Question

You are the practice manager for Dermatology Associates of Linwood (DAL): a multi-physician dermatology practice. Recently, the physician partners have decided to invest in purchasing an existing dermatology practice in a neighboring city, which will be operated under the group's name. They have asked you to research the financial logistics of acquiring this new location. The practice is fully-staffed, however the (one) physician owner is retiring, leaving an opening for a new physician to be hired. In keeping with DAL's standard of care, several new expenses will be incurred with the acquisition, including: access to DAL's electronic medical record system, a Fraxel laser, and new furniture for the waiting room area.

Draft a proposal, addressing the following items in a Word document:

• Summary of estimated primary startup costs (create a table to illustrate and organize this information)
• Financing options
• Summary of when the practice will reach profitability. Explain the finance principle you can use to make this determination. (You do not need to perform the calculations, but you do need to explain how to estimate and assess profitability).

Answer 1

Research the financial logistics of acquiring this new location:

The research of the new premises should at least consist of the analysis of the number of other dermatology offices in practices and the surroundings of people in the area.The goodwill and the charges of the dermatologist should also be taken into consideration. Necessary ratio of proportion of people and clients of the existing dermatologist should be considered , which will help the company to have an idea of the client base they are planning to attract.When the facts and data collected provide positive feedback or the prospects seem to be good , next follow with the plan of investing in the property and business with a fair purchase price.

The next step is to make systematic financing decision: the various sources of funds from the personal and other financing institution shall be taken into consideration based on their rate of interest and returns from the business.Over the given period of time the investment should result in positive NPV.

The necessary combination of the funds from borrowing and own funds should be in proportion which yields maximum return on capital employed after necessary deductions of interest and other costs.Debt and personal funds.

In the given case one of the physician owner is retiring, leaving an opening for a new physician to be hired.Necessary advertisement expenses for hiring the new person in his place should be carried out considering the package and experience as compared to the previous physician.Also, Training costs for such physician have to carried out as required.

Database and set up costs for centralized and maintaining all the records at on place could include server and terminal with all the necessary accessories and software(whether standardized or customs built software) Standardized software can be claimed as revenue deduction and customs built software can be claimed based on the update required in the running of the business.

Fraxel laser: Necessary stock of equipment and disposable machines for equipment have to also be taken in consideration for the disposal of waste.

Cleanliness and housekeeping expenses is a major expense for any clinic and necessary care has to be taken in the respective areas.The cleanliness has to be done after each client has left and before the new client comes in for their appointment. Revenue expenditure in nature.

Furniture is a one time investment for a given period of time.Care has to be taken to maintain the assets including the furniture. Also depreciation can be claimed as per the rates applicable.

Expenditure
Advertisement Expenditure for Office	Revenue Expenditure
Depreciation on Assets
Cleanliness and housekeeping expenses
New Physician relating expenses Advertisement Salary Training Recruitment Promotion
Stores and necessary equipment / accessories	Capital Expenditure
Set up costs of Interiors and Machinery
Furniture
Disposable machines