Physical Therapy Massage Business Plan

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Financial Plan

The following Financial Plan represents a continuation of actual business revenues and expenses for the remainder of 2003, and then a planned increase in both revenues and expenses as a result of a location change.

Another scenario for maintaining income to match the increased expenses of the new downtown location would be to sublet part of the space to another LMT or complementary health care provider. A third scenario would be to try out a downtown location by subletting office space from a chiropractor or in an existing LMT office. Since these last two scenarios are mutually exclusive to the first, preferred plan, they are not reflected in financial plans presented here.

Important Assumptions

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

The collection days are for insurance billings only, and not a factor we can influence easily. Interest rates, tax rates, and personnel burden are based on conservative assumptions.

Two of the more important underlying assumptions are:

  1. We assume a strong economy, without major recession.
  2. We assume, of course, that there are no changes to the Medical/insurance Industry, such as the nationalization of health care.
General Assumptions
2003 2004 2005
Plan Month 1 2 3
Current Interest Rate 5.00% 5.00% 5.00%
Long-term Interest Rate 5.65% 5.65% 5.65%
Tax Rate 28.17% 28.00% 28.17%
Other 0 0 0

Break-even Analysis

The following chart and table summarize our break-even analysis. Because this business has been run from a home office, the fixed costs for rent and utilities have been moderate. As we move the business into a downtown location, the fixed costs will rise substantially.

The break-even assumes minimal variable costs: linens and massage oil. If having a downtown office increases the number of clients paid for by insurance, there will be additional costs per client for claims processing.

Break-even Analysis
Monthly Revenue Break-even $3,101
Assumptions:
Average Percent Variable Cost 5%
Estimated Monthly Fixed Cost $2,931

Projected Profit and Loss

Sales and expenses for 2003 are projected from YTD actuals, and seasonal variations noted over the last few years. The big change comes in 2004 and 2005, with the addition of a downtown office, which will increase the rent dramatically. As noted in the Sales Forecast, the expectation is that the number of Insurance Billing clients will rise as the business becomes more convenient for short, mid-day appointments.

There is no personnel cost other than the owner's draw, as the company is a sole proprietorship. Payroll taxes are calculated at 15%, however, as Self Employment Taxes (FICA) must also be paid. Estimated taxes will be paid quarterly, although they are calculated monthly on this table.

Not included on this table is the scenario where the Insurance Billing clients do not increase sufficiently quickly to cover the increased cost of rent. At some point, the decision could be made to rent out part of the office space, or rent the entire space to another massage therapist for set times during the week, which would offset the same costs. If a lease needs to be signed, which is most likely for the 2004 year, it will be for one year only, to minimize the risk if the anticipated increase in Insurance Billing clients does not occur.

Pro Forma Profit and Loss
2003 2004 2005
Sales $39,680 $45,185 $53,098
Direct Cost of Sales $2,180 $2,398 $2,638
Other Costs of Sales $0 $0 $0
Total Cost of Sales $2,180 $2,398 $2,638
Gross Margin $37,500 $42,787 $50,460
Gross Margin % 94.51% 94.69% 95.03%
Expenses
Payroll $30,000 $30,000 $33,500
Sales and Marketing and Other Expenses $550 $600 $600
Depreciation $50 $50 $50
Rent (inc Utilities) $2,400 $9,600 $9,900
Insurance $636 $800 $1,000
Payroll Taxes $335 $30 $429
Other $1,200 $1,500 $2,000
Total Operating Expenses $35,171 $42,580 $47,479
Profit Before Interest and Taxes $2,329 $207 $2,981
EBITDA $2,379 $257 $3,031
Interest Expense $0 $0 $0
Taxes Incurred $656 $58 $840
Net Profit $1,673 $149 $2,141
Net Profit/Sales 4.22% 0.33% 4.03%

Projected Cash Flow

The following Cash Flow table shows us with a consistent positive Cash Flow throughout the transition. Because the business is a sole proprietorship, the amounts listed as "payroll" are, in fact, owner's draw, so they are obviously the area of cash flow where adjustments are, and will be, made if  the Cash Flow becomes tight.

We do list a marked increase in outflow of Cash for the purchase of Fixed Assets in 2004. These would be for fixtures and lease improvement to whatever new space we rent for our new downtown location. Since all of the equipment we currently use is portable, this additional cost is fairly moderate, since it mostly represents cosmetic improvements. There is a possibility that the landlord would do many of the improvements before we moved in, in exchange for an increase in the monthly rent, which would flatten out the cash outflow a bit.

Pro Forma Cash Flow
2003 2004 2005
Cash Received
Cash from Operations
Cash Sales $34,522 $39,311 $46,195
Cash from Receivables $4,843 $5,761 $6,740
Subtotal Cash from Operations $39,364 $45,072 $52,936
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 $39,364 $45,072 $52,936
Expenditures 2003 2004 2005
Expenditures from Operations
Cash Spending $30,000 $30,000 $33,500
Bill Payments $7,411 $14,350 $17,208
Subtotal Spent on Operations $37,411 $44,350 $50,708
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 $2,000 $2,000
Dividends $0 $0 $0
Subtotal Cash Spent $37,411 $46,350 $52,708
Net Cash Flow $1,953 ($1,279) $228
Cash Balance $2,953 $1,675 $1,903

Projected Balance Sheet

The only Accounts Receivable carried is any Insurance Billings that are not paid during the month. It is rare for insurance companies to take more than 6 weeks to pay, and some pay as quickly as 10 working days, so these numbers assume that they will pay in 30 days.

The Accounts Payable is for linens (paid monthly) and lotions/supplies (usually purchased quarterly).

We assume that there will be some additional expenses, in the form of long-term assets purchased, when we move to the new office in 2004.

 

Pro Forma Balance Sheet
2003 2004 2005
Assets
Current Assets
Cash $2,953 $1,675 $1,903
Accounts Receivable $816 $929 $1,092
Other Current Assets $50 $50 $50
Total Current Assets $3,819 $2,654 $3,044
Long-term Assets
Long-term Assets $2,000 $4,000 $6,000
Accumulated Depreciation $1,250 $1,300 $1,350
Total Long-term Assets $750 $2,700 $4,650
Total Assets $4,569 $5,354 $7,694
Liabilities and Capital 2003 2004 2005
Current Liabilities
Accounts Payable $596 $1,232 $1,431
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $596 $1,232 $1,431
Long-term Liabilities $0 $0 $0
Total Liabilities $596 $1,232 $1,431
Paid-in Capital $1,200 $1,200 $1,200
Retained Earnings $1,100 $2,773 $2,922
Earnings $1,673 $149 $2,141
Total Capital $3,973 $4,122 $6,264
Total Liabilities and Capital $4,569 $5,354 $7,694
Net Worth $3,973 $4,122 $6,264

Business Ratios

The following table shows the projected businesses ratios. We expect to maintain healthy ratios for profitability, risk, and return. The ratios for the initial year of growth are, of course, not as favorable as the second year. And if we cannot maintain healthy ratios during that growth phase, a return to the lesser level of expenses we have historically had in a home-based business can be returned to. Industry profile ratios based on the Standard Industrial Classification (SIC) code 8049.02, Physical therapists, are shown for comparison.
Ratio Analysis
2003 2004 2005 Industry Profile
Sales Growth 1.74% 13.87% 17.51% 5.93%
Percent of Total Assets
Accounts Receivable 17.85% 17.35% 14.19% 26.64%
Other Current Assets 1.09% 0.93% 0.65% 42.05%
Total Current Assets 83.59% 49.57% 39.57% 73.17%
Long-term Assets 16.41% 50.43% 60.43% 26.83%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 13.05% 23.01% 18.59% 29.42%
Long-term Liabilities 0.00% 0.00% 0.00% 19.99%
Total Liabilities 13.05% 23.01% 18.59% 49.41%
Net Worth 86.95% 76.99% 81.41% 50.59%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 94.51% 94.69% 95.03% 100.00%
Selling, General & Administrative Expenses 90.28% 94.36% 90.99% 79.27%
Advertising Expenses 0.00% 0.00% 0.00% 0.46%
Profit Before Interest and Taxes 5.87% 0.46% 5.61% 3.28%
Main Ratios
Current 6.40 2.15 2.13 1.95
Quick 6.40 2.15 2.13 1.55
Total Debt to Total Assets 13.05% 23.01% 18.59% 5.28%
Pre-tax Return on Net Worth 58.61% 5.03% 47.60% 60.60%
Pre-tax Return on Assets 50.96% 3.87% 38.75% 13.40%
Additional Ratios 2003 2004 2005
Net Profit Margin 4.22% 0.33% 4.03% n.a
Return on Equity 42.11% 3.62% 34.19% n.a
Activity Ratios
Accounts Receivable Turnover 6.32 6.32 6.32 n.a
Collection Days 59 54 53 n.a
Accounts Payable Turnover 13.34 12.17 12.17 n.a
Payment Days 27 22 28 n.a
Total Asset Turnover 8.68 8.44 6.90 n.a
Debt Ratios
Debt to Net Worth 0.15 0.30 0.23 n.a
Current Liab. to Liab. 1.00 1.00 1.00 n.a
Liquidity Ratios
Net Working Capital $3,223 $1,422 $1,614 n.a
Interest Coverage 0.00 0.00 0.00 n.a
Additional Ratios
Assets to Sales 0.12 0.12 0.14 n.a
Current Debt/Total Assets 13% 23% 19% n.a
Acid Test 5.04 1.40 1.36 n.a
Sales/Net Worth 9.99 10.96 8.48 n.a
Dividend Payout 0.00 0.00 0.00 n.a