Healthcare Budgeting and Financing of a Primary Care Facility

Healthcare Budgeting and Financing of a Primary Care Facility

Introduction

The proposed private primary care is the Shadge Hospital. Its main specialization will entail monitoring patient’s health data by use of wearable monitoring devices. The business model of this private primary care is built around the need to over value to customers by monitoring their health remotely (Grayston, Fairhurst & McKinstry, 2019). The potential customers for the business include the aged population which is at a high risk of blood pressure and heart disease (Vu, Bales & Bredenkamp, 2020). The data obtained from their customers will be relayed to a data center for action.

Volume of Patient Visits

The Shadge hospital is located in a community of 650,000 people. Within this community, there isn’t any primary care health facility that offers the same services. However, the population of the target customers is 4 percent since the larger majority are the youth. Thus, it is likely to experience a maximum volume of patient visits of about 26,000 patients. This volume might however change depending on the demographic changes in the coming years.

Revenues

While calculating revenue for Shadge Hospital, all calculations were based on a single estimated sale price, which is $400 and a single estimated purchase price, which is $300. The materials cost for Shadge Hospital’s products is calculated by using this equation:

𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙 𝑐𝑜𝑠𝑡 = 𝑆𝑎𝑙𝑒𝑠 𝐸𝑠𝑡𝑖𝑚𝑎𝑡𝑒𝑑/𝑠𝑎𝑙𝑒𝑝𝑟𝑖𝑐𝑒 × 𝐸𝑠𝑡𝑖𝑚𝑎𝑡𝑒𝑑 𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑝𝑟𝑖𝑐𝑒. The following statements and reporting give a projection of Shadge Hospital’s monthly and annual revenue as per the provisions of López, Rich & Smith, (2015).

 

 

Financial Projection #1: Shadge’s Hospital Revenue.

	The Shadge Hospital
						Monthly						Annually
	Target profit (includes. owner		€			3,500			€			42,000
	salary)
	loan servicing		€		500				€		6,000
	Income after taxes		€			4,000			€			48,000
	Taxes 24%		€		960				€		11,520
	funding requirements		€			4,960			€			59,520
	loan interest		€		80				€		960
	Required)		€			5,040			€			60,480		(A)
	Fixed cost
	target salaries		€			2,000			€			24,000
	rent		€		800				€		9,600
	electricity, heat, water		€			200			€			2,400
	advertising		€		150				€		1,800
	insurance		€			150			€			1,800
	transport		€		150				€		1,800
	telephone/internet		€			250			€			3,000
	stationery/postage		€		50				€		600
	repairs/renewals		€			50			€			600
	depreciation		€		600				€		7,200
	local taxes
	Total fixed cost		€		4,400				€		52,800			(B)
	Revenues		€			9,440			€			113,280
	Purchases +materials and supplies		€		4,500				€		54,000
	(net of VAT)
	Net sales required		€			13,940			€			167,280
	VAT 24%		€		3,804				€		45,648
	Total Projected Revenue		€			17,744			€			212,928

 

 

The Shadge Hospital

Projected Expenses

Fixed cost
target salaries		€			2,000			€			24,000
rent		€		800				€		9,600
electricity, heat, water		€			200			€			2,400
advertising		€		150				€		1,800
insurance		€			150			€			1,800
transport		€		150				€		1,800
telephone/internet		€			250			€			3,000
stationery/postage		€		50				€		600
repairs/renewals		€			50			€			600
depreciation		€		600				€		7,200
local taxes
Total Expenses		€		4,400				€		52,800			(

 

Assumptions to justify all Volumes, Revenues and Expenses

There’s an obvious logic as to why the 26,000 volume of patients is logical. As mentioned in prior sections, the Shadge hospital is located in a community of 650,000 people. Within this community, there isn’t any primary care health facility that offers the same services. However, the population of the target customers is 4 percent since the larger majority are the youth. Thus, it is likely to experience a maximum volume of patient visits of about 26,000 patients. The revenue projection forecasts the amount of sales the healthcare facility can generate in a year’s time. Similarly, the expenses calculator gives a projection of the hospital’s total fixed costs in a year’s time.

 

 

 

 

3-year Operating Budget

                                                               The Shadge Hospital

Th

 

			Monthly		Annually	3 years
	Sales	€	17,744	€	212,928	638,784
	Variable costs
	materials	€	13,248		158,976	476,928
	direct wages
	other
	Total variable costs	€	13,248	€	158,976	476,928
	Gross profit/contribution	€	4,496	€	53,952	161,856
	Fixed costs
	target salary (incl. taxes)	€	2,000		24,000	72,000
	rent	€	800		9,600	2,880
	electricity, heat, water	€	200		2,400	7,200
	advertising	€	150		1,800	5,400
	insurance	€	150		1,800	5,400
	transport	€	150		1,800	5400
	telephone/internet	€	250		3,000	3000
	stationery/postage	€	50		600	1800
	repairs/renewals	€	50		600	1,800
	depreciation	€	600		7,200	21,600
	local taxes
	other
	Total fixed costs	€	4,400	€	52,800	158,400
	Net profit	€	96	€	1,152	3,456
	Break-even point = A/B x C	€	17,365	€	208,381	625,143

 

 

Break-even Analysis

Total fixed costs	€	4,400	€	52,800	(
Net profit	€	96	€	1,152
Break-even point	€	17,365	€	208,381

 

Hint: Break-even Point is given by A*B*C.

Internal Rate of Return

To determine the Internal Rate of Return, it is critical to calculate the initial investment first as below:

The Shadge Hospital – Investment calculation

Rental deposits (3 months)
85m2 (900Sqft) furnished accommodation in EXPENSIVE	€	2,700
areas
Renovation	€	4,000
Telephone, fax, copying, internet	€	250
Computers and software	€	3,000
Furnishings & fixtures	€	1,500
Supplies	€	1,000
Marketing investment	€	1,000
Registration fee	€	225
Initial inventory (100 devices x 300 dollars)	€	30,000
Working capital	€	10,000
Total capital requirement	€	53,675

 

 

If Year 1’s Cash flow is 17,361, year 2’s cash flow is 208,381, and year 3’s capital investment is 625,143, then the IRR is 132.56%.

Net Present Value

 

Present Value of Cash Inflows (PVIFA) = 657,678

Net Present Value (NPV) = 604,003

Assessment of the Financial Risk

Starting the Shadge Hospital is a calculated financial risk. From the cash flow analysis above, it is evident that business will definitely work out. The business has a strong business model of offering primary care to aged population and at the same time, selling them wearable technologies to monitor their conditions. The fundamental aspects that have to be taken into consideration when implementing these projections include keeping all factors constant, more so when it comes to marketing.

Another fundamental that can be reflected in the finance projections above is the lack of competition. Within this community, there isn’t any primary care health facility that offers the same services. However, the population of the target customers is 4 percent since the larger majority are the youth. Thus, it is likely to experience a maximum volume of patient visits of about 26,000 patients. The revenue projection forecasts the amount of sales the healthcare facility can generate in a year’s time.

References

Grayston, J., Fairhurst, K., & McKinstry, B. (2019). Using new technologies to deliver test results in primary care: structured interview study of patients’ views. Primary Health Care Research & Development, 11(02), 142. doi: 10.1017/s146342360999034x

López, D., Rich, K., & Smith, P. (2015). Auditor size and internal control reporting differences in nonprofit healthcare organizations. Journal Of Public Budgeting, Accounting & Financial Management, 25(1), 41-68. doi: 10.1108/jpbafm-25-01-2013-b003

Vu, L., Bales, S., & Bredenkamp, C. (2020). What drives utilization of primary care facilities?: Evidence from a national facility survey. International Journal Of Healthcare Management, 1-7. doi: 10.1080/20479700.2020.1752984