All Care Home Health Agency Cash Budget

A cash budget is a detailed projection of upcoming cash flows for a given organization. It is comprised of four elements: cash disbursement, cash receipts, cash net change for the period of operation, and new financing required. All-Care Home Health Agency (ACHHA) has incorporated Brooklyn, New York a few years ago as an agency for the elderly persons. The institution is committed to providing client-centered and high-quality care services to our elderly clients, and assist them to live an independent and dignified life. In contrast with other legacy and start-up agencies that have been struggling or have sought bankruptcy protection under Chapter 11, All-Care Home agency has been operating in the black since inception.

At present, home health agency offers in-home care facilities from professional nursing care to companion care. In addition, All-Care Home Health Agency offers services for CAP/DA, CAP/C, and Veterans program. In this report, seven statements of financial positions based on the fiscal year 2017 with the suggestions to improve operations will be prepared. The seven statements include Expected Cash Collections Budget, Operating Expenses Budget, Cash Budget, Pro-forma Statement of Operations, Pro-forma Statement of Stockholders’ Equity, Pro-forma Balance Sheet, and Proforma Statement of Cash Flows (McKinney & Kolber 2016).

Expected cash collections budget

In the expected cash collection budget, this study chooses a number of factors including, the ever-increasing demand, technological advancements, political pressure, and inadequacy of qualified personal health care regulation difficult in staff retention, stiff completion and high rates of debt. The sum expected cash flow budget for every month is $250,000.

Operating expenses.

In operating expenditure budget, the report chooses six factors, including high staff salaries, increasing taxes on health facilities, economic fluctuation on surplus and transport services, the escalating debt and increasing rent rates. The total operating expenses budget ($60000 + 55000+50% of $250,000)

Cash Budget

In the cash budget, there are two categories, which are cash receipts and cash disbursements.

The beginning cash balance in January is $97,950,000.00. It will add the value of all cash receipts and then subtract the value of all cash disbursements. Cash receipts are mainly calculated from expected cash collections budget. Cash disbursements are related to all operating, financing, and investing disbursements, which are aircraft fuel, salaries and related costs, contract carrier arrangements, contracted services, passenger commissions, landing fees and other rents, aircraft maintenance, passenger service, other costs, income tax, accrued salaries and related benefits, other accrued liabilities, short-term investments, long-term debt from balance sheet, 18M long-term debt, interest expense, dividends, prepayments, account payable, and purchase of equipment.

TABLE 1

All-Care Home Health Agency.

Cash Budget for Five Months

Ended September 2017

Worksheet Jan. Feb. Mar. Apr. May June July Aug. Sept. 0ct. Nov.

Revenues $650,000 $680,000 $700,000 $700,000 $780,000 $820,000 $900,000 $950,000 $840,000 $750,000 $720,000

Collections:

First month (40%) 280,000 312,000 328,000 360,000 380,000 336,000

Second month (30%) 210,000 234,000 246,000 270,000 285,000 252,000

Third month (25%) 175,000 195,000 205,000 225,000 237,500 210,000

Total $665,000 741,000 779,000 885,000 902,000 798,600

Supplies & Travel $39,000 $42,000 46,800 49,200 54,000 57,000 50,400

5% billed revenue $13,000 $14,000 16,600 16,400 18,000 19,000 16,800

Cash receipts:

Collections $665,000 741,000 779,000 885,000 902,000 798,600

Cash disbursements:

Purchases $42,000 $46,800 $49,200 $54,000 $77,000 $50,400

Wages and salaries $200,000 216,000 224,000 240,000 250,000 228,000

Rent, utilities & miscellaneous expenses $55,000 55,000 55,000 55,000 55,000 55,000

Loan repayment ($250,000 long-term debt due May) $250,000

Total disbursements: $297,000 567,000 328,200 349,000 382,000 128,200

Plus: Beginning capital balance 2800,000 312,000 328,000 3600,000 380,000 336,000

Equals: Ending capital balance—no borrowing 12,750 (26,350) (19,500) (10,800) (1000) 27,900

Financing needed - 36,350 29,500 20,700 10,500 (17,900)

Ending capital balance $12,750 10,000 10,000 10,000 10,000 10,000

Cumulative borrowing - 65,500 86,600 97,500 79,800

Flexible versus fixed budgets.

The above-documented cash budget of All-Care Home Health is fixed cash budget. Cash flow appraisals are prepared for a distinct set of recurrent revenue estimates. Therefore, expense estimates and new financing required are only significant for specific levels of revenue. To prevent this limitation from re-occurring, various corresponding budgets of different revenue estimates are made (McKinney & Kolber 2016). Such type of flexible budget satisfies two fundamental necessities. Firstly, it provides statistics regarding possible firm’s financial requirement. In addition, it acts as reference budget for comparison measure of the subordinates’ performance on their revenue and cost responsibilities

Budget Period

During the determination of budgeting period, no rule is applicable. Although, as a well-known administer it should be sufficiently long to uncover the impact of administrative controls, however, sufficiently very short gauges can be made with reasonable exactness. Influencing utilization of this dependable guideline to the agency example in work area 1, it creates the impression that the half year value run term is too short, in that regardless of whether they consider tasks of the organization might be a hit over the moving toward financial year isn’t perceived; this is, for a large portion of the essential half year length the firm is running with a money skim deficiency (McKinney & Kolber 2016). In the event that this doesn’t turn around inside the last a half year of the period, at that point a reconsideration of the association’s designs and controls is truly altogether.

Longer-assortment spending plans additionally are set up in the state of the capital-consumption value go. This accounts subtle elements the company gets ready for securing plant and gadget over a 5-year, 10-yr, or significantly longer length. Besides, enterprises often expand exhaustive long assortment designs reaching out up to 10 years into the predetermination. Those plans are generally no longer as exceptional as the yearly money value go. However, they do recall such overwhelming parts as salary, capital consumption new-item change, capital assets procurement, and business needs.

Strategies for improving the company cash position

1. Fine-tune and re-evaluate the pricing of the agency services.

Occasionally, managements are often concerned with the possible outcome of increasing values and prices on their products and services. Although, it is significant to test and find out the possible market bear and outcomes of increasing prices instead of preconceived conclusions. When organizations increase prices on their products and service, their general previewed value also rise in the market. Customers and investors who maybe were not utilizing the services will be more inclined to utilize them in case they desire high quality and effective services. Affordable prices are never taken seriously but too much pricing will make an institution lose potential customers to their competitors. Therefore, there exist a variety of margins to be considered, then establish economical pricing to both customers and the company- but not too low, which will help boost and improve the organization cash flow.

2. Replace old inventory and equipment.

Old equipment occupies large space although they are slow and inefficient in operation. to boot. For instance, printing devices often become incompatible and outdated with the modern technological advancements quickly. With many enterprises migrating from desktop storage devices to personal laptops, and further to mobile gadgets, the process of replacement is often frustrating. Therefore, managing, retaining and repairing various models and brands are expensive, because each model and brand require specific ink cartridges or proprietary toner. In addition, there is an escalating need for employee training on specific usage and maintenance procedures for every new machine purchased. Hence, leasing devices are considered to be cost-effective since there is the availability of latest technologies at your disposal – the newer the technological devices, the more power efficient the devices. Thus, it is advisable to replace or entirely eliminate old equipment. However, dealing with either equipment or inventory, obsolete, not work to provide space for the new ones. Selling the old equipment is also another way of boosting company cash flow and taxable gains. Inventory management system should be comprehensively updated so as to keep track on the condition of the available inventories and equipment.

3. Re-negotiate long-term contracts.

Most companies utilize a variety of tools and equipment to ensure the smooth running of their operations. These tools and equipment are often supplied by long-term service providers who are bound to a given contract. Although with service provider organization where there is an already established rapport, there exists a possible opportunity of re-negotiating the existing contracts. If you have established potential companies that can be retained over a long time, the management is advised to approach them with a fresh and more cost-effective agreement. Variety of companies are often willing to operate with a potential long-term customer since there is an automatic renewal of monthly contracts. Therefore, the company cash flow can be improved by terminating all the unrequired services.

4. Create early payment incentives and late payments penalties.

For a variety of companies, invoicing is a tedious process that occasionally requires various approaches to manage. In situations where it is difficult to maintain. If you discover it tough to preserve your customers responsible and detest having to comply with the past due in disbursing, you can establish a significant moment of implementing specific penalties and incentives program.

For example, reductions can be carried out to any bank account paid on time or early, and hobby maybe brought to some bill that has been disregarded for a long time. Those movements always inspire clients and make them transact their payments thus significantly enhancing the company’s cash flow position. Therefore, the organization will encounter multiple benefits since the customers will not pay on time or early but also the organization will save on the cost incurred for constant confirmation of payments.

Pro-Forma Statement of Operation

The subsequent stage of a budgeting process embroils preparation of pro-forma statement of the financial operation illustrating the outcome operation of the planning period. All-Care Home Health Agency financial information is used in demonstrating the balance sheet and income statement pro forma. In order to achieve this, the agency cash budget, initial balance sheet which depicts the firm’s financial condition at the beginning of the financial period. In the proforma statement of operations, there are mainly three parts, including operating revenue, operating expense, and other income or expense. Total operating revenue is $47,706,000, and total operating expense is $2,051,400.

TABLE 2

All-Care Home Health Agency.

Balance Sheet

September 31, 2017

Assets

Current assets

Cash $260,000

Accounts receivable $ 47,706,000

Inventories 338,400

Total current assets $48,304,400

Fixed assets

Net firm and equipment 160,000

Total assets $48,464,400

Liabilities and Owners’ Equity

Current liabilities

Accounts payable $ 2,051,400

5%revenue bad debt 2,385,300

Capital expenditure (June) 80,000

Total current liabilities $ 4,516,700

Non-current liabilities

Long-term debt (due May) 250,000

Stockholders’ equity

Common stock ($1 per) $ 85,000

Paid-in capital 80,000

Retained earnings 250,000

Total owners’ equity 415,000

Total liabilities and owners’ equity - $4,558,200

Pro-Forma statement of cash flows

In the proforma statement of cash flows, there are three types of activities involved in cash flows, including operating, investing and financing. For operating activities, this report chooses net income, depreciation and amortization, account receivable, parts and supplies inventories, repayments, deferred tax assets, air traffic liability, account payable, tax payable, deferred revenue, accrued salaries and related benefits, and other accrued liabilities.

TABLE 3

All-Care Home Health Agency

Pro Forma statement of cash flows Income

For a Period of Six-Month

Ended September 30, 2017

Revenue $ 4,990,000

Operating Expenses

Depreciation $ 85,000

Payroll 1,358,000

Rent, utilities & miscellaneous expenses 330,000

Other expenses 319,800

Net operating expenses $ 2,065,800

5% of revenue 2,385,300

Net income $ 538,900

Memo to the president

Suggestions to Improve

Operations

For the management to improve its overall operational performance, various aspects of establishing whether or not the agency is currently under the good trend should be investigated. Since there are some disagreements with two sheets of given information, for example, the number of patients admitted per week to the facility is different in these two sheets, this report will mainly focus on the data on the data by patient age. In addition, there are also some confusing results from the operating data, such as the available rooms nursing professionals of 2500 and 171 respectively, directly provided from the sheets. For the agency to improve its efficiency, the management should replace old inventory. Old equipment occupies large space although they are slow and inefficient in operation, to boot. For instance, printing devices often become incompatible and outdated with the modern technological advancements quickly. With many enterprises migrating from desktop storage devices to personal laptops, and further to mobile gadgets, the process of replacement is often frustrating. Therefore, managing, retaining and repairing various models and brands are expensive, because each model and brand require specific ink cartridges or proprietary toner. In addition, there is an escalating need for employee training on specific usage and maintenance procedures for every new machine purchased. Hence, leasing devices are considered to be cost-effective since there is the availability of latest technologies at your disposal – the newer the technological devices, the more power efficient the devices. Thus, it is advisable to replace or entirely eliminate old equipment.

However, dealing with either equipment or inventory, obsolete, not work to provide space for the new ones. Selling the old equipment is also another way of boosting company cash flow and taxable gains. Inventory management system should be comprehensively updated so as to keep track on the condition of the available inventories and equipment. Therefore, the management should allocate more capital for repair, maintenance, and purchase of new nursing facilities for better and improved services.

References

IASB. (2016, January 13). FRS in Focus — IASB issues IFRS 16 — Leases. Retrieved November 21, 2016, from http://www.iasplus.com/en-us/publications/global/ifrs-in-focus/2016/ifrs-16

IFRS. (2015, March). Leases: Practical implications of the new Leases Standard. Retrieved November 21, 2016, from http://www.ifrs.org/Current-Projects/IASB-Projects/Leases/Documents/Practical-implications-Leases-Standard-Project-Update-March-2015.pdf

McKinney S. and Kolber T. (2016, May 16). Deloitte. Retrieved November 21, 2016, from http://www.iasplus.com/en-us/publications/us/other/leases-executive-summary

Policy, M. (2016, August 09). Leasing Under US GAAP and IFRS: Similar New Standards with Significant Differences. Retrieved November 21, 2016, from http://www.accountingweb.com/aa/standards/leasing-under-us-gaap-and-ifrs-similar-new-standards-with-significant-differences.