Amesbury Psychological Center
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:
- Reducing the days in receivables and improving the quality of receivables,
- Improving cash flow, and
- 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.
- The economy continues at its present rate, without major recession.
- Expected receipts will improve dramatically by out sourcing billing and collections.
- The current climate for these services will continue.
- Behavioral health contracts will be transferred to the Center without difficulty.
- Center clinical associates will be credentialed in a timely manner, or the Center will be able to credential by “job description.”
- Our staffing patterns and facilities will be able to handle the projected growth.
- The average days of receivable will be 67 or less.
- 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.
- 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 |