Build a Business Plan for this proposal. Prepare the service description using your consumer knowledge of a retail pharmacy (if necessary). Of course this retail pharmacy will be located within the hospital, but its purpose is to dispense prescriptions to carry off-site and use at home. Thus it operates pretty much like the neighborhood retail pharmacy that you use yourself. Use the information provided in the retail pharmacy Mini-Case Study 1 in Chapter 29 to prepare the financial section of the Business Plan is below. Use your imagination to create the marketing segment and the organization segment.

CHAPTER 29 Mini-Case Study 1: Proposal to Add a Retail Pharmacy to a Hospital in the Metropolis Health System Sample General Hospital belongs to the Metropolis Health System. The new chief financial officer (CFO) at Sample Hospital has been attempting to find new sources of badly needed revenue for the facility. Consequently, the CFO is preparing a proposal to add a retail pharmacy within the hospital itself. If the proposal is accepted, this would generate a new revenue stream. The CFO has prepared four exhibits, all of which appear at the end of this case study. Exhibit 291, a three-year retail pharmacy profitability analysis, is the primary document. It is supported by Exhibit 292, the retail pharmacy proposal assumptions. The profitability analysis is further supported by Exhibit 293, a year 1 monthly income statement detail. Finally, Exhibit 294 presents the supporting year 1 monthly cash flow detail and assumptions. When the controller reviewed the exhibits, she asked how the working capital of $49,789 was derived. The CFO explained that it represents 3 months of departmental expense. He also explained that the cost of drugs purchased for the first 60 days was offset by these purchases accounts payable cycle, so the net effect was 0. In essence, the vendors were financing the drug purchases. Thus, the working capital reconciled as follows: Working Capital: Cost of drugs (2 months) $303,400 Vendor financing (accounts payable) ($303,400) Departmental expense (3 months) $49,789 Total Working Capital Required $49,789 The controller also noticed on Exhibit 294 that the cost of renovations to the building is estimated at $80,000 and equipment purchases are estimated at $50,000 for a total capital expenditure of $130,000. The building renovations are depreciated on a straight-line basis over a useful life of 15 years, whereas the equipment purchases are depreciated on a straight-line basis over a useful life of 5 years. The required capital is proposed to be obtained from hospital sources, and no borrowing would be necessary. In addition, the total capital expenditure is projected to be retrieved through operating cash flows before the end of year 1. Exhibit 291 Sample General Hospital 3-Year Retail Pharmacy Profitability Analysis Year 1 Year 2 Year 3 Rx Sales 2,587,613 2,692,152 2,828,375 Cost of Goods Sold 2,047,950 2,088,909 2,151,576 Gross Margin 539,663 603,243 676,799 GM % 20.9% 22.4% 23.9% EXPENSES Salaries and Wages 192,000 197,760 203,693 Benefits 38,400 39,552 40,739 Materials and Supplies 12,000 14,400 17,280 Contract Services and Fees 14,400 17,280 20,736 Depreciation and Amortization 15,333 15,333 15,333 Interest Provision for Bad Debts 25,876 26,922 28,284 Misc. Exp. 3,600 4,320 5,184 Total Expense 301,609 315,567 331,248 Net Income 238,053 287,676 345,550 Operating Margin 9.2% 10.7% 12.2% Cash Flow Year 1 Year 2 Year 3 Sources Net Income 238,053 287,676 345,550 Depreciation 15,333 15,333 15,333 Borrowing Total Sources 253,386 303,010 360,884 Uses Capital Purchasing 130,000 Working Capital 49,789 Total Uses 179,789 Cash at Beginning of Period 73,597 376,607 Net Cash Activities 73,597 303,010 360,884 Cash at Ending of Period 73,597 376,607 737,490 Volume Year 1 Year 2 Year 3 Number of Prescriptions Sold 55,350 56,457 58,151 Courtesy of Resource Group, Ltd., Dallas, Texas. Exhibit 292 Sample General Hospital Retail Pharmacy Proposal Assumptions Prescriptions 1. Annual Prescription EstimatesRate of Growth/Capture Per Day Annual Year 1 225 55,350 Year 2 2.0% 230 56,457 Year 3 3.0% 236 58,151 2. Average Net Revenue per PrescriptionYearly Increases Year 1 $ 46.75 Year 2 2.0% $ 47.69 Year 3 2.0% $ 48.64 3. Bad Debt Percentage 1.0% 4. Average Cost per PrescriptionYearly Increases Year 1 $ 37.00 Year 2 3.0% $ 38.11 Year 3 3.0% $ 39.25 5. Inflation RatesPer Year Salary and Wages 3.0% Other Than Prescriptions 2.0% Benefits as a % of Salaries 20.0% 6. Initial Capital Requirements Building 80,000 Equipment 50,000 Working Capital 49,789 Total 179,789 Year 1 Year 2 Year 3 Gross Margin 539,663 603,243 676,799 Net Income before Taxes 238,053 287,676 345,550 Year 1 Year 2 Year 3 Beginning Cash Balance 73,597 376,607 Net Cash Activity 73,597 303,010 360,884 Ending Cash Balance 73,597 376,607 737,490 Courtesy of Resource Group, Ltd., Dallas, Texas. Exhibit 293 Sample General Hospital Retail Pharmacy Proposal Year 1 Monthly Income Statement Detail Exhibit 294 Sample General Hospital Retail Pharmacy Proposal Year 1 Monthly Cash Flow Detail and Assumptions So how was the proposal received by the hospitals board of trustees? They first asked for a small market study to test the amount of prescription sales projected within the proposal. When the market study results came back positive, the board approved the project, and renovations are about to commence.