Scenario: You have been hired as the new manager of a startup primary care pract

Question

Scenario: You have been hired as the new manager of a startup primary care practice by three physician owners who have set up a for profit Limited Liability Company. Your first project is to put together what expenses are required to open this practice with the 3 physicinas who will practice here full time. 1. You start with a business plan. You will need a space plan. buy or lease space. You will assume a mortgagae payment or lease cost. Assume you will operate 5 days per week. 8 hours a day Staffing for the practice: clincial people, billing staff, reception, insurance verification staff, etc. An electronic billing/medical records system (least cost per month), office cleaning staff, medical waste removal service. Utilities cost Medical supplies Malpractice expense for 3 internists other operating expenses you deem necessary list all expenses and say which are fixed or variable 2. Develop a revenue budget: # of visits per physican for the year, ramping up from months 1-12, all visits will be 30 minutes each Identify which insurers you have contracts with for physican reimbursement and how much each will pay, per visit Calcualte the proportion of of total visits for each physician, by payer. 3. Develop a one year profit and loss statement for this 3 physician practice. Numbers should add correctly and will result in the projected first year proft or loss. The practic is for profit so taxes must be applied in determining profit or loss. This is a business plan profit and loss statement. All valves are assumed. In other words made up. No value is given. There are no values that are given. We basically make up numbers. I just want to know how this would be set up.

Explanation / Answer

From the question I assume that you will make up the figures.

I am into core financial modelling, so I will guide you how we do it on a professional front.

Based on market survey, industry analysis we arrive at 2 things, bare minimum number of patients we will cater to and bare minimum charges for the same.

This forms basis of my revenue for the base case. Based on the growth estimate year on year, I will project revenues for nect 5 years accordingly considering the rise in number of patients as well as increase in fees.

I will divide my costs into direct and indirect. Direct cost cant be avoided and be based on comparisons with other players in the market.

This will give me a fair idea about my gross margins. All indirect costs should be considered as a percentage of sales.

Depreciation has to be calculated based on the capex incurred and method of depreciation selected. The best option is to look around successful companies in the same domain and read up their accounting policies to understand their practices.

Accordingly this will create your P&L.

Capex requirements needs to be estimated based on service provided. Being physicians and technical matter of expertise.

Based on the terms with suppliers of medical equipments to be used in day to day operations, one needs to decide terms of credit which will then form part of your payables. Availability of such inventory and expected patients will determine the inventory levels.

I would like to believe patients would pay immediately or in advance, keeping Trade receivables to bare minimum.

This will help us to determine our working capital requirements.

Once we have Capex and working capital requirements, we need to decide the capital contributuion in terms of equity and debt. Incase you are planning to raise debt, do account for financial cost.

If all assumptions are properly inserted and all transactions are properly given impacted as per accounting conventions, balance sheet will tally numerically as well as fundamentally.

Hope this suffice.

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