Health Sector Reform Technical Assistance Project (HSRTAP)

United States
Agency for
International
Development

A Guidebook on the Preparation of a

Hospital Strategic Business Plan
 Table of Contents

Introduction 1

The Business Plan – What It Includes 3

Description of the Business 3

The Marketing Plan 5

The Management Plan 8

The Financial Management Plan 9

The Business Plan – Self-paced Activity 12

Appendices 13
 THE HOSPITAL BUSINESS PLAN OUTLINE

Introduction

The Business Plan is a critical document to the transition of the hospital from a purely
government subsidized health facility to its desired autonomous status. It serves as the
blueprint for the hospital’s desired directions, strengths and weaknesses, short- and long-
term plans, finances, staffing, and capital goals and realities. The business plan is to be
developed by the hospital management team for review and approval by the hospital’s
initial board of trustees during the early months of “autonomous status”. The Plan should
address the objectives, plans, activities, and obstacles for the first year in significant
detail and also provide a less specific but clearly defined vision and set of programs and
activities for at least a five year horizon. The Plan must include both operations and
capital (facilities) plans; must fully define the hospital’s current centers of excellence
(strengths) and its goals for intermediate and long-term improvement and upgrade; shall
address in detail sources of funds and include financial projections; and should include an
analysis of the medical staff.

Below is an outline for a business plan. This model may serve as a guide when
developing a business plan for a hospital or any health facility.

What are the elements of a Business Plan?

1. Cover sheet
2. Statement of purpose
3. Table of contents

THE BUSINESS

a. Description of business
b. Marketing
c. Competition
d. Operating procedures
e. Personnel
f. Business insurance
g. Financial data

THE FINANCIAL DATA

a. Loan applications
b. Capital equipment and supply list
c. Balance sheet
d. Breakeven analysis
e. Pro-forma income projections (profit & loss statements)
f. Three-year summary

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g. Detail by month, first year
h. Detail by quarters, second and third years
i. Assumptions upon which projections were based
j. Pro-forma cash flow (same breakdown as letter E)

OTHER SUPPORTING DOCUMENTS

a. Copy of proposed lease or purchase agreement for building space

b. Copy of licenses and other legal documents
c. Copy of resumes of all principals
d. Copies of letters of intent from suppliers, etc.

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 THE BUSINESS PLAN - WHAT IT INCLUDES

What goes in a business plan? It is one that many new and potential business owners
should ask, but oftentimes don't ask. The body of the business plan can be divided into
four distinct sections: 1) the description of the business, 2) the marketing plan, 3) the
financial management plan, and 4) the management plan. Addenda to the business plan
should include the executive summary, supporting documents and financial projections.

DESCRIPTION OF THE BUSINESS

In this section, provide a detailed description of your business. An excellent question to

ask is:

"What business am I in?"

In answering this question include the hospital services, products, and market as well as a
thorough description of what makes the health facility unique. Remember, however, that
as the business plan is developed, the initial question(s) may have to be modified or
revised.

The hospital’s business description section is divided into three primary sections. Section
1 actually describes the business, Section 2 the product or service it offers or will be
offering and Section 3 the business location, and why this location is desirable.

1. Business Description

The business description shall contain the following:

a. Legalities - business form: single-proprietorship, partnership, corporation

or cooperative. This portion should also enumerate the licenses or permits
needed by the health facility.
b. Business type: merchandizing, manufacturing or service.
c. What your product or service is.
d. Is it a new independent business, a takeover, an expansion or a franchise?
e. Why your business will be profitable. What are the growth opportunities?
What would create an impact on your growth opportunities?
f. When your business will be open (days, hours)? Quite obviously, most of
the hospital departments will be operating on a 24-hour, 7-day a week
schedule. But then there are also other departments (e.g. administrative)
that will observe the normal 8 hours a day, five days a week schedule.
g. What you have learned about your kind of business from outside sources
(trade suppliers, bankers, other franchise owners, competitors,
publications).

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A cover sheet goes before the description. It includes the name, address and telephone
number of the business and the names of all principals. In the description of your
business, describe the unique aspects and how or why they will appeal to consumers.
Emphasize any special features that you feel will appeal to customers and explain how
and why these features are appealing.

The description of your business should clearly identify goals and objectives and it
should clarify why you are, or why you want to be, in business. As a government health
facility that has been converted or will be converted into a government-owned and
controlled corporation, the business description should include a history of the health
facility and the rationale for adopting the new organizational form.

2. Product / Service

Try to describe the benefits of your goods and services from your customers' perspective.
Successful business owners know or at least have an idea of what their customers want or
expect from them. This type of anticipation can be helpful in building customer
satisfaction and loyalty. And, it certainly is a good strategy for beating the competition or
retaining your competitiveness. Describe:

a. What (hospital) services are you offering.

b. How your product or service will benefit the customer.
c. Which products/services are in demand; if there will be a steady flow of cash.
d. What is different about the product or service your business is offering.

3. The Location

The location of your business can play a decisive role in its success or failure. Your
location should be built around your customers, it should be accessible and it should
provide a sense of security. Consider these questions when addressing this section of your
business plan:

a. What are your location needs?

b. What kind of space will you need?
c. Why is the area desirable? the building desirable?
d. Is it easily accessible? Is public transportation available? Is street lighting
adequate?
e. Are market shifts or demographic shifts occurring?

It may be a good idea to make a checklist of questions you identify when developing your
business plan. Categorize your questions and, as you answer each question, remove it
from your list.

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 THE MARKETING PLAN

Marketing plays a vital role in successful business ventures. How well you market your
hospital services, along with a few other considerations, will ultimately determine your
degree of success or failure. The key element of a successful marketing plan is to know
your customers--their likes, dislikes, expectations. By identifying these factors, you can
develop a marketing strategy that will allow you to arouse and fulfill their needs.

Identify your customers by their age, sex, income/educational level and residence. At
first, target only those customers who are more likely to avail of your services or
products. As your customer base expands, you may need to consider modifying the
marketing plan to include other customers.

Develop a marketing plan for your hospital business by answering these questions. Your
marketing plan should be included in your business plan and contain answers to the
questions outlined below.

a. Who are your customers? Define your target market(s) They may be classified as
indigent, medicare and private patients. Or they may even classified according to
the medical cases.
b. Are your markets growing? steady? declining?
c. Is your market share growing? steady? declining?
d. How is your market segmented? (e.g. diseases, health plans, age groups,
professional groups)
e. Are your markets large enough to expand?
f. How will you attract, hold, increase your market share?
g. How will you promote your services?
h. What pricing strategy have you devised?

Appendix I contains a sample Marketing Plan and Marketing Tips, Tricks and Traps, a
condensed guide on how to market your product or service. Study these documents
carefully when developing the marketing portion of your business plan.

1. Competition

Competition is a way of life. We compete for jobs, promotions, scholarships to institutes

of higher learning, in sports-and in almost every aspect of your lives. Nations compete for
the consumer in the global marketplace as do individual business owners. Advances in
technology can send the profit margins of a successful business into a tailspin causing
them to plummet overnight or within a few hours. When considering these and other
factors, we can conclude that business is a highly competitive, volatile arena. Because of
this volatility and competitiveness, it is important to know your competitors.

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Questions like these can help you:

a. Who are your five nearest direct competitors?

b. Who are your indirect competitors? (Indirect competitors may be the laboratories
and small clinics in your area)
c. How are their businesses: steady? increasing? decreasing?
d. What have you learned from their operations? from their advertising?
e. What are their strengths and weaknesses?
f. How does their product or service differ from yours?

You may want to start a file on each of your competitors. Keep envelopes or folders of
their advertising and promotional materials and their pricing strategy techniques. Review
these files periodically, determining when and how often they advertise, sponsor
promotions and offer sales. If your competitors are using promotional materials, study the
copy used in the advertising and promotional materials, and their sales strategy. For
example, is their copy short? descriptive? catchy? or how much do they reduce prices for
sales or services? Using this technique can help you to understand your competitors
better and how they operate their businesses.

2. Pricing and Sales

Pricing strategy is another marketing technique you can use to improve your overall
competitiveness. Get a feel for the pricing strategy your competitors are using. That way
you can determine if your prices are in line with competitors in your market area and if
they are in line with industry averages.

Some of the pricing strategies are:

a. retail cost and pricing

b. competitive position
c. pricing below competition
d. pricing above competition
e. price lining
f. multiple pricing
g. service costs and pricing (for service businesses only)
o service components
o material costs
o labor costs
o overhead costs

The key to success is to have a well-planned strategy, to establish your policies and to
constantly monitor prices and operating costs to ensure profits. Even in a franchise where
the franchisor provides operational procedures and materials, it is a good policy to keep
abreast of the changes in the marketplace because these changes can affect your
competitiveness and profit margins.

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Appendix 1 contains a sample Price/Quality Matrix, review it for ideas on pricing
strategies for your competitors. Determine which of the strategies they use, if it is
effective and why it is effective.

3. Advertising, Public Relations and Social Marketing

How you advertise and promote your hospital services may make or break your business.
Having a good product or service and not advertising and promoting it is like not having
a business at all. Many business owners, including hospital operators, operate under the
mistaken concept that the business will promote itself, and channel money that should be
used for advertising and promotions to other areas of the business. Advertising and
promotions, however, are the life line of a business and should be treated as such.

Devise a plan that uses advertising and networking as a means to promote your business.
Develop short, descriptive copy (text material) that clearly identifies your goods or
services, its location and price. Use catchy phrases to arouse the interest of your readers,
listeners or viewers. Remember the more care and attention you devote to your marketing
program, the more successful your business will be.

A more detailed explanation of the marketing plan and how to develop an effective
marketing program is provided in the Workshop on Marketing. See Training Module 3 -
Marketing Your Business for Success.

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 THE MANAGEMENT PLAN

Managing a business requires more than just the desire to be your own boss. It demands
dedication, persistence, the ability to make decisions and the ability to manage both
employees and finances. Your management plan, along with your marketing and
financial management plans, sets the foundation for and facilitates the success of your
business.

Like plants and equipment, people are resources--they are the most valuable asset a
business has. Employees and staff play an important role in the total operation of the
hospital. Consequently, it's imperative that you know what skills you possess and those
you lack since you will have to hire personnel to supply the skills that you lack.
Additionally, it is imperative that you know how to manage and treat your employees.
Make them a part of the team. Keep them informed of, and get their feedback regarding
changes. Employees oftentimes have excellent ideas that can lead to new market areas,
innovations to existing products or services or new product lines or services which can
improve your overall competitiveness.

Your management plan should answer questions such as:

a. How does your background/business experience help you in this business?

b. What are your weaknesses and how can you compensate for them?
c. Who will be on the management team?
d. What are their strengths/weaknesses?
e. What are their duties?
f. Are these duties clearly defined?
g. What are your current personnel needs?
h. What are your plans for hiring and training personnel?
i. What salaries, benefits, vacations, holidays will you offer?
j. What benefits, if any, can you afford at this point?
k. What additional training programs may help improve your staff capabilities?

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 THE FINANCIAL MANAGEMENT PLAN

Sound financial management is one of the best ways for your business to remain
profitable and solvent. This is especially important for hospitals that seek to attain a
certain degree of self –sufficiency and autonomy. How well you manage the finances of
your hospital will be a crucial factor in determining the success of your business
operation.

Each year thousands of potentially successful businesses fail because of poor financial
management. Even hospitals are not exempted from this. As an owner / manager, you
will need to identify and implement policies that will lead to and ensure that you will
meet your financial obligations.

To effectively manage your finances, plan a sound, realistic budget by determining the
actual amount of money needed to open your business (start-up costs) and / or the amount
needed to keep it open (operating costs). The first step to building a sound financial plan
is to devise a start-up budget. Your start-up budget will usually include such one-time-
only costs as major equipment, utility deposits, down payments, etc.

For existing government hospitals that will be converted into government corporate
health facilities, the start-up costs should include the projected expenses to be incurred
during the transition period. Some of these are professional fees for legal consultants,
registration fees, personnel (e.g. for those who wish to avail of optional retirement or
those who may be retrenched) and, even, some upgrading of facilities and equipment to
be transferred to the new organization.

The start-up budget should allow for these expenses.

Start-up Budget

a. personnel (costs prior to opening)

b. legal/professional fees
c. occupancy
d. licenses/permits
e. equipment
f. insurance
g. supplies
h. advertising/promotions
i. salaries/wages
j. accounting
k. income
l. utilities
m. payroll expenses
n. (continuing) government subsidies for indigent patients

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An operating budget is prepared when you are actually ready to open for business. The
operating budget will reflect your priorities in terms of how you spend your money, the
expenses you will incur and how you will meet those expenses (income). For government
hospitals, the operating budget should include money to cover the first three years of
operation. It should allow for the following expenses.

Operating Budget

a. personnel
b. insurance
c. rent
d. depreciation
e. loan payments
f. advertising/promotions
g. legal/accounting
h. miscellaneous expenses
i. supplies
j. payroll expenses
k. salaries/wages
l. utilities
m. dues/subscriptions/fees
n. taxes
o. repairs/maintenance

The financial section of your business plan should include any loan applications you've
filed, a capital equipment and supply list, balance sheet, breakeven analysis, pro-forma
income projections (profit and loss statement) and pro-forma cash flow. The income
statement and cash flow projections should include a three-year summary, detail by
month for the first year, and detail by quarter for the second and third years.
The accounting system and the inventory control system that you will be using is
generally addressed in this section of the business plan also. Whether you develop the
accounting and inventory systems yourself or have an outside financial advisor develop
the systems, you will need to acquire a thorough understanding of each segment and how
it operates. A financial advisor can assist you in developing this section of your business
plan.

The following questions should help you determine the amount of start-up capital you
will need to purchase and open a franchise.

a. How much money do you have?

b. How much money will you need for start-up?
c. How much money will you need to stay in business?

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Other questions that you will need to consider are:

a. What type of accounting system will you use? For government owned and
controlled corporations, the accounting system prescribed by the Commission on
Audit should be followed.
b. What financial projections will you need to include in your business plan?
c. What kind of inventory control system will you use?

Your plan should include an explanation of all projections. Unless you are thoroughly
familiar with financial statements, get help in preparing your cash flow and income
statements and your balance sheet. Your aim is not to become a financial wizard, but to
understand the financial tools well enough to gain their benefits. Your accountant or
financial advisor can help you accomplish this goal.

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 THE BUSINESS PLAN - SELF-PACED ACTIVITY

During this activity the hospital official (s) is expected to:

a. Briefly describe what goes into a business plan.

b. Identify advantages of developing the marketing, management and financial
management plans.
c. List financial projections included in the financial management plan.
d. Sketch an outline for a business plan.

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 APPENDIX 1

MARKETING

1. THE MARKETING PLAN

2. PRICE/QUALITY MATRIX
3. MARKETING TIPS, TRICKS & TRAPS

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 THE MARKETING PLAN
This is the marketing plan of ABC General Hospital

I. MARKET ANALYSIS

A. Target Market - Who are the customers?

1. We will be selling primarily to (check all that apply):

Total Percent of Business

a. Indigent Patients_______ ______

b. Medicare Patients_______ ______
c. Private _______ ______
d. Other _______ ______

2. We will be targeting customers by:

a. Product line/services.

b. We will target specific lines ________________

c. Geographic area? Which areas? ________________

d. Sales? We will target sales of ________________
e. Industry? Our target industry is ________________
f. Other? ________________

3. How much will our selected market spend on our type of product or service this
coming year?
P________________

B. Competition

1. Who are our competitors?

NAME ________________________________________
ADDRESS _________________________________________
_________________________________________
Years in Business ___________________
Market Share ___________________
Price/Strategy ___________________
Product/Service
Features ___________________

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NAME _________________________________________
ADDRESS _________________________________________
_________________________________________
Years in Business ____________________
Market Share ____________________
Price/Strategy ____________________
Product/Service
Features ____________________

2. How competitive is the market?

High ____________________
Medium ____________________
Low ____________________

3. List below your strengths and weaknesses compared to your competition (consider
such areas as location, size of resources, reputation, services, personnel, special
equipment, etc.):

Strengths Weaknesses

1._______________________ 1._____________________
2._______________________ 2._____________________
3._______________________ 3._____________________
4._______________________ 4._____________________

C. Environment

1. The following are some important economic factors that will affect our product or
service (such as changes in government health policies, insufficient government funding,
inefficient hospital referral system, slow repayment by health insurance organizations,
trade area growth, industry health, economic trends, taxes, rising energy prices, etc.):
________________________________________________
________________________________________________
________________________________________________

2. The following are some important legal factors that will affect our market:
________________________________________________
________________________________________________
________________________________________________

3. The following are some important government factors:

________________________________________________
________________________________________________
________________________________________________

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4. The following are other environmental factors that will affect our market, but over
which we have no control:
________________________________________________
________________________________________________
________________________________________________

II. PRODUCT OR SERVICE ANALYSIS

A. Description

1. Describe here what the product/service is and what it does:

________________________________________________
________________________________________________
________________________________________________

B. Comparison

1. What advantages does our product/service have over those of the competition
(consider such things as unique features, patents, expertise, special training, etc.)?
__________________________________________________
__________________________________________________
__________________________________________________

2. What disadvantages does it have?

__________________________________________________
__________________________________________________
__________________________________________________

C. Some Considerations

1. Where will you get your materials and supplies?

__________________________________________________

2. List other considerations:

__________________________________________________
__________________________________________________

III. MARKETING STRATEGIES - MARKET MIX

A. Image

1. First, what kind of image do we want to have (such as cheap but good, or
exclusiveness, or customer-oriented or highest quality, or convenience, or speed, or ...)?
__________________________________________________

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B. Features

1. List the features we will emphasize:

a. __________________________________________
b. __________________________________________
c. __________________________________________

C. Pricing

1. We will be using the following pricing strategy:

a. Markup on cost ____ What % markup? _____
b. Suggested price ____
c. Competitive ____
d. Below competition ____
e. Premium price ____
f. Other ____

2. Are our prices in line with our image?

YES___ NO___

3. Do our prices cover costs and leave a margin of profit?

YES___ NO___

D. Customer Services

1. List the customer services we provide:

a. ____________________________________________
b. ____________________________________________
c. ____________________________________________

2. These are our sales/credit terms:

a. ____________________________________________
b. ____________________________________________
c._____________________________________________

3. The competition offers the following services:

a. ____________________________________________
b. ____________________________________________
c. ____________________________________________

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E. Advertising/Promotion

1. These are the things we wish to say about the business:

____________________________________________________
____________________________________________________
____________________________________________________

2. We will use the following advertising/promotion sources:

a. Television ________
b. Radio ________
c. Direct mail ________
d. Personal contacts ________
e. Trade associations ________
f. Newspaper ________
g. Magazines ________
h. Yellow Pages ________
i. Billboard ________
j. Other___________

3. The following are the reasons why we consider the media we have chosen to be the
most effective:
__________________________________________________
__________________________________________________
__________________________________________________
__________________________________________________

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MARKETING TIPS, TRICKS & TRAPS

1. Marketing Steps
Classifying Your Customers' Needs
Targeting Your Customer(s)
Examining Your "Niche"
Identifying Your Competitors
Assessing and Managing Your Available Resources
Financial
Human
Material
Production

2. Marketing Positioning
Follower versus Leader
Quality versus Price
Innovator versus Adaptor
Customer versus Product
International versus Domestic
Private Sector versus Government

3. Sales Strategy
Use Customer-Oriented Selling Approach - By Constructing Agreement
Phase One: Establish Rapport with Customer - by agreeing to discuss what the customer
wants to achieve.
Phase Two: Determine Customer Objective and Situational Factors - by agreeing on what
the customer wants to achieve and those factors in the environment that will influence
these results.
Phase Three: Recommend a Customer Action Plan - by agreeing that using your product/
service will indeed achieve what customer wants.
Phase Four: Obtaining Customer Commitment - By agreeing that the customer will
acquire your product/service.
Emphasize Customer Advantage
Must be Read: When a competitive advantage can not be demonstrated, it will not
translate into a benefit.
Must be Important to the Customer: When the perception of competitive advantage varies
between supplier and customer, the customer wins.
Must be Specific: When a competitive advantage lacks specificity, it translates into mere
puffery and is ignored.
Must be Promotable: When a competitive advantage is proven, it is essential that your
customer know it, lest it not exist at all.

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4. Benefits vs. Features

The six "O's" of organizing Customer Buying Behavior

a. ORIGINS of purchase: Who buys it?

b. OBJECTIVES of purchase: What do they need/buy?
c. OCCASIONS of purchase: When do they buy it?
d. OUTLETS of purchase: Where do they buy it?
e. OBJECTIVES of purchase: Why do they buy it?
f. OPERATIONS of purchase: How do they buy it?

Convert features to benefits using the "...Which Means..." Transition

Sales Maxim: "Unless the proposition appeals to their INTEREST, unless it satisfies their
DESIRES, and unless it shows them a GAIN-then they will not buy!"

Quality Customer Leads:

Level of need Ability to pay
Authority to pay Accessibility
Sympathetic attitude Business history
One-source buyer Reputation (price or
quality buyer)
CONVERT FEATURES INTO BENEFITS-THE "...WHICH MEANS..."
TRANSITION
FEATURES "WHICH MEANS" BENEFITS
Performance Time Saved
Reputation Reduced Cost
Components Prestige
Colors Bigger Savings
Sizes Greater Profits
Exclusive Greater
Convenience
Uses Uniform Production
Applications Uniform Accuracy
Ruggedness Continuous Output
Delivery Leadership
Service Increased Sales
Price Economy of Use
Design Ease of Use
Availability Reduced Inventory
Installation Low Operating Cost
Promotion Simplicity
Lab Tests Reduced Upkeep
Terms Reduced Waste
Workmanship Long Life

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BUYING MOTIVES

RATIONAL EMOTIONAL
Economy of Purchase Pride of Appearance
Economy of Use Pride of Ownership
Efficient Profits Desire of Prestige
Increased Profits Desire for Recognition
Durability Desire to Imitate
Accurate Performance Desire for Variety
Labor-Saving Safety
Time-Saving Fear
Simple Construction Desire to Create
Simple Operation Desire for Security
Ease of Repair Convenience
Ease of Installation Desire to Be Unique
Space-Saving Curiosity
Increased Production
Availability
Complete Servicing
Good Workmanship
Low Maintenance
Thorough Research
Desire to be Unique
Curiosity
_________________________________________________________________
PRICE / QUALITY MATRIX
SALES APPEALS
PRICE/QUALITY HIGH MEDIUM LOW
HIGH "Rolls Royce" "We Try Harder" "Best Buy"
Strategy Strategy Strategy
MEDIUM "Out Performs" "Piece of the Rock" "Smart Shopper"
Strategy Strategy Strategy
LOW "Feature Packed" "Keeps on Ticking" "Bargain
Strategy Strategy Hunter"
Strategy

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 APPENDIX 2
FINANCIAL MANAGEMENT

1. Income Projection Statement

Instructions for Income Projection Statement

2. Balance Sheet
Instructions for Balance Sheet

3. Monthly Cash Flow Projection

Instructions for Monthly Cash Flow Projection

4. Information Resources
_________________________________________________________________
INCOME PROJECTION STATEMENT
Industry J F M A M J J A S O N D Annual Annual
% total %
Total net sales (revenues)
Costs of sales
Gross profit
Gross profit margin
Controllable expenses
Salaries/wages
Payroll expenses
Legal/accounting
Advertising
Automobile
Office supplies
Dues/Subscriptions
Utilities
Miscellaneous
Total controllable expenses
Fixed expenses
Rent
Depreciation
Utilities
Insurance
License/permits
Loan payments
Miscellaneous
Total fixed expenses
Total expenses
Net profit (loss)
before taxes

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Taxes
Net profit (loss) after
taxes
_________________________________________________________________
INSTRUCTIONS FOR INCOME PROJECTIONS STATEMENT

The income projections (profit and loss) statement is valuable as both a planning tool and
a key management tool to help control business operations. It enables the owner/manager
to develop a preview of the amount of income generated each month and for the business
year, based on reasonable predictions of monthly levels of sales, costs and expenses.
As monthly projections are developed and entered into the income projections statement,
they can serve as definite goals for controlling the business operation. As actual operating
results become known each month, they should be recorded for comparison with the
monthly projections. A completed income statement allows the owner/manager to
compare actual figures with monthly projections and to take steps to correct any
problems.

Industry Percentage

In the industry percentage column, enter the percentages of total sales (revenues) that are
standard for your industry, which are derived by dividing

Costs/expenses items x 100%

total net sales

These percentages can be obtained from various sources, such as trade associations,
accountants or banks. The reference librarian in your nearest public library can refer you
to documents that contain the percentage figures, for example, Robert Morris Associates'
Annual Statement Studies (One Liberty Place, Philadelphia, PA 19103).

Industry figures serve as a useful bench mark against which to compare cost and expense
estimates that you develop for your firm. Compare the figures in the industry percentage
column to those in the annual percentage column.

Total Net Sales (Revenues)

Determine the total number of units of products or services you realistically expect to sell
each month in each department at the prices you expect to get. Use this step to create the
projections to review your pricing practices.
What returns, allowances and markdowns can be expected?
Exclude any revenue that is not strictly related to the business.

Cost of Sales
The key to calculating your cost of sales is that you do not overlook any costs that you
have incurred. Calculate cost of sales of all products and services used to determine total
net sales. Where inventory is involved, do not overlook transportation costs. Also include
any direct labor.

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Gross Profit
Subtract the total cost of sales from the total net sales to obtain gross profit.

Gross Profit Margin

The gross profit is expressed as a percentage of total sales (revenues). It is calculated by
dividing gross profits
______________

total net sales

Controllable (also known as Variable) Expenses
Salary expenses-Base pay plus overtime.
Payroll expenses-Include paid vacations, sick leave, health insurance, unemployment
insurance and social security taxes.
Outside services-Include costs of subcontracts, overflow work and special or one-time
services.
Supplies-Services and items purchased for use in the business.
Repair and maintenance-Regular maintenance and repair, including periodic large
expenditures such as painting.
Advertising-Include desired sales volume and classified directory advertising expenses.
Car delivery and travel-Include charges if personal car is used in business, including
parking, tools, buying trips, etc.
Accounting and legal-Outside professional services.

Fixed Expenses
Rent-List only real estate used in business.
Depreciation-Amortization of capital assets.
Utilities-Water, heat, light, etc.
Insurance-Fire or liability on property or products.
Include workers' compensation.
Loan repayments-Interest on outstanding loans.
Miscellaneous-Unspecified; small expenditures without separate accounts.

Net Profit (loss)

(before taxes) - Subtract total expenses from gross profit.
Taxes - Include inventory and sales tax, excise tax, real estate tax, etc.

Net Profit (loss)

(after taxes) - Subtract taxes from net profit (before taxes)

Annual Total - For each of the sales and expense items in your income projection
statement, add all the monthly figures across the table and put the result in the annual
total column.

Annual Percentage - Calculate the annual percentage by dividing Annual total x 100%

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___________________
total net sales
Compare this figure to the industry percentage in the first column.
_________________________________________________________________
BALANCE SHEET
COMPANY NAME
As of ____________________________, 19____

Assets
Current assets
Cash P_______
Petty cash P_______
Accounts receivable P_______
Inventory P_______
Short-term investment P_______
Prepaid expenses P_______
Long-term investment P_______
Fixed assets
Land P_______
Buildings P_______
Improvements P_______
Equipment P_______
Furniture P_______
Automobile/vehicles P_______

Other assets
1. P_______
2. P_______
3. P_______
4. P_______

Total assets P______

Liabilities
Current Liabilities
Accounts payable P______
Notes payable P______
Interest payable P______

Taxes payable
Federal income tax P______
State income tax P______
Self-employment tax P______
Sales tax (SBE) P______
Property tax P______
Payroll accrual P______

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Long-term liabilities
Notes payable P______
Total liabilities P______
Net worth (owner equity) P______

Proprietorship or Partnership
(name's) equity P_____
(name's) equity P_____

or Corporation
Capital stock P_____
Surplus paid in P_____
Retained earnings P_____
Total net worth P_____

Total liabilities and total net worth P_____

(Total assets will always equal total liabilities and total net worth)
________________________________________________________________
INSTRUCTIONS FOR BALANCE SHEET
Figures used to compile the balance sheet are taken from the previous and current balance
sheet as well as the current income statement. The income statement is usually attached
to the balance sheet. The following text covers the essential elements of the balance
sheet.
At the top of the page fill in the legal name of the business, the type of statement and the
day, month and year.

Assets
List anything of value that is owned or legally due the business. Total assets include all
net values. These are the amounts derived when you subtract depreciation and
amortization from the original costs of acquiring the assets.

Current Assets
Cash-List cash and resources that can be converted into cash within 12 months of the date
of the balance sheet (or during one established cycle of operation). Include money on
hand and demand deposits in the bank, e.g., checking accounts and regular savings
accounts.

Petty cash-If your business has a fund for small miscellaneous expenditures, include the
total here.

Accounts receivable-The amounts due from customers in payment for merchandise or

services.

Inventory-Includes raw materials on hand, work in progress and all finished goods, either
manufactured or purchased for resale.

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Short-term investments-Also called temporary investments or marketable securities, these
include interest- or dividend-yielding holdings expected to be converted into cash within
a year. List stocks and bonds, certificates of deposit and time-deposit savings accounts at
either their cost or market value, whichever is less.
Prepaid expenses-Goods, benefits or services a business buys or rents in advance.
Examples are office supplies, insurance protection and floor space.

Long-term Investments
Also called long-term assets, these are holdings the business intends to keep for at least a
year and that typically yield interest or dividends. Included are stocks, bonds and savings
accounts earmarked for special purposes.

Fixed Assets
Also called plant and equipment. Includes all resources a business owns or acquires for
use in operations and not intended for resale. Fixed assets may be leased. Depending on
the leasing arrangements, both the value and the liability of the leased property may need
to be listed on the balance sheet.
Land-List original purchase price without allowances for market value.
Buildings
Improvements
Equipment
Furniture
Automobile/vehicles

Liabilities

Current Liabilities
List all debts, monetary obligations and claims payable within 12 months or within one
cycle of operation. Typically they include the following:
Accounts payable-Amounts owed to suppliers for goods and services purchased in
connection with business operations.
Notes payable-The balance of principal due to pay off short-term debt for borrowed
funds. Also includes the current amount due of total balance on notes whose terms
exceed 12 months.
Interest payable-Any accrued fees due for use of both short- and long-term borrowed
capital and credit extended to the business.
Taxes payable-Amounts estimated by an accountant to have been incurred during the
accounting period.
Payroll accrual-Salaries and wages currently owed.

Long-term Liabilities
Notes payable-List notes, contract payments or mortgage payments due over a period
exceeding 12 months or one cycle of operation. They are listed by outstanding balance
less the current position due.

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Net worth
Also called owner's equity, net worth is the claim of the owner(s) on the assets of the
business. In a proprietorship or partnership, equity is each owner's original investment
plus any earnings after withdrawals.

Total Liabilities and Net Worth

The sum of these two amounts must always match that for total assets.
___________________________________________________________

MONTHLY CASH FLOW PROJECTION

Name of Business Owner Type of Business Prepared by Date
Pre-start- 1 2 3 4 5 6 Total up position Columns 1-6
Year Month
Est.* Act.* Est.Act. Est.Act. Est.Act. Est.Act. Est.Act. Est.Act. Est.Act.

1. Cash on hand (beginning month)

2. Cash receipts
(a) Cash sales
(b) Collections from credit accounts
(c) Loan or other cash injections (specify)

3. Total cash receipts

(2a+2b+2c=3)

4. Total cash available

(before cash out) (1+3)

5. Cash paid out

(a) purchases (merchandise)
(b) Gross wages (excludes withdrawals)
(c) Payroll expenses (taxes, etc.)
(d) Outside services
(e) Supplies (office and operating)
(f) Repairs and maintenance
(g) Advertising
(h) Car, delivery and travel
(i) Accounting and legal
(j) Rent
(k) Telephone
(l) Utilities
(m) Insurance
(n) Taxes (real estate, etc.)
(o) Interest
(p) Other expenses (specify each)
(q) Miscellaneous (unspecified)

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(r) Subtotal
(s) Loan principal payment
(t) Capital purchases (specify)
(u) Other start-up costs
(v) Reserve and/or escrow (specify)
(w) Owner's withdrawal

6. Total cash paid out (5a through 5w)

7. Cash position (end of month) (4 minus 6)

Essential operating data (non-cash flow information)
A. Sales volume (dollars)
B. Accounts receivable (end on month)
C. Bad debt (end of month)
D. Inventory on hand (end of month)
E. Accounts payable (end of month)
_________________________________________________________________
INSTRUCTIONS FOR MONTHLY CASH FLOW PROJECTION
1. Cash on hand (beginning of month) -- Cash on hand same as (7), Cash position,
pervious month
2. Cash receipts-
(a) Cash sales-All cash sales. Omit credit sales unless cash is actually received
(b) Gross wages (including withdrawals)-- Amount to be expected from all accounts.
(c) Loan or other cash injection-Indicate here all cash injections not shown in 2(a) or 2(b)
above.
3. Total cash receipts (2a+2b+2c=3)
4. Total cash available (before cash out)(1+3)
5. Cash paid out -
(a) Purchases (merchandise)--Merchandise for resale or for use in product (paid for in
current month).
(b) Gross wages (including withdrawals)--Base pay plus overtime (if any)
(c) Payroll expenses (taxes, etc.)-- Include paid vacations, paid sick leave, health
insurance, unemployment insurance, (this might be 10 to 45% of 5(b))
(d) Outside services-This could include outside labor and/or material for specialized or
overflow work, including subcontracting
(e) Supplies (office and operating)--Items purchased for use in the business (not for
resale)
(f) Repairs and maintenance-Include periodic large expenditures such as painting or
decorating
(g) Advertising-This amount should be adequate to maintain sales volume
(h) Car, delivery and travel-If personal car is used, charge in this column, include parking
(i) Accounting and legal-Outside services, including, for example, bookkeeping
(j) Rent-Real estate only (See 5(p) for other rentals)
(k) Telephone
(l) Utilities-Water, heat, light and/or power

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(m) Insurance-Coverage on business property and products (fire, liability); also worker's
compensation, fidelity, etc. Exclude executive life (include in 5(w))
(n) Taxes (real estate, etc.)-- Plus inventory tax, sales tax, excise tax, if applicable
(o) Interest-Remember to add interest on loan as it is injected (See 2© above)
(p) Other expenses (specify each)
_______________________________________________
Unexpected expenditures may be included here as a safety factor__________________
Equipment expenses during the month should be included here (non-capital
equipment)____________________
When equipment is rented or leased, record payments here
(q) Miscellaneous (unspecified)--Small expenditures for which separate accounts would
be practical
(r) Subtotal-This subtotal indicates cash out for operating costs
(s) Loan principal payment-Include payment on all loans, including vehicle and
equipment purchases on time payment
(t) Capital purchases (specify)--Nonexpensed (depreciable) expenditures such as
equipment, building purchases on time payment
(u) Other start-up costs-Expenses incurred prior to first month projection and paid for
after start-up
(v) Reserve and/or escrow (specify)-- Example: insurance, tax or equipment escrow to
reduce impact of large periodic payments
(w) Owner's withdrawals-Should include payment for such things as owner's income tax,
social security, health insurance, executive life insurance premiums, etc.

6. Total cash paid out (5a through 5w)

7. Cash position (end on month) (4 minus 6)-- Enter this amount in (1) Cash on hand
following month-
Essential operating data (non-cash flow information)--This is basic information necessary
for proper planning and for proper cash flow projection. Also with this data, the cash
flow can be evolved and shown in the above form.
A. Sales volume (dollars)--This is a very important figure and should be estimated
carefully, taking into account size of facility and employee output as well as realistic
anticipated sales (actual sales, not orders received).
B. Accounts receivable (end of month)-- Previous unpaid credit sales plus current
month's credit sales, less amounts received current month (deduct "C" below)
C. Bad debt (end on month)-- Bad debts should be subtracted from (B) in the month
anticipated
D. Inventory on hand (end on month)-- Last month's inventory plus merchandise
received and/or manufactured current month minus amount sold current month
E. Accounts payable (end of month) Previous month's payable plus current month's
payable minus amount paid during month.
F. Depreciation-Established by your accountant, or value of all your equipment divided
by useful life (in months) as allowed by Internal Revenue Service

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 COMPILATION OF HOSPITAL INSTITUTIONAL
IMPROVEMENT INTERVENTIONS
Draft Only (27 December 2000)

PREPARED BY THE
HOSPITAL REFORMS TEAM
HEALTH SECTOR REFORM TECHNICAL ASSISTANCE PROJECT

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