It is estimated that start-up expenses will be $22,732. This amount of money will be used to purchase office equipment, medical supplies, furniture, stationary, and other start-up expenses. This amount, and a starting cash balance of $10,000, will be financed by General Medical Center.
In addition, we are in the process of acquiring a building worth $225,000 with a 15 year mortgage, which will be repaid from the company's cash flows. As a sole proprietorship, this loan is guaranteed by Dr. Detroit's personal assets, and General Medical Center does not assume responsibility for it.
The physician's salary will be paid by General Medical throughout the first year. They will also provide us with $24,000 a month for business expenses, for 12 months.
At the end of the first year, subsidies from General Medical will end. Although sales are projected to increase steadily, and the physician will take reduced salary in the second through fourth years, we project a loss in the second and third years. This is due to the loss of expense subsidies, and the additional expense of the physician's salary and related taxes. We expect to begin breaking even in the fourth year, and have budgeted a cash balance to carry us through the years of loss.
Important notation/limitations in viewing the financial plan:
- The physician salary is considered a constant in the first year and therefore has not been included in this overall financial plan.
- The $32,732 in start-up subsidies, and the $288,000 in first-year subsidies is forgiven and not subject to reimbursement unless Park Square family medicine fails...which will not happen. "Failure" is defined in the grant agreement as inability to achieve patient load goals for five months in a row during the first year.
The start-up requirements, with the exception of the building loan, are to be financed by General Medical Center. This is in addition to the $288,000 they will be providing over a 12 month period as expense subsidies in the first year, and the physician's salary for the first year.
The purchase of the building will be financed by the owner, Dr. Detroit, with a 15-year mortgage (listed under Long-term Liabilities). This loan will be repaid from the clinic's cash flows and guaranteed with his personal assets.
The Break-even Analysis shows that in the first year (with no physician salary), we need bring in $11,605 in revenue per month to break even. We will pass this mark by the sixth month.
However, in the second and third year, with increased expenses including the physician's salary, and increased patient load, we will need to bring in roughly $21,400 per month to break even. We do not anticipate reaching this level of patient care payment until the middle of the fourth year, which will end with a modest profit.
Projected Profit and Loss
The profit and loss statement shows our increasing ability to cover the expenses of the business over the first year. Although we will operate at a loss for much of this year, our cash balance will be maintained by subsidies from General Medical.
In the second year, Park Square Family Medicine will assume the full expense of the physician/owner's salary, as well as related payroll taxes. This increase, combined with small increases in operating expenses due to increased patient load, will keep us operating at a loss in the second and third year, but we expect to begin turning a small profit in the middle of the fourth year. Again, these losses will not cause us to go into a negative cash position at any point.
Without the physician/owner's compensation, we would show a profit of $85,000 in the second year, and $114,000 in the third year. Should patient load not meet expectations in these years, the owner will reduce his own salary to keep the business on track.
Projected Cash Flow
This table shows the ongoing financial relationship between General Medical and Park Square Family Medicine. Park Square Family Medicine will receive $24,000 dollars a month to subsidize business expenses over the first 12 months. This plan does not show physician's compensation for the first year, which will be paid directly from General Medical to Dr. Detroit.
Projected Balance Sheet
The Balance Sheet shows our liabilities and assets, including the cumulative Cash Balance from the previous table. The Paid-in Capital of $320,732 represents subsidies from General Medical Center during the Start-up period and the first year of operations. This is a grant, and does not have to be repaid unless the clinic fails - defined in the grant agreement as failure to achieve patient load goals for five months in a row.
The change in Cash Balance in the second and third years reflects the end of the first year subsidies from General Medical, and Park Square Family Medicine's payment of the physician's compensation. This decrease in assets is balanced by the repayment of our building loan. We expect Net Worth to begin rising again in years four and five.
Business ratios for the years of this plan are shown below. Industry profile ratios based on the Standard Industrial Classification (SIC) code 8011, Offices and Clinics of Medical Doctors, are shown for comparison.