CASH BUDGET Dr. Roger Jones is a successful dentist but he is experiencing recurring financial difficulties. For example, Dr. Jones owns his office building, which he leased to the professional corporation that housed his dental practice (he owns all shares in the corporation). However, Dr. Jones recently received a registered letter from the Internal Revenue Service threatening to impound his business and sell its assets for the corporation’s failure to pay payroll taxes for the past six months. Also, the corporation has had difficulty paying its suppliers, owing one of them over $200,000 plus interest. In the past, Dr. Jones had solved similar problems by borrowing money on the equity in either his personal residence or his office building. Not surprisingly, Dr. Jones has grown weary of these recurring problems and has hired a local consultant for advice on how to fix his financial problems.

According to the analysis of the consultant, the financial difficulties facing Dr. Jones have been caused by the absence of proper planning and control. Budgetary control is sorely needed. To assist you in preparing a plan of action that will help his dental practice regain financial stability, Dr. Jones has made available the financial information describing a typical month in the following table.

Revenues Average Fee ($) Quantity Fillings $ 50 90 Crowns 300 19 Root canals 170 8 Bridges 500 7 Extractions 45 30 Cleaning 25 108 X-rays 15 150 Costs Salaries:

Two dental assistants $1,900 Receptionist/bookkeeper 1,500 Hygienist 1,800 Public relations (Mrs. Jones) 1,000 Personal salary 6,500 Total salaries $12,700 Benefits 1,344 Building lease 1,500 Dental supplies 1,200 Janitorial 300 Utilities 400 Phone 150 Office supplies 100 Lab fees 5,000 Loan payments 570 Interest payments 500 Miscellaneous 500 Depreciation 700 Total costs $24,964 Benefits include Dr. Jones’s share of social security and a health insurance premium for all employees. Although all revenues billed in a month are not collected, the cash flowing into the business is approximately equal to the month’s billings because of collections from prior months. The dental office is open Monday through Thursday from 8:30 a.m. to 4:00 p.m. and on Friday from 8:30 a.m. to 12:30 p.m.

A total of 32 hours are worked each week. Additional hours could be worked, but Dr. Jones is reluctant to do so because of other personal endeavors that he enjoys.

Dr. Jones has noted that the two dental assistants and receptionist are not fully utilized. He estimates that they are busy about 65 to 70 percent of the time. Dr. Jones’s wife spends about five hours each week on a monthly newsletter that is sent to all patients; she also maintains a birthday list and sends cards to patients on their birthdays.

Dr. Jones spends about $2,400 yearly on informational seminars. These seminars, targeted especially for dentists, teach them how to increase their revenues. It is from one of these seminars that Dr. Jones decided to invest in promotion and public relations (the newsletter and the birthday list).
Required:
. Prepare a monthly cash budget for Dr. Jones. Does Dr. Jones have a significant cash flow problem? How would you use the budget to show Dr. Jones why he is having financial difficulties?
. Using the cash budget prepared in Requirement 1 and the information given in the case, recommend actions to solve Dr. Jones’s financial problems. Prepare a cash budget that reflects these recommendations and demonstrates to Dr. Jones that the problems can be corrected. Do you think that Dr. Jones will accept your recommendations? Do any of the behavioral principles discussed in the chapter have a role in this type of setting? Explain.
Case