Physicians 1st Billing and Claims
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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