Financial Plan

Key Assumptions

Pass 2 is now uploaded to the Google Drive and ready to go for writing the narrative. I set the revenue growth to hit $6 million after 5 years. This amount represents getting just 20% of KP’s slow payers. I think this is reasonable and conservative, because it doesn’t even factor in contracting with more hospitals, which we would do as long as we are successful in demonstrating our value. The number of patients we will be serving calculates out to about 3 patients per advocate per hour, which I think is also reasonable. The ones we visit with in person will be slower, but there will be some that are quick calls, so it all evens out. I’m assuming we add 1 advocate per quarter after the first year in line with Nikkia’s proposal form the operating plan.

We are showing a loss in the first year, which is good. The professor mentioned that she would expect that. We run out of cash about 6 months in, so I took the professor up on her offer to allow us to explore another investment option. I’ve outlined some additional info on the convertible note option below. Right now I’m showing $100K additional, but we can always play with that as needed. On the bright side, we are net cash positive by the end of Year 2, and would have enough cash to payoff the convertible note in Year 3 if needed.

Below is a chart showing the key assumptions I made in preparing the financial plan and the sources I used. If you don’t see an assumption added here, that means it came straight out of our paper, or I used the default recommended assumption suggested by PlanningShop, the company that made the Excel workbook for our class. This information should help as you write up the narratives.

As noted in the Professor’s Week 6 announcement, “In the rubric it will tell you if/where you need to embed full statements, or a summary table, or whether any of the statements for multiple years need to be in the Appendix.The Excel file will not be part of your final business plan submission but I do need to see it in Week 6 to make sure items are entered in the correct place and nothing has been overlooked that would make your financials less accurate.” Please keep this in mind when writing your sections. Thanks! ~Gannon

Tab

Assumption

Source

Setup

$6,846 in benefits per full-time employee, $3,243 per part-time employee

https://www.peoplekeep.com/blog/the-average-cost-of-health-insurance-for-small-business-in-2017-study

Setup

5% growth in benefit costs

https://www.kiplinger.com/article/insurance/T027-C001-S003-cost-of-employer-health-coverage-to-rise-in-2019.html

Setup

3% annual growth in salaries

Management decision

SalesProj

6.5% monthly growth in sales

The 6.5% monthly growth in sales gets us to the $6 million projection after 5 years. That $6 million mark represents convincing KP to divert just 20% of their problem payers our way. If we are successful in demonstrating our value, we can certainly gain the business of other hospitals, so just showing the KP portion is very conservative and supportable.

SalesProj

0% commissions

0% cost of goods sold

Our employees will be salary, so we will not be paying commissions or other per unit costs on each incident

SalesProj

3% returns (refunds) rate

Presuming we will have some disputes that will result in issuing a refund to the hospital. Used SaaS industry as an example: https://www.quora.com/What-is-the-average-refund-rate-for-SaaS-products

ProSvs

Average tax preparation cost for a partnership is $800

ProSvs

Attorney costs will be higher in the first year to draft our LLC agreements

https://www.upcounsel.com/small-business-lawyer-cost

ProSvs

Assuming consulting, specialists and technology will be in-house, given the background of our founders

N/A

MktBudj

I didn’t see any dollar amounts projected in our marketing analysis, so I just input some numbers based on my experience and a helpful website. Since we will be leveraging the existing relationships with between hospitals and our founders, I figured most of our marketing efforts would be at trade shows where all the doctors and hospital representatives would be easy to network with.

https://www.psprint.com/resources/brochure-flyer-marketing-budget/

StaffBudj

I have the CEO on the management line and the other founder/advocates on the operations line. The additional hires that Nikkia outlined in the operation plan are located on the admin line. I just assumed we hire one additional person per quarter in the 2nd year.

N/A

IncSt

Business insurance – went on the higher end at $1,000 a month since we may have patients visiting the office or have advocates out driving around to patients – that increases the risk

https://www.trustedchoice.com/business-insurance/compare-coverage/cost/

IncSt

Utilities – assuming $2 per square foot

https://www.buildings.com/article-details/articleid/16749/title/utility-expenses-decrease-across-u-s-

CshFlw

Cash payments for taxes do not start until Year 3 due to the tax loss carryforward from Year 1.

https://corporatefinanceinstitute.com/resources/knowledge/modeling/nol-tax-loss-carryforward/

CapInvest

This shows the $300K from the professor, and an additional $100K via a SAFE convertible note that we will pickup from a venture capital firm through Y-Combinator in San Fran. The professor has already agreed to this plan. She seemed to support that we can even go higher if we need to, but right now it looks like just an additional $100K would keep us cash positive with a bit of cushion. Can adjust if needed.

https://www.ycombinator.com/documents/

Excel File Questions/Changes

Please note any errors or requested changes to the financial plan here.

Tab in Spreadsheet

Requested by

Question or Requested Change

Gannon’s Reply

Startup Funding (Alden)

Ensure that your requested capital is enough to handle your start-up costs and reserves to ensure business viability. Minimum of $300K start up capital (with $100K from the team and $200K from outside investors) is required. Up to $600K should be cleared with the instructor. You can request a loan or private equity investment (one or the other) but the plan must be written with the proper audience stated and in mind.

For every start-up the succeeds there are hundreds that run out of cash during the first year causing the demise of the project (Tobak, 2014). H3A founders are in the position to provide the first $100,000 of funding to help start the company. The company is also looking at another $200,000 from our primary investor Professor Anne Hallcom. In addition to the funds provided by the founders and the primary investor, H3A will apply for a $100,000 convertible note to supplement the business plan. The initial debt will provide additional funds as a small business loan. The company’s founders believe the that the total amount of $400,000 will be sufficient to capital to begin providing exceptional service to our patients and provide a significant return on investment for our partner hospitals and providers.

Use of Funds (Alden)

Describe how you plan to use the startup requirements in detail providing a start-up budget which includes all initial capital expenditures, build-out and start-up expenses. The details must be realistic and well researched. Data that does not make sense will cost you points. In other words, if you are starting a restaurant and your remodeling startup costs are $5,000, you would be penalized, since that amount is unrealistic.

Funds raised will be put into immediate use towards any fixed costs and variable costs to begin a new business. These cost include expenses such as creating a Limited Liability Corporation, insurance, office space, furniture and technology. Monthly expenses will also be accounted for such as salaries for the founders, utilities such as telephone servicies and Internet services,

Sales Forecast (Ilham)

Your worksheet work here will be the underpinning of how you create your forecast. Units, dollars and assumptions are critical. All other statements build on these numbers. Create the sales forecast in a narrative based on what your worksheets show you after you have completed them. (Remember, you don’t submit the spreadsheet created using our course financial software, so restate important numbers in the form of charts, tables or excerpts from the SalesProj tab in your spreadsheet.) Your forecast is the description of the units you plan to sell, the services (amount of them) you plan to provide, and your growth projections of these numbers. Document all assumptions, and provide external source information for all assertions.

Cash Flow (Nikkia)

Because cash is critical in the first year, a monthly cash flow for year 1 is required (place in the appendix.) Remember that cash flow is your solvency check and balance. Summarize your projections by including a yearly cash flow table. Explain how your cash flow will impact the ability of your business to expand, succeed, grow, and support your growth. Provide an annual summary of the cash flow (receipts and disbursements) here. Document all assumptions, and provide source information for all assertions.

Balance Sheet (Ilham)

Provide the end of year 5 balance sheet to show your company’s net worth and financial position at the end of the 5-year plan.

Income Statement (Kameshia)

Your income statement is a narrative explanation of your projected pro-formas. Include the detailed statements in your Appendix, and then list the annual estimates in a table format in your plan. Explain how your income and expenses will contribute to your P&L and your net income. Your growth factor should be shown and explained (justified) as well. Document all assumptions, and provide source information for all assertions.

Break-Even Analysis (Nikkia)

Include a graphical representation that shows when your company will start making a profit.

Valuation After 5 Years (Kameshia)

Calculated at the end of year 5 using one of the models described in the lecture or some other generally accepted valuation method, explained and provided in the plan.

Exit Strategy (John)

Address your early termination plans as well as your vision for the business at the end of year 5. The exit strategy takes into account business Return on Investment (ROI.) It will also look at the rate of return you are offering your investors, if you have them. Private equity, or venture capital projects, should include both in the exit strategy. Lender-based projects do not require a rate of return but should include the ROI. You need to review the lecture in the Financial Plan for various methods of exiting the business.

Reference

Tobak, S. (2014, January 31). 9 Reasons Why Most Startups Fail. Retrieved from https://www.entrepreneur.com/article/231129