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