Keep My Heart Centre - Perspectives - Example

Keep My Heart Business Plan (Section 7.0 and Appendix) 7 Important Assumptions While Keep My Heart Centre envisions a smooth work flow over the next three years of operation, the company is bearing in mind possible changes in the marketplace. Such include; increased demand for personnel, fluctuating global market forces as well as probable heightened inflow of clients as the firms gets established. On the other hand, the company has assumed that the economy will remain stable over the forecasted period of operations with little global recession impact. It is also worth noting that the bulk of the company’s revenue will be attained through the Medicare reimbursement plan. Thus, the firm assumes that there will be no substantial changes in Federal policies that would affect these programs. That notwithstanding, Keep My Heart Medical Adult Day Care assumes that the current interest rate will remain at 10% from Year 1 through to Year 3 with minimal fluctuations if any. Long-term interest rates are assumed to apply at a slightly lower range of approximately 8.5% while the Tax Rate would remain fixed at 30% over the next three years as illustrated in Table 7.1.1 below. With regard to the aforementioned assumptions, the facility has put in place necessary measures to ensure that its revenue performance remains relevant as planned. Some of the measures include a networking program in liaison with local health facilities. This will make it possible for Keep My Heart to adjust its rates accordingly to cushion unforeseen changes in taxation or interest rates. Otherwise, it is our hope that we sail through a strong economy with improved business environment, as applicable in the global arena with respect to adult day care and Alzheimer’s care services in the United States. Table 7.1.1: General Assumptions of Keep My Heart Medical Adult day Care General Assumptions Year 1 Year 2 Year 3 Current Interest Rate 10% 10% 10% Long-term Interest Rate 8.5% 8.5% 8% Tax Rate (Fixed) 30% 30% 30% Others 0 0 0 7.2. Break-even Analysis In the event that the business picks up as planned, Keep My Heart Medical Adult Day Care will work on a multifaceted schedule to achieve the breakeven point by the 8th month of operation, when the cumulative revenue shall have offset the initial cost of capital. In terms of dollar revenue, the company will have to pursue accounts receivable to the tune of $720,710 which falls within the extrapolated month. Therefore, if the market forces remain conducive and stable, Keep My Heart would be in a good position to surpass its yearly sales estimates by the end of Year 1 as shown in Figure 7.2.1. Figure 7.2.1: Breakeven Analysis In this situation, the company assumes that the fixed cost will remain unchanged over the trading period. Besides, the variable cost is also perceived to be relatively stable throughout the year. Thus, Keep My Heart has projected a unitary BEP of 9,040 clients. This comprises 2,940 and 5,194 clients for Alzheimer’s and Adult Day care Services respectively. 7.3. Projected Profit and Loss Keep My Heart Medical Adult Day Care has projected sales of about $1.7million in the first year of operation. As time goes by, the company looks forward to realize projected revenue of $2,034,000 in Year 2 and which is expected to grow by around 16% to close at $2.3million by the end of Year 3. Keep My Heart is also committed to ensure that the marketing team woos the community to embrace day care services for the elderly as well as those suffering from Alzheimer’s disease. These efforts are deemed to bear the potential of improving customer base to an average of about 50 clients of day care services, and 30 for Alzheimer’s per day in Year 1. The figure is projected to an average 55 day care clients and 40 Alzheimer’s patients per day in Year 2. Nevertheless, Keep My Heart will regulate its operating expenses accordingly to keep it at the minimum over the next three years. As such, the company will work with estimated operational expenses of about $320,000 per year. On a different note, it is worth noting that while the company will pursue its total revenues with a conservative passion, the direct cost of sales is expected to remain low. This is owed to the fact that Keep My Heart Medical Adult Day Care is a service-oriented facility. Such costs have been approximated at $17,050 in Year 1 and $19,800 in the second year as well as another $24,100 in Year 3. In spite of these, much of the expenses will arise from the projected payroll rates for the personnel as illustrated in Table 7.3.1. Table 7.3.1: Projected Profit and Loss Account for Keep My Heart Centre Pro Forma Profit and Loss Year 1 Year 2 Year 3 Amount ($) Amount ($) Amount ($) Sales 1,704,000 2,034,000 2,364,000 Direct Cost of Sales 17,050 19,800 24,100 Other Costs of Sales 0 0 0 Total Cost of Sales 17,050 19,800 24,100 Payroll 220,200 242,220 264,240 Gross Profit Margin 1,338,300 1,667,880 2,121,690 Gross Margin % 78.54% 82.00% 89.75% Expenses Office Space & Rent 57,600 57,600 57,600 Electricity & Water 1,350 1,350 1,350 Telephone 1,080 1,080 1,080 Insurance Professional Liability 9,600 9,600 9,600 Files & Books 4800 5000 5200 Premises and Content Insurance 400 400 400 Advertising and Marketing 1,450 1,450 1,450 Food & Snacks 153,000 154,000 155,000 Office Equipment and Supplies 78,000 79,000 80,000 Loan Interest 420 420 420 Utensils & Linen 4,050 4,100 4,150 Sundries 3,050 4,000 4,200 Depreciation 2,423 2,698 2,852 Total Operating Expenses 320,123 320,698 322,402 Profit Before Interest and Taxes 1,338,300 1,667,880 2,121,690 EBITDA 1,338,300 1,667,880 2,121,690 Interest Expense - - - Taxes Incurred - - - Net Profit 1,018,178 1,347,182 1,799,288 Net Profit/Sales 59.75% 66.23% 76.11% 7.4. Projected Cash Flow Once the company has begun operations, Keep My Heart Medical Day Care will close monitor its cash flow especially in the first year of operation. In light of that, the firm will be working with a projected monthly cash flow as illustrated in Table 7.4.1 below. Ideally, the cash flow will significantly be affected by revenue collections mainly inclined to Medicare reimbursement, as well as payments made by families for adult day care services. Table 7.4.1: Cash Flow (Year 1) for Keep My Heart Centre Month 1 2 3 4 5 6 7 8 9 10 11 12 Net Cash Flow 55,628 66,798 72,898 92,578 118,898 132,098 156,068 189,678 188,578 207,758 218,278 211,778 Cash Balance 0 55,628 122,426 195,324 287,902 406,800 538,898 694,966 884,644 1,073,222 1,280,980 1,499,258 In terms of net cash flow in relation to cash balance, it is modest to bear in mind that the total cash balance at the close of the month will be increasing progressively over the one year span as illustrated in Figure 7.4.1. The chart shows the trends in projected cash flow for Keep My Heart which will also be used to forecast financial tendencies in subsequent years. It is from such projections that the company has formulated its financial analysis for the proposed venture since the components are subject to change with time. Figure 7.4.1: Year 1 Projected Cash Flow for keep My Heart Centre Taking into account the possible changes in federal policies as well as global market trends, Keep My Heart has only estimated a detailed narration of the yearly cash flow as shown in Appendix 7.4.2. In this section, the company has considered various cost elements that might impact on the cash flow on a yearly basis. As a result, the totals depicted in the pro forma cash flow herein are not necessarily reflected in the monthly projections. However, the costs have accordingly been apportioned by the management over the monthly items and summated in the yearly projections as detailed in Appendix 7.4.1. 7.5. Projected Balance Sheet According to the projected Balance Sheet shown in the attached Excel Spreadsheet, Keep My Heart Medical Adult Day Care is indicating a fairly healthy financial growth. It is however pleasing to note that the company will not indulge in unnecessary credit components. For that reason, the management has revolved to only finance the loan obtained for the start-up funding. In addition, the other item of liability relates to potential creditors estimated at $4,000 by the close of year two. Thus, the total liabilities in Year 1 would be no more than $20,000 while the figure is expected to reduce to about $18,000 by the end of second year of operation. Assets on the other hand would ordinarily grow with time from a projected $1.6million in Year 1 to $3.8million as at the end of second financial year. With this in mind, it is vivid that the net assets are likely to double at a prorated margin within the next three years to reach an optimal high of about $4.1million in Year 3. Lastly, the aforesaid assets will be funded mainly by the capital introduced amounting to $702,000 in Year 1 as well as retained profits approximated at $1.018million in the same period as detailed in the Spreadsheet. It is from such extrapolations revealed in the projected balance sheet that enable keep my Heart to foresee a net worth of about $4.235million at the close of Year 3. 7.6. Business Ratios In the following section, Keep My Heart has taken a rather different perspective to deduce comparative ratios for the projected period. In view of that, the company has incorporated varies cost elements in relation to the risks inherent in the adult day care industry (Mentzer & Moon, 2005). Notably, the following table outlines a succinct summation of the probable business rations aimed at maintaining the this firm at a positive profitability index as well as substantial rate of return on investment for Years 1, 2 and 3 as shown in Appendix 7.6.1. References Mentzer, J. & Moon, M. (2005). Sales Forecasting Management: A demand management approach. 2nd Edn. Thousands Oak, CA: SAGE. Read More