Question

This week you will continue working on creating a Business Plan for a new health care organization. Please read the requirements of this discussion board carefully as it varies from our usual format.

ge 312 of the eText explains that the following items are addressed in the Income Statement Assumptions section of a business plan:

• Revenue type/Revenue source(s)
• Revenue amount (e.g., as determined based on per patient, per visit, per month, per grant amount)
• Labor expenses
• Supply expenses
• Cost of drug or device expenses (if applicable)
• Equipment expenses
• Space occupancy expenses (e.g., rent, utilities)
• Overhead (insurance, etc.)

For your original post: (1) remind us about your new health care business, (2) address the values that you have determined/assumed for each of the items above, and (3) explain how you came to determine/assume the values for each of the items listed above.

Answer 1

- In a healthcare business revenue can be earned by two main sources, 1) By Treatments(medicals) 2) Pharmaceuticals

- For revenue, we can calculate it from the per patient basis. If we take in your healthcare organization number of patients come 1000/month. So in a year = 1000*12 = 12000 and, If on an average they spent $100, then your expected revenue = 12000*$100=$1,200,000 / Year      

(**For a business plan you should first survey the market demand of that area. That will give you a more accurate number of patients expected to come. And, a fair idea about average revenue earn from them. I have taken just for conception**)

- As you don't know the expenses of your company will probably make, you can use "Vertical Analysis" for getting expected data on an Industry average.

First, we will take a similar organization like yours in that industry where you operate.

Second, we will take its income statement.

Third, we will take its revenue amount as 100% and try to calculate other expenditure percentages (%) with respect to sales. *** {Formula: Expenses as % of Sales = (Expense / Sales)*100 }

Fourth, Now you will get what is the % value of every expenditure. It will give you the industry average. Now, you have to multiply your revenue with that % value and you will get your expenses too.

Let me take an income statement of a similar organization like yours,

Cardinal Health Income Statement,

Cardinal Health Income Statement 2018

Revenue from Medical	15.6 billion
Revenue from Pharmaceutical	121.2 billion
Total Revenue	136.8 billion	100%
Cost of Drug	(45 billion)	33%
Labour Expenses	(30 billion)	22%
Supply Expenses	(19.8 billion)	14.5%
Equipment Expenses	(12 billion)	8.7%
Space Expenses	(10 billion)	7.3%
Overhead	(12 billion)	8.77%
Other Expenses	(6 billion)	4.4%
Operating Profit	2 billion

Here, we calculated % of expenses on the basis of Sales. Like for Cost of Drug % on Sales = (45/136.8)*100 = 33% Like this way I calculated all the expenses on % of sales.

Now, for our business, we need to calculate expenses on the % value of our sales value.

So, for our business,

Cost of drug = $1,200,000 * 33% = $396000

Labour Expenses = $1,200,000*22%= $264000

Supply Expenses = $1,200,000*14.5%= $174000

Equipment Exp. = $1,200,000* 8.7% = $104400

Space Exp. = $1,200,000*7.3% = $87600

Overhead = $1,200,000*8.77% = $105240

Other Expenses = $1,200,000 * 4.4% = $52800

By, using vertical analysis and industry average technique we calculated these values.

Thank You! Hope it helps.