Amesbury Psychological Center

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Psychological Health Center Business Plan

Financial Plan

The financial plan for this turn key project is presented in detail in the following sections. There are three important factors in the financial plan:

  1. Reducing the days in receivables and improving the quality of receivables,
  2. Improving cash flow, and 
  3. Significant growth the first year and modest growth the second and third year.

7.1 Important Assumptions

There are several assumptions related to this turn key project.

  1. The economy continues at its present rate, without major recession.

  2. Expected receipts will improve dramatically by out sourcing billing and collections.

  3. The current climate for these services will continue.

  4. Behavioral health contracts will be transferred to the Center without difficulty.

  5. Center clinical associates will be credentialed in a timely manner, or the Center will be able to credential by "job description."

  6. Our staffing patterns and facilities will be able to handle the projected growth.

  7. The average days of receivable will be 67 or less.

  8. Unlike inpatient behavioral health services, managed care manages the services but has not attempted to cap them. It is assumed that this trend will continue. There are also signs that managed care companies are moving away from micromanaging these services.

  9. A mutually-agreed upon plan will be devised to prepare for the transition of medicaid clients to the Center.

The following table summarizes the general financial assumptions.

General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 9.75% 9.75% 9.75%
Long-term Interest Rate 9.75% 9.75% 9.75%
Tax Rate 2.50% 0.00% 2.50%
Other 0 0 0

7.2 Key Financial Indicators

The following benchmark chart indicates our key financial indicators for the first three years of operation. We see significant growth during fiscal year 2001, as compared to the previous fiscal  year. Units of service are projected to increase by approximately 75%. The growth during fiscal year 2001 is reasonable in that the existing pharmacology will continue with the pharmacology and three pharmacology/therapists will transfer to the pharmacology with their clients from a center that is closing in the community. A recent medical graduate psychiatrist will join our Center as of July 2000. We will recruit one to two pharmacology nurse specialists during the fiscal year 2001. The Center will double in size during its first fiscal year, as compared to its previous level of operation. During the second fiscal year the growth rate will be approximately 18%. During the third year of operation it will grow at a rate of 23%. This growth will be a result of securing contracts with local human service agencies. Although the rate of expected receipts remains the same during the next two years, it is expected to improve during the third year with new contracts, and experience and familiarity with the new billing system. A financial goal is to be debt-free by the end of the fourth year of operation.

Similiarly, collection days remains the same during the next three years. However, efforts will be made to improve this variable with the use of electronic billing.

As sales of services increase, operating costs will rise as well. Every effort will be made to contain these costs proportionately. There are no actual or projected significant increases evident. The variable costs will increase during the third year as we need to hire new staff for the projected contracts. The hiring will not be concluded until the contracts are signed so as to avoid any unnecessary spending.

7.3 Break-even Analysis

The following chart and table summarize the Center's Break-even Analysis. These figures and assumptions are fairly well represented since they are based upon actual historical data. Cost control and production improvement will ensure profitability.

Break-even Analysis
Monthly Units Break-even 752
Monthly Revenue Break-even $37,618
Assumptions:
Average Per-Unit Revenue $50.01
Average Per-Unit Variable Cost $29.53
Estimated Monthly Fixed Cost $15,400

7.4 Projected Profit and Loss

The following table shows the projected profit and loss statement. Projected sales increased from approximately $530,000 the first year of operation to more than $637,000 the second year and more than $842,000 the third year. The third year growth is a result of additional units of service gained through a contract with a local residential program.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $529,712 $637,372 $842,225
Direct Cost of Sales $312,863 $385,701 $509,057
Other $0 $0 $0
Total Cost of Sales $312,863 $385,701 $509,057
Gross Margin $216,850 $251,670 $333,167
Gross Margin % 40.94% 39.49% 39.56%
Expenses
Payroll $99,744 $102,736 $106,178
Marketing/Promotion $7,700 $10,500 $11,100
Depreciation $0 $0 $0
Leased Equipment $3,000 $3,000 $3,500
Billing Fees (6% of billed plus 1.5% copays) $22,951 $31,869 $42,111
Insurance $3,500 $3,600 $3,600
Rent $10,992 $11,000 $26,400
Human Resource/HR Logic $6,000 $6,000 $6,000
Med Dir.,Multidisc.,RNCS Sup. $10,000 $12,000 $12,000
Telephone $6,000 $6,500 $7,000
Postage $1,050 $1,300 $1,400
Office Supplies $3,860 $4,110 $4,200
Payroll Taxes $0 $0 $0
Contract/Consultants $10,000 $10,000 $10,000
Total Operating Expenses $184,797 $202,615 $233,489
Profit Before Interest and Taxes $32,053 $49,055 $99,678
EBITDA $32,053 $49,055 $99,678
Interest Expense $4,400 $3,436 $2,260
Taxes Incurred $1,103 $0 $2,435
Net Profit $26,550 $45,619 $94,983
Net Profit/Sales 5.01% 7.16% 11.28%

7.5 Projected Cash Flow

The following chart and table summarize the Center's cash flow. The projections are a combination of short-term borrowing and Center receipts. Cash flow is obviously critical to the Center's success. The monthly cash flow, as shown in the table, generally improves from month to month. The chart and table reveal a positive cash flow as operations move beyond the seventh month and steadily continues thereafter. 

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $52,971 $63,737 $84,222
Cash from Receivables $356,266 $557,202 $724,642
Subtotal Cash from Operations $409,237 $620,940 $808,864
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 $409,237 $620,940 $808,864
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $99,744 $102,736 $106,178
Bill Payments $369,968 $482,273 $628,567
Subtotal Spent on Operations $469,712 $585,010 $734,744
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 $9,000 $11,515 $12,620
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $478,712 $596,525 $747,364
Net Cash Flow ($69,475) $24,415 $61,500
Cash Balance $31,525 $55,940 $117,439

7.6 Projected Balance Sheet

The following table shows the projected balance sheet. The monthly estimates are included in the appendix.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $31,525 $55,940 $117,439
Accounts Receivable $120,475 $136,908 $170,268
Other Current Assets $5,000 $5,000 $5,000
Total Current Assets $157,000 $197,847 $292,708
Long-term Assets
Long-term Assets $0 $0 $0
Accumulated Depreciation $0 $0 $0
Total Long-term Assets $0 $0 $0
Total Assets $157,000 $197,847 $292,708
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $33,450 $40,193 $52,690
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $33,450 $40,193 $52,690
Long-term Liabilities $41,000 $29,485 $16,865
Total Liabilities $74,450 $69,678 $69,555
Paid-in Capital $65,000 $65,000 $65,000
Retained Earnings ($9,000) $17,550 $63,169
Earnings $26,550 $45,619 $94,983
Total Capital $82,550 $128,169 $223,153
Total Liabilities and Capital $157,000 $197,847 $292,708
Net Worth $82,550 $128,169 $223,153

7.7 Business Ratios

The following table shows the projected business ratios as determined by the Standard Industry Classification (SIC) Index code 8063 for the mental health center industry.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 20.32% 32.14% 2.30%
Percent of Total Assets
Accounts Receivable 76.74% 69.20% 58.17% 25.20%
Other Current Assets 3.18% 2.53% 1.71% 33.00%
Total Current Assets 100.00% 100.00% 100.00% 60.00%
Long-term Assets 0.00% 0.00% 0.00% 40.00%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 21.31% 20.32% 18.00% 23.10%
Long-term Liabilities 26.11% 14.90% 5.76% 19.60%
Total Liabilities 47.42% 35.22% 23.76% 42.70%
Net Worth 52.58% 64.78% 76.24% 57.30%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 40.94% 39.49% 39.56% 0.00%
Selling, General & Administrative Expenses 39.65% 36.14% 32.27% 73.80%
Advertising Expenses 0.00% 0.00% 0.00% 0.40%
Profit Before Interest and Taxes 6.05% 7.70% 11.84% 8.90%
Main Ratios
Current 4.69 4.92 5.56 2.45
Quick 4.69 4.92 5.56 1.95
Total Debt to Total Assets 47.42% 35.22% 23.76% 42.70%
Pre-tax Return on Net Worth 33.50% 35.59% 43.66% 8.10%
Pre-tax Return on Assets 17.61% 23.06% 33.28% 14.20%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 5.01% 7.16% 11.28% n.a
Return on Equity 32.16% 35.59% 42.56% n.a
Activity Ratios
Accounts Receivable Turnover 3.96 4.19 4.45 n.a
Collection Days 83 82 74 n.a
Accounts Payable Turnover 12.06 12.17 12.17 n.a
Payment Days 27 27 26 n.a
Total Asset Turnover 3.37 3.22 2.88 n.a
Debt Ratios
Debt to Net Worth 0.90 0.54 0.31 n.a
Current Liab. to Liab. 0.45 0.58 0.76 n.a
Liquidity Ratios
Net Working Capital $123,550 $157,654 $240,018 n.a
Interest Coverage 7.29 14.28 44.11 n.a
Additional Ratios
Assets to Sales 0.30 0.31 0.35 n.a
Current Debt/Total Assets 21% 20% 18% n.a
Acid Test 1.09 1.52 2.32 n.a
Sales/Net Worth 6.42 4.97 3.77 n.a
Dividend Payout 0.00 0.00 0.00 n.a