The Medical Group (TMG) offers management services to doctors in the healthcare industry. This presents a unique opportunity for skilled individuals who are aware of and experienced in accessing the profitable segment of government health programs. TMG is organizing traditional physicians into a management services organization, allowing them to retain their walk-in patients, double their Medicare reimbursement for walk-in patients, and secure a contract with Medicare. TMG also provides managed care access to Medicare HMOs through these physicians. The company has a competitive advantage in the Southern Texas healthcare market due to its proprietary database of physicians with large walk-in patient bases and a 20-year management contract with a medical group comprised of leading physicians. Startup development costs will fund a 12-month initial development period, with profitability expected thereafter.
Contents
Company Summary
TMG was founded in July 1999 in Irving, Texas as a management service organization. It is a Texas Corporation with principal offices in Irving.
TMG’s mission is to help physicians access more managed care revenue. The company’s strategy is to leverage its alliance with Denton County’s leading group of doctors and its expertise in the healthcare industry, walk-in market, and managed care. TMG has also formed strategic alliances with medical centers, which provide support and infrastructure services. The only risk TMG faces is developmental delays, but the company has made conservative assumptions in its operational budget to mitigate this risk. TMG has obtained start-up capital and is developing a physician network for Medicare managed care revenues. Through three years of research, TMG has compiled a listing of all physicians in Texas and their walk-in patient volumes. This knowledge has allowed TMG to secure seed development capital from hospital systems. TMG plans to expand into additional counties and utilize the Internet for billing and operations. In 1993, the Texas State Department of Health Services initiated a process to convert a majority of medical recipients in the state into a healthcare environment. This government intervention, combined with changes in the Medicare Act, has created an opportunity for TMG to provide managed care access to doctors for individuals with both Medicare and Medical health benefits.
The managed care industry is vital to the healthcare delivery system of the United States. Its parts include payors (HMOs), physicians (managed care entities like IPAs and MSOs), hospitals, and other providers.
In Denton County, there are over 300,000 individuals with both Medicare and Medical coverage (walk-in). In the five Southern Texas Counties (Denton, Garland, Dallas, Plano, and Memphis), there are 330,000 walk-ins, and in the entire state, there are 650,000 walk-ins. Denton has 436,000 Medicare recipients. Currently, 17% of these recipients are in Medicare HMOs, and around 592,000 are not. About one-third (1/3) of the 592,000 are walk-ins. In Texas, there are 1.8 million Medicare recipients, with 27.22% currently in HMOs. That leaves 1.5 million Medicare members not in HMOs. Walk-ins make up one-third (1/3) of that total, or 650,000 eligible.
Customers and Target Markets
Doctors and the walk-in market
In Denton County, there are approximately 1.8 million medical recipients, of whom more than 200,000 are walk-in patients or individuals with both Medical and Medicare.
In Denton County alone, there are over 330 physicians with more than 100 walk-in patients in their practice base. This group, founded in the spring of 1999, has key officers who have walk-in patient levels exceeding 500.
Competitive Comparison
TMG does not believe there are any competitive threats to its development and penetration of the walk-in market in Southern Texas. This assessment is based on the following factors.
Competitive Edge
TMG has a significant competitive advantage over any entity attempting to penetrate the walk-in market.
– Extensive customer list
– Qualified management team
– In-depth industry knowledge
– Solid business partnerships
Strategy and Implementation Summary
The company plans to use the Internet as a primary marketing channel. The Internet is growing in importance for buying and selling a wide range of products, including medical services. According to International Data Corporation (IDC), aggregate Internet commerce across industries was estimated to be $32 billion in 1998 and is projected to reach $425 billion by 2002.
The Internet provides an easy way to gather information and shop for the best deals in terms of price and attributes. Consumers can read reviews, compare models, and find vehicles that meet their needs. They can view, search, and screen for prices, features, and other important information. For retailers, the Internet increases sales volume and reduces marketing, advertising, and personnel costs per sale.
| Sales Forecast | |||
| Year 1 | Year 2 | Year 3 | |
| Sales | |||
| Customers | $250,000 | $3,750,000 | $10,750,000 |
| Physician membership | $325,000 | $4,875,000 | $15,875,000 |
| Other services | $500,000 | $7,500,000 | $18,500,000 |
| Total Sales | $1,075,000 | $16,125,000 | $45,125,000 |
| Direct Cost of Sales | Year 1 | Year 2 | Year 3 |
| Customers | $33,330 | $500,000 | $1,102,564 |
| Physician membership | $0 | $0 | $0 |
| Other services | $66,670 | $1,000,000 | $1,897,436 |
| Subtotal Direct Cost of Sales | $100,000 | $1,500,000 | $3,000,000 |
6.1 Marketing Communications
The key message associated with TMG’s services is affordability and reliability. TMG believes it can achieve success through a new promotional plan. The company’s plan includes:
- Print advertising in the Irving News Express and the military newspaper distributed by Prime Time News.
- An online presence through the development of a professional website.
- Expansion of promotions into television advertising and the use of additional radio stations.
- Advertising in medical journals and local magazines dedicated to the medical industry.
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Management Summary
The company’s management philosophy is based on responsibility and mutual respect. TMG maintains an environment that encourages productivity, respect for customers and fellow employees, and creative independence. TMG’s management is highly experienced and qualified. Key members of TMG’s management teams, their backgrounds, and responsibilities are as follows.
Mr. Michael Johnson, President and CEO.
Note: Background has been removed for confidentiality.
Board of Advisors
TMG utilizes Mr. Johnson’s extensive contacts in the Southern Texas market for an Advisory Board. As TMG develops, additional healthcare delivery executives will be invited to participate in the Board of Advisors.
| Personnel Plan | |||
| Year 1 | Year 2 | Year 3 | |
| All Staff | $256,522 | $453,066 | $608,696 |
| Other | $0 | $0 | $0 |
| Total People | 7 | 9 | 13 |
| Total Payroll | $256,522 | $453,066 | $608,696 |
Financial Plan
The company is raising funding to complete development through Year 2 of operation.
8.1 Important Assumptions
The following table presents assumptions necessary to the success of TMG.
| General Assumptions | |||
| Year 1 | Year 2 | Year 3 | |
| Plan Month | 1 | 2 | 3 |
| Current Interest Rate | 10.00% | 10.00% | 10.00% |
| Long-term Interest Rate | 10.00% | 10.00% | 10.00% |
| Tax Rate | 25.42% | 25.00% | 25.42% |
| Other | 0 | 0 | 0 |
8.2 Break-even Analysis
The chart and table below outline the Break-even Analysis for TMG.
Break-even Analysis
Monthly Revenue Break-even: $69,700
Assumptions:
– Average Percent Variable Cost: 9%
– Estimated Monthly Fixed Cost: $63,217
8.3 Projected Profit and Loss
The company is in the early stage of development, so initial projections have only been made on accounts that drive the income statement the most.
The provided text can be revised as follows:
—–edited text—–
| Pro Forma Profit and Loss | |||
| Year 1 | Year 2 | Year 3 | |
| Sales | $1,075,000 | $16,125,000 | $45,125,000 |
| Direct Cost of Sales | $100,000 | $1,500,000 | $3,000,000 |
| Other | $38,000 | $570,000 | $600,000 |
| Total Cost of Sales | $138,000 | $2,070,000 | $3,600,000 |
| Gross Margin | $937,000 | $14,055,000 | $41,525,000 |
| Gross Margin % | 87.16% | 87.16% | 92.02% |
| Expenses | |||
| Payroll | $256,522 | $453,066 | $608,696 |
| Sales and Marketing and Other Expenses | $382,000 | $2,163,810 | $3,366,850 |
| Depreciation | $8,400 | $0 | $0 |
| Continued education | $36,000 | $517,500 | $575,500 |
| Utilities | $3,600 | $4,000 | $4,500 |
| Insurance | $9,600 | $20,000 | $25,000 |
| Rent | $24,000 | $25,000 | $25,000 |
| Payroll Taxes | $38,478 | $67,960 | $91,304 |
| Other | $0 | $0 | $0 |
| Total Operating Expenses | $758,600 | $3,251,336 | $4,696,850 |
| Profit Before Interest and Taxes | $178,400 | $10,803,664 | $36,828,150 |
| EBITDA | $186,800 | $10,803,664 | $36,828,150 |
| Interest Expense | $0 | $0 | $0 |
| Taxes Incurred | $42,564 | $2,700,916 | $9,360,488 |
| Net Profit | $135,835 | $8,102,748 | $27,467,662 |
| Net Profit/Sales | 12.64% | 50.25% | 60.87% |
8.4 Projected Cash Flow
The cash flow projections are presented in the chart and table below.
—–end of edited text—–
Pro Forma Cash Flow Review:
| Pro Forma Cash Flow | |||
| Year 1 | Year 2 | Year 3 | |
| Cash Received | |||
| Cash from Operations | |||
| Cash Sales | $0 | $0 | $0 |
| Cash from Receivables | $868,500 | $13,234,000 | $39,554,302 |
| Subtotal Cash from Operations | $868,500 | $13,234,000 | $39,554,302 |
| Additional Cash Received | |||
| Sales Tax, VAT, HST/GST Received | $0 | $0 | $0 |
| New Current Borrowing | $0 | $0 | $0 |
| New Other Liabilities (interest-free) | $0 | $0 | $0 |
| New Long-term Liabilities | $0 | $0 | $0 |
| Sales of Other Current Assets | $0 | $0 | $0 |
| Sales of Long-term Assets | $0 | $0 | $0 |
| New Investment Received | $500,000 | $0 | $0 |
| Subtotal Cash Received | $1,368,500 | $13,234,000 | $39,554,302 |
| Expenditures | Year 1 | Year 2 | Year 3 |
| Expenditures from Operations | |||
| Cash Spending | $256,522 | $453,066 | $608,696 |
| Bill Payments | $616,643 | $7,004,661 | $16,269,509 |
| Subtotal Spent on Operations | $873,165 | $7,457,727 | $16,878,205 |
| Additional Cash Spent | |||
| Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 |
| Principal Repayment of Current Borrowing | $0 | $0 | $0 |
| Other Liabilities Principal Repayment | $0 | $0 | $0 |
| Long-term Liabilities Principal Repayment | $0 | $0 | $0 |
| Purchase Other Current Assets | $0 | $0 | $0 |
| Purchase Long-term Assets | $500,000 | $2,000,000 | $8,000,000 |
| Dividends | $0 | $0 | $0 |
| Subtotal Cash Spent | $1,373,165 | $9,457,727 | $24,878,205 |
| Net Cash Flow | ($4,665) | $3,776,273 | $14,676,097 |
| Cash Balance | $245,335 | $4,021,608 | $18,697,706 |
8.5 Projected Balance Sheet Review:
Projected Balance Sheet
The table below provides TMG’s projected balance sheet for 2000-2002.
| Pro Forma Balance Sheet | |||
| Year 1 | Year 2 | Year 3 | |
| Assets | |||
| Current Assets | |||
| Cash | $245,335 | $4,021,608 | $18,697,706 |
| Accounts Receivable | $206,500 | $3,097,500 | $8,668,198 |
| Other Current Assets | $5,000 | $5,000 | $5,000 |
| Total Current Assets | $456,835 | $7,124,108 | $27,370,903 |
| Long-term Assets | |||
| Long-term Assets | $500,000 | $2,500,000 | $10,500,000 |
| Accumulated Depreciation | $8,400 | $8,400 | $8,400 |
| Total Long-term Assets | $491,600 | $2,491,600 | $10,491,600 |
| Total Assets | $948,435 | $9,615,708 | $37,862,503 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 |
| Current Liabilities | |||
| Accounts Payable | $57,599 | $622,125 | $1,401,258 |
| Current Borrowing | $0 | $0 | $0 |
| Other Current Liabilities | $0 | $0 | $0 |
| Subtotal Current Liabilities | $57,599 | $622,125 | $1,401,258 |
| Long-term Liabilities | $0 | $0 | $0 |
| Total Liabilities | $57,599 | $622,125 | $1,401,258 |
| Paid-in Capital | $850,000 | $850,000 | $850,000 |
| Retained Earnings | ($95,000) | $40,835 | $8,143,584 |
| Earnings | $135,835 | $8,102,748 | $27,467,662 |
| Total Capital | $890,835 | $8,993,584 | $36,461,245 |
| Total Liabilities and Capital | $948,435 | $9,615,708 | $37,862,503 |
| Net Worth | $890,835 | $8,993,584 | $36,461,245 |
8.6 Business Ratios Review:
Business Ratios
The following table contains important business ratios for the offices and clinics of medical doctors industry, as determined by the Standard Industry Classification (SIC) Index code 8011, Offices & Clinics of Medical Doctors.
| Ratio Analysis | ||||
| Year 1 | Year 2 | Year 3 | Industry Profile | |
| Sales Growth | 0.00% | 1400.00% | 179.84% | 5.90% |
| Percent of Total Assets | ||||
| Accounts Receivable | 21.77% | 32.21% | 22.89% | 10.00% |
| Other Current Assets | 0.53% | 0.05% | 0.01% | 50.50% |
| Total Current Assets | 48.17% | 74.09% | 72.29% | 60.80% |
| Long-term Assets | 51.83% | 25.91% | 27.71% | 39.20% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 6.07% | 6.47% | 3.70% | 39.80% |
| Long-term Liabilities | 0.00% | 0.00% | 0.00% | 14.10% |
| Total Liabilities | 6.07% | 6.47% | 3.70% | 53.90% |
| Net Worth | 93.93% | 93.53% | 96.30% | 46.10% |
| Percent of Sales | ||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 87.16% | 87.16% | 92.02% | 0.00% |
| Selling, General & Administrative Expenses | 74.72% | 36.91% | 30.81% | 57.10% |
| Advertising Expenses | 6.14% | 6.05% | 2.77% | 0.40% |
| Profit Before Interest and Taxes | 16.60% | 67.00% | 81.61% | 2.00% |
| Main Ratios | ||||
| Current | 7.93 | 11.45 | 19.53 | 1.37 |
| Quick | 7.93 | 11.45 | 19.53 | 1.12 |
| Total Debt to Total Assets | 6.07% | 6.47% | 3.70% | 53.90% |
| Pre-tax Return on Net Worth | 20.03% | 120.13% | 101.01% | 6.90% |
| Pre-tax Return on Assets | 18.81% | 112.35% | 97.27% | 15.00% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | |
| Net Profit Margin | 12.64% | 50.25% | 60.87% | n.a |
| Return on Equity | 15.25% | 90.09% | 75.33% | n.a |
| Activity Ratios | ||||
| Accounts Receivable Turnover | 5.21 | 5.21 | 5.21 | n.a |
| Collection Days | 57 | 37 | 48 | n.a |
| Accounts Payable Turnover | 11.71 | 12.17 | 12.17 | n.a |
| Payment Days | 27 | 16 | 22 | n.a |
| Total Asset Turnover | 1.13 | 1.68 | 1.19 | n.a |
| Debt Ratios | ||||
| Debt to Net Worth | 0.06 | 0.07 | 0.04 | n.a |
| Current Liab. to Liab. | 1.00 | 1.00 | 1.00 | n.a |
| Liquidity Ratios | ||||
| Net Working Capital | $399,235 | $6,501,984 | $25,969,645 | n.a |
| Interest Coverage | 0.00 | 0.00 | 0.00 | n.a |
| Additional Ratios | ||||
| Assets to Sales | 0.88 | 0.60 | 0.84 | n.a |
| Current Debt/Total Assets | 6% | 6% | 4% | n.a |
| Acid Test | 4.35 | 6.47 | 13.35 | n.a |
| Sales/Net Worth | 1.21 | 1.79 | 1.24 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |
Appendix
| Sales Forecast | |||||||||||||
| Month 1 | Month 2 | Month 3 | Month 4 | Month 5 | Month 6 | Month 7 | Month 8 | Month 9 | Month 10 | Month 11 | Month 12 | ||
| Sales | |||||||||||||
| Customers | 0% | $10,000 | $10,000 | $15,000 | $15,000 | $25,000 | $25,000 | $25,000 | $25,000 | $25,000 | $25,000 | $25,000 | $25,000 |
| Physician membership | 0% | $10,000 | $15,000 | $30,000 | $30,000 | $30,000 | $30,000 | $30,000 | $30,000 | $30,000 | $30,000 | $30,000 | $30,000 |
| Other services | 0% | $15,000 | $20,000 | $25,000 | $40,000 | $50,000 | $50,000 | $50,000 | $50,000 | $50,000 | $50,000 | ||
| General Assumptions | |||||||||||||
| 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | ||
| Plan Month | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | |
| Current Interest Rate | 10.00% | 10.00% | 10.00% | 10.00% | 10.00% | 10.00% | 10.00% | 10.00% | 10.00% | 10.00% | 10.00% | 10.00% | |
| Long-term Interest Rate | 10.00% | 10.00% | 10.00% | 10.00% | 10.00% | 10.00% | 10.00% | 10.00% | 10.00% | 10.00% | 10.00% | 10.00% | |
| Tax Rate | 30.00% | 25.00% | 25.00% | 25.00% | 25.00% | 25.00% | 25.00% | 25.00% | 25.00% | 25.00% | 25.00% | 25.00% | |
| Other | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | |
| Pro Forma Profit and Loss | |||||||||||||
| Month 1 | Month 2 | Month 3 | Month 4 | Month 5 | Month 6 | Month 7 | Month 8 | Month 9 | Month 10 | Month 11 | Month 12 | ||
| Sales | $35,000 | $45,000 | $70,000 | $85,000 | $105,000 | $105,000 | $105,000 | $105,000 | $105,000 | $105,000 | $105,000 | $105,000 | |
| Direct Cost of Sales | $3,333 | $4,000 | $5,333 | $7,334 | $10,000 | $10,000 | $10,000 | $10,000 | $10,000 | $10,000 | $10,000 | $10,000 | |
| Other | $2,500 | $2,500 | $2,500 | $2,500 | $3,500 | $3,500 | $3,500 | $3,500 | $3,500 | $3,500 | $3,500 | $3,500 | |
| Total Cost of Sales | $5,833 | $6,500 | $7,833 | $9,834 | $13,500 | $13,500 | $13,500 | $13,500 | $13,500 | $13,500 | $13,500 | $13,500 | |
| Gross Margin | $29,167 | $38,500 | $62,167 | $75,166 | $91,500 | $91,500 | $91,500 | $91,500 | $91,500 | $91,500 | $91,500 | $91,500 | |
| Gross Margin % | 83.33% | 85.56% | 88.81% | 88.43% | 87.14% | 87.14% | 87.14% | 87.14% | 87.14% | 87.14% | 87.14% | 87.14% | |
| Pro Forma Cash Flow: | |||||||||||||
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