Medical Billing Business Plan

Physicians 1st Billing and Claims

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Financial Plan

The business will be financed mainly through cash flow. With a service oriented business our main investment is for initial software and computer equipment. During subsequent years, other than normal overhead, we will be looking at:

  • Advertising fees of $50.00 monthly to Claim Systems advertising pool.
  • Renewal of memberships to local and national organizations.
  • Updates of reference manuals and books.
  • Office supplies and utilities.
  • Payroll and benefits.

7.1 Important Assumptions

This financial plan depends on important assumptions, most of which are shown in the following table.

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 10.00% 10.00% 10.00%
Tax Rate 19.80% 20.00% 20.83%
Other 0 0 0

7.2 Key Financial Indicators

The following shows critical profit variables.

7.3 Projected Profit and Loss

Physicians 1st Billing and Claims will show a loss for the first few months of business operation, but profits will increase with sales volume.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $158,700 $168,000 $182,000
Direct Cost of Sales $0 $0 $0
Other Costs of Sales $0 $0 $0
Total Cost of Sales $0 $0 $0
Gross Margin $158,700 $168,000 $182,000
Gross Margin % 100.00% 100.00% 100.00%
Expenses
Payroll $48,000 $62,000 $70,000
Marketing/Promotion $14,730 $15,672 $16,614
Depreciation $0 $0 $0
Franchise Fee $1,596 $0 $0
Rent $1,608 $700 $700
Utilities $876 $600 $600
Insurance $204 $204 $204
Payroll Taxes $0 $0 $0
Other $0 $0 $0
Total Operating Expenses $67,014 $79,176 $88,118
Profit Before Interest and Taxes $91,686 $88,824 $93,882
EBITDA $91,686 $88,824 $93,882
Interest Expense $1,405 $1,040 $640
Taxes Incurred $17,879 $17,557 $19,422
Net Profit $72,402 $70,227 $73,820
Net Profit/Sales 45.62% 41.80% 40.56%

7.4 Break-even Analysis

The break-even analysis shows that Physicians 1st Billing and Claims has a good balance of fixed costs and sufficient sales strength to remain healthy. As with any business, the first few months will show negative financial numbers.

Break-even Analysis
Monthly Units Break-even 2,175
Monthly Revenue Break-even $5,585
Assumptions:
Average Per-Unit Revenue $2.57
Average Per-Unit Variable Cost $0.00
Estimated Monthly Fixed Cost $5,585

7.5 Projected Cash Flow

Initially, cash flow will be supported by the personal savings accounts of the head officers of this company, and a four-year loan of $16,000, backed by the owners' assets.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $0 $0 $0
Cash from Receivables $111,467 $165,232 $177,833
Subtotal Cash from Operations $111,467 $165,232 $177,833
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 $111,467 $165,232 $177,833
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $48,000 $62,000 $70,000
Bill Payments $32,289 $38,842 $37,982
Subtotal Spent on Operations $80,289 $100,842 $107,982
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $3,600 $4,000 $4,000
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 $83,889 $104,842 $111,982
Net Cash Flow $27,577 $60,390 $65,851
Cash Balance $43,577 $103,968 $169,819

7.6 Projected Balance Sheet

The following is the Projected Balance Sheet for the next three years.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $43,577 $103,968 $169,819
Accounts Receivable $47,233 $50,001 $54,168
Other Current Assets $0 $0 $0
Total Current Assets $90,811 $153,969 $223,987
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $90,811 $153,969 $223,987
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $6,009 $2,940 $3,138
Current Borrowing $12,400 $8,400 $4,400
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $18,409 $11,340 $7,538
Long-term Liabilities $0 $0 $0
Total Liabilities $18,409 $11,340 $7,538
Paid-in Capital $9,604 $9,604 $9,604
Retained Earnings ($9,604) $62,798 $133,025
Earnings $72,402 $70,227 $73,820
Total Capital $72,402 $142,629 $216,448
Total Liabilities and Capital $90,811 $153,969 $223,987
Net Worth $72,402 $142,629 $216,448

7.7 Business Ratios

Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 6411, Insurance Agents, Brokers, and Service, are shown for comparison.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 5.86% 8.33% 2.40%
Percent of Total Assets
Accounts Receivable 52.01% 32.47% 24.18% 26.30%
Other Current Assets 0.00% 0.00% 0.00% 64.30%
Total Current Assets 100.00% 100.00% 100.00% 90.60%
Long-term Assets 0.00% 0.00% 0.00% 9.40%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 20.27% 7.37% 3.37% 48.20%
Long-term Liabilities 0.00% 0.00% 0.00% 9.50%
Total Liabilities 20.27% 7.37% 3.37% 57.70%
Net Worth 79.73% 92.63% 96.63% 42.30%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 100.00% 100.00% 100.00% 100.00%
Selling, General & Administrative Expenses 54.38% 58.20% 59.44% 60.10%
Advertising Expenses 0.00% 0.00% 0.00% 1.70%
Profit Before Interest and Taxes 57.77% 52.87% 51.58% 5.20%
Main Ratios
Current 4.93 13.58 29.71 1.66
Quick 4.93 13.58 29.71 1.45
Total Debt to Total Assets 20.27% 7.37% 3.37% 57.70%
Pre-tax Return on Net Worth 124.69% 61.55% 43.08% 5.80%
Pre-tax Return on Assets 99.42% 57.01% 41.63% 13.70%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 45.62% 41.80% 40.56% n.a
Return on Equity 100.00% 49.24% 34.10% n.a
Activity Ratios
Accounts Receivable Turnover 3.36 3.36 3.36 n.a
Collection Days 55 106 104 n.a
Accounts Payable Turnover 6.37 12.17 12.17 n.a
Payment Days 27 46 29 n.a
Total Asset Turnover 1.75 1.09 0.81 n.a
Debt Ratios
Debt to Net Worth 0.25 0.08 0.03 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $72,402 $142,629 $216,448 n.a
Interest Coverage 65.26 85.41 146.69 n.a
Additional Ratios
Assets to Sales 0.57 0.92 1.23 n.a
Current Debt/Total Assets 20% 7% 3% n.a
Acid Test 2.37 9.17 22.53 n.a
Sales/Net Worth 2.19 1.18 0.84 n.a
Dividend Payout 0.00 0.00 0.00 n.a
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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 10.00% 10.00% 10.00%
Tax Rate 19.80% 20.00% 20.83%
Other 0 0 0
Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $158,700 $168,000 $182,000
Direct Cost of Sales $0 $0 $0
Other Costs of Sales $0 $0 $0
Total Cost of Sales $0 $0 $0
Gross Margin $158,700 $168,000 $182,000
Gross Margin % 100.00% 100.00% 100.00%
Expenses
Payroll $48,000 $62,000 $70,000
Marketing/Promotion $14,730 $15,672 $16,614
Depreciation $0 $0 $0
Franchise Fee $1,596 $0 $0
Rent $1,608 $700 $700
Utilities $876 $600 $600
Insurance $204 $204 $204
Payroll Taxes $0 $0 $0
Other $0 $0 $0
Total Operating Expenses $67,014 $79,176 $88,118
Profit Before Interest and Taxes $91,686 $88,824 $93,882
EBITDA $91,686 $88,824 $93,882
Interest Expense $1,405 $1,040 $640
Taxes Incurred $17,879 $17,557 $19,422
Net Profit $72,402 $70,227 $73,820
Net Profit/Sales 45.62% 41.80% 40.56%
Break-even Analysis
Monthly Units Break-even 2,175
Monthly Revenue Break-even $5,585
Assumptions:
Average Per-Unit Revenue $2.57
Average Per-Unit Variable Cost $0.00
Estimated Monthly Fixed Cost $5,585
Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $0 $0 $0
Cash from Receivables $111,467 $165,232 $177,833
Subtotal Cash from Operations $111,467 $165,232 $177,833
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 $111,467 $165,232 $177,833
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $48,000 $62,000 $70,000
Bill Payments $32,289 $38,842 $37,982
Subtotal Spent on Operations $80,289 $100,842 $107,982
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $3,600 $4,000 $4,000
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 $83,889 $104,842 $111,982
Net Cash Flow $27,577 $60,390 $65,851
Cash Balance $43,577 $103,968 $169,819
Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $43,577 $103,968 $169,819
Accounts Receivable $47,233 $50,001 $54,168
Other Current Assets $0 $0 $0
Total Current Assets $90,811 $153,969 $223,987
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $90,811 $153,969 $223,987
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $6,009 $2,940 $3,138
Current Borrowing $12,400 $8,400 $4,400
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $18,409 $11,340 $7,538
Long-term Liabilities $0 $0 $0
Total Liabilities $18,409 $11,340 $7,538
Paid-in Capital $9,604 $9,604 $9,604
Retained Earnings ($9,604) $62,798 $133,025
Earnings $72,402 $70,227 $73,820
Total Capital $72,402 $142,629 $216,448
Total Liabilities and Capital $90,811 $153,969 $223,987
Net Worth $72,402 $142,629 $216,448
Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 5.86% 8.33% 2.40%
Percent of Total Assets
Accounts Receivable 52.01% 32.47% 24.18% 26.30%
Other Current Assets 0.00% 0.00% 0.00% 64.30%
Total Current Assets 100.00% 100.00% 100.00% 90.60%
Long-term Assets 0.00% 0.00% 0.00% 9.40%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 20.27% 7.37% 3.37% 48.20%
Long-term Liabilities 0.00% 0.00% 0.00% 9.50%
Total Liabilities 20.27% 7.37% 3.37% 57.70%
Net Worth 79.73% 92.63% 96.63% 42.30%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 100.00% 100.00% 100.00% 100.00%
Selling, General & Administrative Expenses 54.38% 58.20% 59.44% 60.10%
Advertising Expenses 0.00% 0.00% 0.00% 1.70%
Profit Before Interest and Taxes 57.77% 52.87% 51.58% 5.20%
Main Ratios
Current 4.93 13.58 29.71 1.66
Quick 4.93 13.58 29.71 1.45
Total Debt to Total Assets 20.27% 7.37% 3.37% 57.70%
Pre-tax Return on Net Worth 124.69% 61.55% 43.08% 5.80%
Pre-tax Return on Assets 99.42% 57.01% 41.63% 13.70%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 45.62% 41.80% 40.56% n.a
Return on Equity 100.00% 49.24% 34.10% n.a
Activity Ratios
Accounts Receivable Turnover 3.36 3.36 3.36 n.a
Collection Days 55 106 104 n.a
Accounts Payable Turnover 6.37 12.17 12.17 n.a
Payment Days 27 46 29 n.a
Total Asset Turnover 1.75 1.09 0.81 n.a
Debt Ratios
Debt to Net Worth 0.25 0.08 0.03 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $72,402 $142,629 $216,448 n.a
Interest Coverage 65.26 85.41 146.69 n.a
Additional Ratios
Assets to Sales 0.57 0.92 1.23 n.a
Current Debt/Total Assets 20% 7% 3% n.a
Acid Test 2.37 9.17 22.53 n.a
Sales/Net Worth 2.19 1.18 0.84 n.a
Dividend Payout 0.00 0.00 0.00 n.a