Financial Analysis for theNew PracticeDr. Patrick Bodnar

Introduction

• Many small businesses face unexpected challenges due to underfunding

• Underfunding can occur when the proper financial estimates of a practice are not calculated

• Need a realistic financial understanding of what it costs to start a practice and what it costs to run a practice

Introduction

• To properly estimate funding needs for the new practice it is necessary to analyze:– Project Costs– Operating Budget– Break-Even Point– Financial Projections

Project Costs

• The financial resources necessary to start a practice

• Need to consider:– Equipment / Service– Office / Supplies– Inventory– Build Out– Deposits– Licenses– Professional services– Marketing / Advertising– 6 to 12 months of operating expenses

Calculating Costs on Equipment / Service

• Equipment purchases– Healthcare and Office– Ex: Adjusting table, resistance equipment, electric

modalities, x-ray equipment…

• Classes and certifications• Reusable and disposable supplies for e / s

– Ex: face paper, ultrasound gel, electrodes, refrigerant spray, film, gowns, development chemicals, surface sanitizer…

Calculating Costs on Office / Supplies

• Any items needed to support your operation– Ex: Copy paper, brochures, forms, pens, pencils,

calculators, hole punch, logo design, letter head, business cards …

• Furnishing purchases– Ex: Signage, office furniture, computers, phones, fax

machine, printers, copier, plants…

Calculating Costs on Inventory

• Items for sale– Ex: Topical analgesic, hot/cold packs, pillows,

supports, braces, nutrition, electrodes, homeopathy / herbal therapy, exercise balls, resistance kits…

Calculating Costs on Buildout

• Construction work or repairs to office space

• Customized improvements– Ex: Cabinetry, counters, storage, water

lines…

Calculating Costs on Deposits

• What front money is required– Ex: Rent deposits, initial lease payments and

deposits, phone, water and sewage, electricity, gas…

Calculating Costs on Licenses

• Chiropractic license– Exam fee and required travel

• Assumed name certificates

• Facility registration

• X-ray registration

Calculating Costs on Professional Services

• Attorney fees for contracts

• Accountant fees on financial reports and business materials

• Engineer reports on x-ray equipment

• Architect design on floor plan

Calculating Costs on Marketing / Advertising

• Determine costs of your initial advertising programs based on analysis of your market – targeting, defining needs / service development, sourcing, and connecting

What is an Operating Budget?

• An annual estimate of the total value of resources required for the performance of your mission

• Broken down monthly

• Includes estimated revenue and expenses organized by categories

Revenue

• Money coming in– NP Cash Collections– EP Cash Collections– Insurance Collections– Supply Sales– Equipment Sales– Nutrition Sales

Expense

• Money going out– Staff

• Wages• FICA• Professional Development• Misc. Expense

– Financial• Bank Fees• Credit Card Processing

Expense

– Office• Rent• Office Supplies• Office Equipment• Healthcare Equipment• Healthcare Supplies• Equipment Maintenance• Telephone• Gas/Electric• Water/Sewage• Insurance• Patient Education Material

Expense

– Advertising/Marketing• Print• Cable• Directories• Care Class• Web

– Printing/Graphic Artist– Postage– Travel– Cost of Goods Sold

Break-Even Point

• Analysis of the level (volume) of sales/service at which a project's revenues equal its expenses.

• The point where money in equals the cost to do business.

Break-Even Point

• Need to know:– Monthly Operating Budget– Average Patient Collections

• Want to know:– How many patient visits needed each

month to pay operating costs.

Break-Even Point

• EquationEstimated or current yearly operating

budget / Average patient collections per visit / number of business weeks per year

– $216,000/yr / $100.00 = 2160 pv’s/yr– 2160 / 45 wks = 48 pv’s/wk

Break-Even Point

– $216,000/yr / $75.00 = 2,880 pv’s/yr– 2880 / 45 wks = 64 pv’s/wk

– $216,000/yr / $50.00 = 4,320 pv’s/yr– 4320 / 45 wks = 96 pv’s/wk

– $216,000/yr / $25.00 = 8,640 pv’s/yr– 8640 / 45 wks = 192 pv’s/wk

Break-Even Point

– $216,000/yr / $17.00 = 12,706 pv’s/yr– 12,706 / 45 wks = 282 pv’s/wk

Financial Projections

• Estimate of future financial performance

• Remember, there is no such thing as a sure thing. This estimate should have room for error

• As a new clinic, demonstrate how you anticipate growth will occur