Greenlea Residential Care Home - Essay Example

GREENLEA RESIDENTIAL CARE HOME Greenlea Residential Care Home for the elderly is run by Mrs Eunice Marchant and her daughter Sandra. They have been running this home for 8 years together. Current Scenario In the present scenario the total capacity of the Care Home is eleven which include three double rooms and five single rooms. Usually the Home is brimming with full capacity but there are occasional vacancies which are quickly filled. Currently Mrs. Eunice Marchant is takes charge of the overall administration, keeping accounting records and supervising the cook and catering services. Sandra, her daughter, is a State Registered Nurse, and supervises a staff of three Day Care Assistants and one Night Care Assistant. Because of both Mrs. Unice MArchant and Sandra ensure personalized care they receive glowing reports from social organizations. Mrs. Marchant is of the opinion that acquiring such reports is now becoming more and more bureaucratic. Her profits have been falling slightly during the last few years and this is becoming a cause of concern for her. Expansion Plans Mrs. Merchant is now considering expanding the Care House by building an extension. This extension will enable her to house double the capacity. Of course, she feels , her staff will also have to be doubled to take care of the increased number of residents. She has acquired an estimate for the building and construction of this extension which amounts to 100,000 pounds. Credibility Since her debts are not very high she is seeking limited liability which will allow more financial protection. It will also ensure a greater range of tax concessions. However, she is facing one legal claim. An employee who fell down while assisting a resident and hurt her thumb is seeking compensation. But Mrs. Merchant is of the firm opinion that she will not pay compensation since there was a chair lift available and the employee had acted negligently resulting in a breach of regulations. Now she takes time off to prepare the necessary accounts to put her plan into action. Financial Projection If the proposed extension takes place then the full capacity would total 22. Therefore. resident fees would increase (Resident Fees - 128689 x 2 = 257378.06 pounds). But wages would also increase since staff would have to be doubled. (Wages – 51621.87 x 2 = 103243.74 pounds). Expenses on Heat and Light would also increase in proportion to the increase in number of residents and consequent increase in staff (Heat and Light 2708.87 x 2 = 5417.74) Repair and Renew would amount to 100.000/- pounds (as per the estimate acquired by Mrs. Marchant. Therefore Net Profit would translate to a loss of 4377.184 pounds , which would be laudable in the first year of gestation. Subsequently as laws of economics show the variable expenses will be on a downward slide given increase in efficiency over the years. Consequently projecting an increase of 5% in the subsequent years and keeping expenses on a tight rein the figures would certainly point towards a healthy direction. The profit and loss account is edited based on this conservative hypothesis and a set of fresh figures are shown based on this assumption taking the worst possible scenario into consideration.. The figures given below will naturally change as per current occupancy of the period concerned. The accounts here are reproduced in compliance with the Companies Act 1985. Profit and Loss Account EXPENSES REVENUES Wages 103243.74 Resident Fees - 257378.06 Paye/Whi 18801.85 Depreciation Expense 209.546 Heat & Light 5417.74 Rates 2232.21 Telephone 1479.64 Motor Expense 3937.17 Repair and renew 100,000.00 Sundries 4631.5 TV rental 91.5 Advertising 288.03 Postage and Stationary 1102.82 Insurance 1682.53 Staff training 891.54 Subs/Donation 864.68 Purchases 8126.38 Net Loss 4377.184 ---------------- ---------------- 257378.06 257378.06 This figure of 4377.184 as net loss will gradually change to a positive figure with increased efficiency keeping costs constant. The projection is for a gestation period of 5 years resulting in profitability 5 years down the line. Greenlea Residential Care Home Balance Sheet at 30th April, 1998 ASSETS LIABILITIES £ £ Fixed Assets Alarm-system 1962.15 Bank Loan 13970.87 Less depreciation (1961.15) Loan A/c Carpet 425.63 Land and Building 73085.63 Loan A/c Car (200) Building improvement 32661.85 Loan A/c Sandra 3162.02 Plant equipment 9966.59 Loan A/c Laptop 91.22 Less depreciation (9965.59) Loan A/c Starlet 5581.45 Furniture, fixture and fitting 24005.72 Less depreciation (23348.976) Motor Vehicle 5012 Less depreciation (5012) Computer 4574.65 Less depreciation (4528.04) Starlet (car) 8929.00 Less depreciation (2232.00) Total Fixed Assets 113149.834 Current Asset Cash 1.91 Money Master 478.63 Sainsbury’s Bank 2050.35 Bank Account (863.7) Prepayments 10231.2 Total Current Asset 11898.39 Capitals 113700.03 Profit for year 1998 27236.304 Private payment (10839.4) Less Drawings (21755.86) Total Liability (16707.15) 108341.074 108341.074 ============================================================== Options - It would be advisable for Mrs. Marchant to capitalize on her total fixed assets and use them as a co lateral for loans. That would ensure for her limited liability which will allow more financial protection. It will also ensure a greater range of tax concessions as desired by her at the very outset. It is true her debts are reasonably low and should not pose a problem should she apply for further bank loans or financial aid from social organizations. Her present liability amounts to 5581.45 which is not really immense given the potential of running the Care Home on an increased capacity. It would perhaps help matters if an administrator cum accountant could be hired to take care of the daily administration. This would add a sense of professionalism to the Care Home. Moreover, the salary of this person could also be shown as wages of increased staff. However, there is yet another alternative. Mrs. Marchant could weigh out the possibility of increasing the number of boarders within the existing framework of her present set up. She could make optimum use of existing unused space to accommodate more residents. This would give her increased revenue without a huge expenditure. Renovation which could include partitioning a few large and spacious rooms or removing extra shelves from storage space would cost much less than the estimated cost of the proposed extension. Even the attic or stores could be altered slightly in order to make small yet cosy rooms for elderly people. Single rooms may also be converted into accommodations on twin sharing basis. This will reduce the loneliness of single residents. Moreover, it would reduce costs of the boarder ( say 25%) without bearing a hole in the revenue of Mrs. Marchant. On the other hand there would be an almost 75% increase in revenue. Optimum use of present resources for increase in revenue should be the alternative for immediate extension of the Care Home. Mrs. Marchant, being the good manager that she is, will have to use her management skills to the hilt and manage the existing situation in such a manner that variable expenses are kept on a tight rein. Parameters will have to be kept constant. Essentially certain fixed expenses will increase with an increase in the number of occupants. But the variable expenses like telephone, motor, postage and stationery can be kept under control. Another point to be considered is whether it will be possible to ensure maximization of unutilized capacity to optimize efficiency. This will be essentially Sandra’s contribution. One has to weigh out the possibility of entrusting more responsibility to the three attendants in the day aan the single attendant in the night. . This might entail slight incentives or increments to the salary of the present attendants but the total cost would be considerably lower than immediately increasing the number of attendants to double the existing number . Moreover, entrusting responsibility to new staff entails an incredible period of mental adjustment both for the employer and employee as also the residents. Entrusting more responsibility to present staff will ensure smooth handling of operations. Most importantly it will ensure less expenditure as compared to immediately hiring double the number of attendants. Mrs. Marchant may follow this principle in the kitchen also. Instead of hiring another cook and paying an equal amount of salary for the new cook, she could consider hiring a helping hand for much lower wages. A helping hand who could also help in the catering arrangements might be the ideal choice. Perhaps Mrs. Marchant and Sandra could sit and have a confidential discussion with the present staff and chalk out multi tasking activities for each of them. This would ensure greater efficiency and of course optimize present situations. The immediate plan of extension need not be completely shelved. But before furthering extension plans, optimum use of present resources for increasing revenue needs to be carefully considered. This plan will help to reduce capital expenditure. With the resources saved by this plan, Mrs. Marchant may consider revising her extension plans keeping in mind the following benefits. A considerable portion of the cost of extension would be borne by the resources saved by the optimum usage of present resources. Thereby, a loan of a much smaller quantum can be applied for. This will also enhance tax concessions and facilitate financial protection as desired by Mrs. Marchant at the very outset. Of course with this option in mind hiring new people would also have to be shelved and one has to remember cutting corners in expenses is the essence of cutting losses. After all, the cardinal principle of every business is Money saved is Money earned. Money earned in turn makes for a very healthy bottom line in the balance sheet. Conclusion- Despite the above options suggested by us the final decision to implement either of them if at all depends solely on the discretion of Mrs. Marchant. She has so far been successfully running this Care Home and has been receiving accolades on several occasions. She has earned for herself quite a decent reputation. Such good will is difficult to earn in one’s lifetime and should always be lived upto. After all increased profitability must never be achieved at the cost of compromised quality. How much will be compromised if at all if for Mrs. Marchant to decide. . Thus whether these options maybe implemented without compromising on the inherent personalized services, and tarnishing the image of the Care Home in any manner whatsoever, is entirely Mrs. Marchant’s decision. Her years of experience in this trade will stand to her benefit . Read More