Zenergy Medical Industries

Start your own business plan »

Medical Equipment - Supplies Business Plan

Financial Plan

Our Start-up requirements for cash, inventory, expenses and assets will see us through the first year, as we hire our contracted sales representatives and secure increasing market share. Even with our conservative estimates, based on market research and the industry knowledge of the the founders, we will far surpass the break-even point from the first month of sales. This financial advantage is largely a result of the deferred salaries of the principals, who will take salaries starting in the second year based on the success of the business (projections below). 

Our commission structure for contracted sales representatives, along with our shipping methods, means that our variable costs always exceed our fixed costs - we have low overhead, and are investing in low-risk face-to-face sales time to generate profits. Rent, travel for the founders, and payroll for our part-time office manager are the largest operating expenses. With a qualified medical biller, we should collect quickly on reimbursements, and maintain a positive cash balance throughout.

We will repay the initial loan within three years, at 10% interest. If sales go better than projected, we may pay it off sooner. We do not expect future rounds of investment or loans, since the business will be self-sustaining by the end of year one. By the end of the third year, Zenergy will have a respectable net worth.

Start-up Funding

As mentioned previously, we plan to personally invest to cover portion of the initial start-up costs for the business. For the first year, our requirements will be met as follows: 

  • Private funding from Aktum, Finkelstein, and Acropolis.
  • An SBA Micro-Loan.
  • Cash generated from ongoing operations beginning in months three through six.

We will seek credit terms of 60 days from our suppliers until we build up sufficient cash flow to be able to accept net 30 terms.

Start-up Funding
Start-up Expenses to Fund $3,305
Start-up Assets to Fund $12,275
Total Funding Required $15,580
Assets
Non-cash Assets from Start-up $2,775
Cash Requirements from Start-up $9,500
Additional Cash Raised $0
Cash Balance on Starting Date $9,500
Total Assets $12,275
Liabilities and Capital
Liabilities
Current Borrowing $5,000
Long-term Liabilities $0
Accounts Payable (Outstanding Bills) $0
Other Current Liabilities (interest-free) $0
Total Liabilities $5,000
Capital
Planned Investment
Owner $10,580
Investor $0
Additional Investment Requirement $0
Total Planned Investment $10,580
Loss at Start-up (Start-up Expenses) ($3,305)
Total Capital $7,275
Total Capital and Liabilities $12,275
Total Funding $15,580

Important Assumptions

We are assuming the following key points:

  1. We will submit our application to CMS by March 7 and receive a Medicare provider number in 60 days.
  2. We will successfully recruit field clinical sales reps per our schedule to reach seven reps by December 2005 with the first reps coming on line to begin selling in May.
  3. We will be able to successfully leverage our corporate account relationships to drive business for the field sales force.
  4. We will successfully secure supplier agreements with X Industries and Y Corporation with favorable credit terms (60 days) at the outset; and with availability of product samples, marketing materials, and token inventory at no cost or a nominal cost.
  5. We will be able to routinely receive reimbursement from the DMERCs in 30-45 days.
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 30.00% 30.00% 30.00%
Other 0 0 0

Break-even Analysis

The following table and chart show our break-even point in the first year, when the three VPs are deferring compensation. With a low monthly fixed cost and variable costs (including commission and shipping), we need to sell per month the amount calculated below to break even. Market research and previous experience assures us that we will easily surpass the break-even point even in our first month of sales.

Break-even Analysis
Monthly Revenue Break-even $3,312
Assumptions:
Average Percent Variable Cost 25%
Estimated Monthly Fixed Cost $2,497

Projected Profit and Loss

Notes on Profit and Loss statement for year one:

  • Non-inventory Costs of Goods Sold are tracked at the top of the table. These are variable costs, such as commission and shipping.
  • Low payroll expense in the first year- all reps will be contract employees paid straight commission, no expenses or benefits. The managers will not take a salary in the first year, but will take salaries in the second and third years dependent upon first year performance and profits. The only personnel in year one is our part-time office manager.
  • Marketing and promotion expenses will include website management; creation and printing of custom "program overview" flyers for corporate accounts to distribute to member facilities, mailers to go to facilities in a reps major MSA, and any other sales collateral that must be developed.
  • Rent assumes $450 per month lease.
  • Telecommunications of $200 per month assumes primary phone line with call forwarding and answering machine capabilities, tied-in to a receptionist, with a number listed under our business name in directory assistance; DSL internet line; phone card for long-distance calling.
  • General Liability insurance assumes $30 per month to cover the place of business.
  • Legal expenses include drafting of initial start-up documents and contracts, with minimal additional work on a monthly basis.
  • Accounting assumes $20 per hour and seven hours per month to close the books, handle commissions, etc.
  • Stationery and office supplies includes business cards and stationery, files, miscellaneous supplies, etc.
  • Travel - left unbudgeted at this time.
  • Equipment assumes $1,000 purchase up-front during start-up phase.
  • Other - unanticipated expenses.
  • Note: 10% of profits will be allocated to repay initial cash investments by Acropolis, Finkelstein, and Aktum at 5% simple interest. 10% of profits will be paid to Finkelstein and Acropolis to cover corporate overhead costs.

Notes on Years two and three growth assumptions:

  • Increase stationery and office supplies (.52%), telecommunications (.52%), marketing (.65%), legal (.26%) and accounting (.39%) as a consistent % of sales.
  • 10% per year increase in rent associated with need for more services and facility related growth.
  • 20% per year growth in liability insurance.
  • Equipment lease expense doubles each year associated with rapid sales growth and expansion.
  • 10% per year growth in miscellaneous expenses.
  • Travel grows to $15,000 in year two and $25,000 in year three for increased recruitment, management, and corporate account sales calls.
Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $458,374 $1,670,845 $3,408,228
Direct Cost of Sales $112,840 $454,930 $834,900
Shipping/Handling $22,919 $83,542 $170,411
Medicare Part B Billing $16,043 $66,834 $136,329
Uncollectible Accounts Reserve $91,675 $334,169 $681,646
Sales Commission $73,340 $267,335 $545,316
Total Cost of Sales $316,816 $1,206,810 $2,368,603
Gross Margin $141,558 $464,035 $1,039,625
Gross Margin % 30.88% 27.77% 30.50%
Expenses
Payroll $6,720 $243,720 $264,960
Marketing/Promotion $3,000 $10,860 $22,153
Depreciation $0 $0 $0
Rent $5,400 $5,940 $6,534
Telecommunications $2,400 $8,688 $17,723
General Liability Insurance $360 $432 $518
Legal Expenses $1,200 $4,344 $8,861
Accounting Expenses $1,800 $6,516 $13,292
Stationery and Office Supplies $2,400 $8,688 $17,723
Travel $5,000 $15,000 $25,000
Office Equipment $480 $960 $1,920
Payroll Taxes $0 $0 $0
Other $1,200 $1,320 $1,452
Total Operating Expenses $29,960 $306,468 $380,136
Profit Before Interest and Taxes $111,598 $157,567 $659,489
EBITDA $111,598 $157,567 $659,489
Interest Expense $418 $9,653 $17,685
Taxes Incurred $33,354 $44,374 $192,541
Net Profit $77,826 $103,540 $449,263
Net Profit/Sales 16.98% 6.20% 13.18%

Projected Cash Flow

Because of the relatively quick ramp-up process for sales people, and our relatively low start-up expenses, we believe we can start generating very positive cash flow within the first year. This is all contingent on achieving our expense targets for rent, insurance and other "fixed" items, plus contracting and training new sales reps per our plan and achieving successful reimbursement cycles from the DMERCs.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $22,919 $83,542 $170,411
Cash from Receivables $326,558 $1,299,253 $2,825,063
Subtotal Cash from Operations $349,477 $1,382,796 $2,995,474
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 $200,000 $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 $349,477 $1,582,796 $2,995,474
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $6,720 $243,720 $264,960
Bill Payments $327,576 $1,333,044 $2,647,144
Subtotal Spent on Operations $334,296 $1,576,764 $2,912,104
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $1,650 $1,650 $1,700
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $0 $12,000 $24,000
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $335,946 $1,590,414 $2,937,804
Net Cash Flow $13,531 ($7,619) $57,670
Cash Balance $23,031 $15,412 $73,082

Projected Balance Sheet

The Balance Sheet reflects the fact that many of our Assets will be tied up in Accounts Receivable; billing correctly and promptly, and following up on unpaid reimbursement claims, will be critical to the Cash balance. The Starting Balances are the requirements from the Start-up table and the Start-up Funding. By the end of the first year, we will increase the net worth of the business handsomely. Net Worth will continue to rise dramatically as we secure a higher market share and continue to contain costs.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $23,031 $15,412 $73,082
Accounts Receivable $108,897 $396,946 $809,700
Inventory $19,695 $79,403 $145,723
Other Current Assets $275 $275 $275
Total Current Assets $151,898 $492,036 $1,028,780
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $151,898 $492,036 $1,028,780
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $63,447 $113,695 $226,876
Current Borrowing $3,350 $1,700 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $66,797 $115,395 $226,876
Long-term Liabilities $0 $188,000 $164,000
Total Liabilities $66,797 $303,395 $390,876
Paid-in Capital $10,580 $10,580 $10,580
Retained Earnings ($3,305) $74,521 $178,061
Earnings $77,826 $103,540 $449,263
Total Capital $85,101 $188,641 $637,904
Total Liabilities and Capital $151,898 $492,036 $1,028,780
Net Worth $85,101 $188,641 $637,904

Business Ratios

Our comparison industry is Medical Equipment and Supplies, SIC Code 5047.03. Because we are a start-up, our sales growth rates will be much higher than the industry, especially given that we are competing in a small niche with fragmented competition. We have constructed our operation to keep start-up capital requirements to a minimum, building much of our expense into our variable cost structure (sales compensation, reimbursement/collections,) or farming it out (legal, accounting).

Because we do not have a retail storefront or extensive distribution facilities, our fixed overhead costs are extremely low. None of our three managing executives are on the payroll in the first year, and our sales team will be contract reps on straight commission. We have farmed out all legal, accounting, and reimbursement/collections to outside services to keep overhead and risk to a minimum.

As a result, we will have extremely favorable margins, SG&A, and current/quick ratios compared to industry standards.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth n.a. 264.52% 103.98% 4.75%
Percent of Total Assets
Accounts Receivable 71.69% 80.67% 78.70% 29.09%
Inventory 12.97% 16.14% 14.16% 37.55%
Other Current Assets 0.18% 0.06% 0.03% 20.32%
Total Current Assets 100.00% 100.00% 100.00% 86.96%
Long-term Assets 0.00% 0.00% 0.00% 13.04%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 43.97% 23.45% 22.05% 42.28%
Long-term Liabilities 0.00% 38.21% 15.94% 10.98%
Total Liabilities 43.97% 61.66% 37.99% 53.26%
Net Worth 56.03% 38.34% 62.01% 46.74%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 30.88% 27.77% 30.50% 30.41%
Selling, General & Administrative Expenses 13.90% 21.58% 17.32% 15.33%
Advertising Expenses 0.00% 0.00% 0.00% 1.03%
Profit Before Interest and Taxes 24.35% 9.43% 19.35% 2.74%
Main Ratios
Current 2.27 4.26 4.53 1.86
Quick 1.98 3.58 3.89 0.84
Total Debt to Total Assets 43.97% 61.66% 37.99% 57.79%
Pre-tax Return on Net Worth 130.64% 78.41% 100.61% 5.85%
Pre-tax Return on Assets 73.19% 30.06% 62.38% 13.87%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 16.98% 6.20% 13.18% n.a
Return on Equity 91.45% 54.89% 70.43% n.a
Activity Ratios
Accounts Receivable Turnover 4.00 4.00 4.00 n.a
Collection Days 42 58 68 n.a
Inventory Turnover 11.65 9.18 7.42 n.a
Accounts Payable Turnover 6.16 12.17 12.17 n.a
Payment Days 27 23 23 n.a
Total Asset Turnover 3.02 3.40 3.31 n.a
Debt Ratios
Debt to Net Worth 0.78 1.61 0.61 n.a
Current Liab. to Liab. 1.00 0.38 0.58 n.a
Liquidity Ratios
Net Working Capital $85,101 $376,641 $801,904 n.a
Interest Coverage 267.30 16.32 37.29 n.a
Additional Ratios
Assets to Sales 0.33 0.29 0.30 n.a
Current Debt/Total Assets 44% 23% 22% n.a
Acid Test 0.35 0.14 0.32 n.a
Sales/Net Worth 5.39 8.86 5.34 n.a
Dividend Payout 0.00 0.00 0.00 n.a