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.
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:
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.
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.
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.
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.