Dr Roger Financial Problems - Case Study Example

Top of Form Dr Roger Financial Problems Module INTRODUCTION For being a successful business owner, Dr Roger has to understand and anticipate financial problems faced by him. Dr Roger should have full knowledge of his business financial needs and problems that are faced by him in running his clinic successfully. Some factors leading to Dr Roger’s financial difficulties are the poor cash management of his funds. Cash is like oxygen to a living thing. Similarly business needs cash continuously to be run successfully. Dr Roger needs to manage his funds successfully to make his business profitable. Cash management by budget will provide him financial stability in his dental practice (Douglas et al. 1985). One other major factor leading to Dr Roger’s financial difficulty is as he is not maintaining any budget. Every organization needs to make a budget to plan his revenues and the regular expenses. Due to not maintaining a budget, he doesn’t have any control over his expenses. Budget enables to reduce or eliminate his expenses resulting in eliminating his financial problems. His resources are not managed resulting in inefficiency and wastage. No strategy is also a factor leading to Dr Roger’s financial difficulties as he has not set any strategy for his business for making his services profitable. A plan help increase the business profitability. Every business needs to e planned from the beginning till end similarly Dr Roger has to plan before taking any decision after analysing all the pros and cons of the decision. This plan should be used as roadmap for making his services effective and successful. Dr Roger should also focus on satisfying his patients by providing them quality work and efficient management by not wasting their time and providing them timely appointments. CASH BUDGET JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC YEAR 1 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 Opening Cash flow 0 (1) (2) (3) (4) (5) (5) (6) (7) (8) (9) (10) 0 Cash In Flows for the period Fillings 13.5 13.5 13.5 13.5 13.5 13.5 13.5 13.5 13.5 13.5 13.5 13.5 162 Crowns 15.2 15.2 15.2 15.2 15.2 15.2 15.2 15.2 15.2 15.2 15.2 15.2 182.4 Root Canals 2.16 2.16 2.16 2.16 2.16 2.16 2.16 2.16 2.16 2.16 2.16 2.16 25.92 Bridges 6.3 6.3 6.3 6.3 6.3 6.3 6.3 6.3 6.3 6.3 6.3 6.3 75.6 Extractions 4.35 4.35 4.35 4.35 4.35 4.35 4.35 4.35 4.35 4.35 4.35 4.35 52.2 Cleaning 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 32.4 X-Rays 6.75 6.75 6.75 6.75 6.75 6.75 6.75 6.75 6.75 6.75 6.75 6.75 81 Total Cash Inflows 50.96 50.05 49.14 48.23 47.32 46.41 45.5 44.59 43.68 42.77 41.86 40.95 611.52 Cash Out Flows for the period Salaries 25.6 25.6 25.6 25.6 25.6 25.6 25.6 25.6 25.6 25.6 25.6 25.6 307.2 Benefits 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 30 Building Lease 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 150 Dental Supplies 5 5 5 5 5 5 5 5 5 5 5 5 60 Cleaning 1 1 1 1 1 1 1 1 1 1 1 1 12 Power and Water 1 1 1 1 1 1 1 1 1 1 1 1 12 Telephone 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 3.6 Office Supplies 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 2.4 Lab Fees 2 2 2 2 2 2 2 2 2 2 2 2 24 Loan Payments 0.57 0.57 0.57 0.57 0.57 0.57 0.57 0.57 0.57 0.57 0.57 0.57 6.84 Interest Payments 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 6 Miscellaneous 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 6 Informational Seminar 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 2.4 Total Cash Outflows 51.87 51.87 51.87 51.87 51.87 51.87 51.87 51.87 51.87 51.87 51.87 51.87 622.44 Deficit (1) (2) (3) (4) (5) (5) (6) (7) (8) (9) (10) (11) (11) ASSUMPTIONS: In the above Cash Budget, it is assumed that informational seminar cost is distributed evenly in the 12 months. The non-cash items such as Depreciation are not included in the cash budget. As the opening cash flow is not given, it is assumed to be zero in the first month of the cash budget. Dr Jones Financial Position: The cash Budget has a significant cash deficit at the end of every month and annually as well. The annual cash deficit is $11000. This budget clearly indicates that Dr Roger is in significant cash flow problems as the total inflows are in $11000 deficit from the cash outflows. This means that Dr Roger will have to inject approximately $11000 in his clinic annually and is not attaining financial stability. The cash budget indicates that expenses are over the budget and he has to reduce the expenses by eliminating the unnecessary expenses. This budget gives us an overview of spending priorities and allocation of Dr Jones resources effectively. Recommendations to Dr Jones: In my opinion, there are some improvements that Dr Jones can bring to his operations which will reduce his expenses and eliminate his budget deficit. The unnecessary elimination will enhance the efficiency and reduce cost resulting in budget surplus (Andrea & Runggaldier. 2012). Some of the recommendations are As mentioned in the question that Dr Jones estimates that the dental assistants are busy 65-70% of the time which means that they can be fully utilized in the work. The dental assistants can be utilized by attending more patients which will enhance the revenues but they should be supervised by Dr Jones to maintain the quality of service. The dental assistants can also be utilized by allocating the duties of the receptionist to the dental assistants which will reduce the cost by the amount of salary of the receptionist as the receptionist is getting more pay than one dental assistant. Dr Jones is working for 32 hours a week. He can work additional hours but he is reluctant due to some personal endeavours. Dr Jones will have to extend his working hours for his financial stability and cash surplus by attending more patients in a month. The amount spent annually spent on informational seminars is not a good decision. Either this seminar should be eliminated by not attending such seminars as they are leading to increase the expense with no positive effect on revenues or attend other training related seminar which will enhance the quality of his services and satisfy the customers. Instead of sending the patients birthday cards. By eliminating the informational seminars idea will result in terminating Dr Jones wife and will save the amount paid to her. REVISED CASH BUDGET ACCORDING TO RECOMMENDATIONS: The recommendation provided above cannot be incorporated in the budget but a revised budget is prepared with some recommendation assumed. The below is the revised budget with the assumption that the receptionist and Mrs Jones if removed from their position will cause a decrease in our expense. Additionally if the informational seminar cost is also removed from the expenses the deficit in the budget will be recovered. As shown in the below revised budget by incorporating these two changes in the budget will become profitable and showing a surplus of $35000. The financial problems can even also be recovered from the above two recommendations. Revised Cash Budget CASH BUDGET JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC YEAR 1 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 $000 Opening Cash flow 0 3 6 9 12 14 17 20 23 26 29 32 0 Cash In Flows for the period Fillings 13.5 13.5 13.5 13.5 13.5 13.5 13.5 13.5 13.5 13.5 13.5 13.5 162 Crowns 15.2 15.2 15.2 15.2 15.2 15.2 15.2 15.2 15.2 15.2 15.2 15.2 182.4 Root Canals 2.16 2.16 2.16 2.16 2.16 2.16 2.16 2.16 2.16 2.16 2.16 2.16 25.92 Bridges 6.3 6.3 6.3 6.3 6.3 6.3 6.3 6.3 6.3 6.3 6.3 6.3 75.6 Extractions 4.35 4.35 4.35 4.35 4.35 4.35 4.35 4.35 4.35 4.35 4.35 4.35 52.2 Cleaning 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 2.7 32.4 X-Rays 6.75 6.75 6.75 6.75 6.75 6.75 6.75 6.75 6.75 6.75 6.75 6.75 81 Total Cash Inflows 50.96 53.85 56.74 59.63 62.52 65.41 68.3 71.19 74.08 76.97 79.86 82.75 611.52 Cash Out Flows for the period Salaries 22 22 22 22 22 22 22 22 22 22 22 22 264 Benefits 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 30 Building Lease 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 12.5 150 Dental Supplies 5 5 5 5 5 5 5 5 5 5 5 5 60 Cleaning 1 1 1 1 1 1 1 1 1 1 1 1 12 Power and Water 1 1 1 1 1 1 1 1 1 1 1 1 12 Telephone 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 3.6 Office Supplies 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 2.4 Lab Fees 2 2 2 2 2 2 2 2 2 2 2 2 24 Loan Payments 0.57 0.57 0.57 0.57 0.57 0.57 0.57 0.57 0.57 0.57 0.57 0.57 6.84 Interest Payments 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 6 Miscellaneous 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 6 Total Cash Outflows 48.07 48.07 48.07 48.07 48.07 48.07 48.07 48.07 48.07 48.07 48.07 48.07 576.84 Surplus 3 6 9 12 14 17 20 23 26 29 32 35 35 Dr Jones may not be agreed with my some recommendations like extending the working hours. As already mentioned that he is not willing to do so due to his personal endeavors. Dr Jones will also not be willing to terminate his wife due to self-interest and close family relations threats. He might be willing to extend the responsibilities of the dental assistants as he has observed them being free 30-35% of the time. All decision will be based on Dr Jones acceptance as he is the sole owner of the business and he will prioritize his self interest in his decisions. CONCLUSION: From all the above discussion, it is clear that Budgeting will enhance the profitability of Dr Jones business and will guide him how to plan and control his business effectively without facing any financial problems. References Top of Form Garbutt, Douglas. 1985. How to budget and control cash. Aldershot, Hants, England: Gower. Top of Form Pascucci, Andrea, and W. J. Runggaldier. 2012. Financial mathematics theory and problems for multi-period models. Milan: Springer. http://dx.doi.org/10.1007/978-88-470-2538-7. Bottom of Form Bottom of Form Read More