debt Ratios
Debt to Net Worth 0.48 0.21 0.13 n.a
Current Liab. to Liab. 0.27 0.24 0.26 n.a
Liquidity Ratios
Net Working Capital $192,408 $359,745 $560,927 n.a
Interest Coverage 52.54 60.76 72.85 n.a
Additional Ratios
Assets to Sales 0.49 0.78 1.08 n.a
Current Debt/Total Assets 9% 4% 3% n.a
Acid Test 6.52 17.15 26.96 n.a
Sales/Net Worth 3.04 1.55 1.04 n.a
Dividend Payout 0.00 0.00 0.00 n.a