The business concept of Helpful Health Care Consultants, LLC proves to be a feasible investment opportunity. According to Patti (2009, para. 1), it is paramount for firms in the healthcare industry to integrate the concept of benchmarking. Benchmarking involves a method of measuring the performance of a firm within the industry. This can be attained by conducting an analysis of the current and historical data in relation to the firm’s competitors and other industry leaders. Through benchmarking a firm is able to formulate effective strategies and other healthcare projections. In the United States, all firms in the healthcare industry are required to integrate the Best Practice (BP) standards. The standards enable the firms to increase efficiency, reduce the cost of operation and enhance the quality of service provision. In the healthcare industry, there are a number of benchmarking services that are integrated into evaluating industry performance by considering various elements. For instance, about financial performance, organizational benchmarks are formulated by considering the key regional competitors and industry leaders. In the United States, American Healthcare Solutions have effectively integrated the benchmarking concept in its operation (Patti, 2009, Para. 3).
Pro-forma income statement
Due to the high growth potential of the healthcare industry, the firm’s management team has made a projection in relation to the firm’s future growth. The table below illustrates the firm’s projected Pro-forma income statement for the first three years of its operation.
|Items||Year 1 |
Amount in $
|Year 2 |
Amount in $
|Year 3 |
Amount in $
|Total receipts from consultancy||750,600||800,000||900,000|
|Direct sales cost||200,000||190,000||210,000|
|Another cost of sales||50,000||64,000||69,000|
|Sales total cost||250,000||254,000||279,000|
|Gross margin 500,000 546,000 621,000|
|Gross margin in %||66.62%||68.25%||69%|
Cost of labor
|Cost of promotion||150,920||160,000||165,000|
|Cost of premises depreciation||42,300||45,000||48,000|
|Total operating expense||399,620||406,400||433,400|
|Profit before interest & tax||100,380||139,600||187,600|
|Earning before, interest, tax & depreciation allowance.||70,000||240,000||245,000|
|Cost of interest expense||10,000||8,000||5,500|
|Cost of tax||7,500||50,000||55,000|
Projected cash flow
In its operation, the firm’s management team has projected a positive cash flow. However, the first year of its operation will be characterized by a fluctuation in its level of profit which will culminate into negative cash flows. This trend is expected to be reversed in the future with the firm experiencing an increment in its profit level and hence the cash flow.
|Item||Year 1||Year 2||Year 3|
|Cash from receivables||150,000||200,000||250,000|
|Total from cash operations||620,000||850,000||940,000|
|Other cash received|
|Sales tax& VAT received||40,000||52,000||55,000|
|Total cash received||667,000||902,000||995,000|
|Expenditures Operation expense|
|Payment on bill||630,500||570,500||640,000|
|Total on operation||710,500||660,500||Another|
|Other cash spending|
|Sales tax & VAT paid||0||0||0|
|Principal paid on current borrowing||7,000||0||0|
|Additional liabilities on principal payment||0||0||0|
|Principal payment –long term liabilities||22,500||23,000||24,000|
|Purchases on other |
|Purchase of other long term assets||0||0||0|
|Total cash spent||740,000||683,500||764,000|
|Net cash flow||(73,000)||218,500||231,000|
In its operation, the firm will also incur a considerable cost in remunerating its human capital. It is expected that the personnel cost will increase across the 1st to 3rd year. This will result from an increased commitment by the firm’s management team to motivate its staff through good remuneration packages. The table below illustrates the forecasted personnel costs.
|Year 1 |
Amount in $
|Year 2 |
Amount in $
|Year 3 |
Amount in $
|Total expected payroll||195,000||223,000||230,000|
Forces that determine the profitability of the industry
According to Porter (1980, p. 35), the profitability of a given firm is affected by the industry structure which is determined by external forces. The profitability of firms in the healthcare industry is affected by the external environment. For instance, an increment in the rate of technological growth is greatly contributing toward the industry growth. This is because growth in information technology is enhancing the efficiency with which healthcare consulting firms are executing their duties.
The profitability of the industry is also determined by the extent to which firms in this industry have incorporated the concept of value addition through innovation. Innovation plays a significant role in ensuring that healthcare customers attain their desired utility levels (Ireland, 2008, p.56). Firms that are innovative in their operation are at a high chance of attaining a high level of profitability.
In addition, the profitability of firms in the healthcare industry is affected by the extent to which the firms have integrated strategic management in their operation. Strategic management enables the firms to be proactive in implementing changes that occur in the environment (Hagland, 1996, p2).
Challenges facing the industry in its operation
Currently, the healthcare industry is being faced with an increment in the degree of competitiveness. This results from the fact that more investors are venturing into the industry due to its profit potential. Porter(1980, p. 35) asserts that as more investors enter the industry, the degree of rivalry increases culminating in a reduction in its profit potential as firms compete to gain a high market share. In addition, the industry’s profitability is being affected by an increment in the number of mergers and acquisitions being formed. The large healthcare consulting firms are acquiring the smaller firms in an effort to position themselves more optimally.
The global economy is also presenting a challenge to the firm. Despite the increased health-conscious nature of the consumers, demand for healthcare is declining due to the effects of the financial crisis. This is associated with the fact that the consumer’s purchasing power is reducing. The global economic crisis also presents a challenge to the survival of the healthcare industry. This is due to the fact that the crisis has resulted in a reduction in credit availability from financial institutions.
In addition, the legal environment is negatively impacting the healthcare industry due to its volatile nature. Various governments such as the US are undertaking the reconstruction of their healthcare systems. This poses a risk in the operation of firms in the healthcare industry.
The growth of the firm is an important element in ensuring that the firm survives in an environment characterized by intense competition. To be able to survive in the long term as a going concern entity, the firm will consider integrating the Greenfield investment concept. This will entail the firm establishing outlets in different geographical areas in the US. As a result, the firm will be able to cover a wide market.
The firm’s growth strategy will also entail the incorporation of the concept of internationalization. Internationalization will be achieved through integrating electronic commerce. This will be possible since the firm will be dealing with digital products.
Hagland, M. (1996). Eight critical success factors will help your healthcare business. Web.
Ireland, R. (2008). Entrepreneurship: Successfully launching new ventures. Upper Saddle River, NJ: Pearson Prentice Hall.
Patti, M. (2009).American Healthcare Solution. Web.
Porter, M. (1980).Industry structure and competitive strategy: keys to profitability. New York: The Free Press.