i need help preparing a cashflow analysis for menotomy home health services and the other questions presented in the case . thanks!

HBSP Product Number TCG 119 THE CRIMSON PRESS CURRICULUM CENTER THE CRIMSON GROUP, INC. Menotomy Home Health Services In November 2010. Ms. Carolyn Ringer. Treaware of My Home Health Services (MHHS), was preparing a loan request to go to the Norten Muncipal Bank. Less than cih months earlier, MHHS had expanded their staff by 30 percent. At that time, the bone health service had been in a secure financial position and Ms. Ringer, anticipating to financial problems, had spoken to the agency's board of directors in favor of the increase in services. However, in July, Ms. Ringer realized that although MHHS had begun training and paying their new staff in June, the agency would not receive the additional revenue generated by the new staff until later in the year With the staff totaling about 30 employees (full and part-time). Ms. Ringer realized that MHIHS could not always have on hand the cash it would require Faced with these unexpected expenses. Ms. Ringer had gone to the Norten Municipal Bank to apply for a short-term line of credit to cover the additional costs. Mr. Jansen, the bank officer, had granted MHHS a line of credit, which had reached almost $66.000 by September 2010. Although he had allowed the agency to continue using its line of credit into its ne fiscal year,' he had raised some important considerations He explained that the bank was willing to continue a line of credit for the agency but he was concerned that Ms. Ringer had not adequately anticipated the pency's cash needs. He asked Ms. Ringer to present the bank at the outset with a detailed monthly statement of MHHS's projected cash needs for fiscal year 2011. Consequently, Ms. Ringer began to review the agency's financial statements (contained in Exhibits 1 and 2) and collect data that would help her plan for MHHS'S future cash requirements. BACKGROUND Menotomy Home Health Services was a private, nonprofit home health agency founded in 1987 by four retired nurses. Each founder had between 10 and 35 years of experience working with elderly and disabled patients in Norten's hospitals. Realizing that a majority of their patients would not have needed hospitalization if Norten or the near vicinity had had a home health service, the nurses started their own agency. At first, MHHS was small and operated out of one person's home. The agency then employed the four founders, a part-time social worker, and six home health sides, three of whom were volunteers By 1996, the organization had outgrown its office space" as well as its organizational structure and objectives. Although two visiting nurse associations had sprung up in Norten in the mid 1990s, there was still greater demand for MHHS services than the agency could provide Demand had risen at an average rate of 10 percent per year, and forecasts at that time indicated a steady increase at the 10 percent level. During the late-90, MHHS underwent a gradual expansion. They purchased a small building in downtown Norten for management offices, employee training programs, and headquarters. They also bought some of the vehicles and equipment they had previously leased. In the subsequent 10 years, the staff grew from 10 to 20 people. In the early 2000s, in conjunction with increased pressure by managed care plans on hospitals to discharge their patients earlier, MHHS was again faced with an increasing demand for home health services. A poll taken at Norten's three hospitals in March 2010 indicated that there would be a 20 percent increase in home health care patients. MHHS management estimated that net patient revenue would reach $810,000 in FY 2011. an increase of 16 percent over the 2010 level. Further growth of between $75,000 and $100.000 a year was expected during the 2012-2013 period. MHHS had an October 1- September 30 fiscal year. For euample.fiscal year 2011 began on October 1, 2010, This case was prepared by Professor David W. Young. It is intended as a basis for class discussion and not to illus trafe eitler effective or ineffective handling of an administrative situation Copyright 2012 by The Crimson Group, Inc. To order copies or request permission to reproduce this document, contact Harvard Business Publications (http://hspharvard.edu. Under provisions of United States and interna tional copyright laws, no part of this document may be reproduced tod, or transmitted in any form or by any means without written permission from The Crimson Groop (www.thecrimsogepeeg) Consequently, MHHS was forced to decide whether to hold staff and services steady and hope that other health service organizations would fill in the gaps or to launch an expansion program aimed at providing more services to a greater number of patients in the Norten area. After examining MHHS's financial position and talking to Norten's healthcare providers about the agency's services, the board voted overwhelmingly to expand. DATA Demand for MHHS's services, like that for other home health agencies, was seasonal. Over two thirds of the agency's home visits were made during the late fall and winter months. Exhibit 3 contains the forecasted monthly revenue for FY 2011 based on the number of visits during FY 2010. In making these projections, Ms. Ringer took into account the contractual adjustments and bad debts from MHHS third-party payers and indigent patients. Although demand for the agency's services tended to be seasonal. MHHS's employee salaries and benefits were expected to be relatively steady throughout the year. The agency had a firm policy of regular employment for both full and part-time employees which according to manage- ment, enabled MHHS to maintain a highly skilled and committed staff. MHHS's management also believed that its employment policy contributed significantly to the agency's reputation for quality home health care Employees were paid on the first of each month for earnings from the previous month. Starting in October employee salary and benefit earnings were expected to be 541 250 a month except for June when many employees would be on vacation and some part-time wages would be climinated: payments in July would thus decrease to about $30.000 Disbursements related to overhead and administration were scheduled at $15.000 a month throughout FY 2011. Included in that $15.000-4-month was Ms. Ringer's estimate of the monthly interest on the Norten Municipal Bank loan. The initial depreciation expense was forecasted to be $33.000. Medical and office supply purchases were projected at $3.420 per month. The agency's policy was to charge these items and pay for each month's purchases in the following month. Contract service expenses were forecast at $900 a month. Other miscellaneous expenses were projected to total about $1,500 per month. The new van, ordered for the meals-on-wheels program, was due for delivery in December. The van cost $18,000 and would be paid for in four cqual monthly installments, beginning on delivery. The vehicle had an economic life of four years at the end of which its salvage value would be zero Depreciation would begin in the month of delivery. In FY 2011. MHHS would owe Dr. Wilson, one of the board members, S29,070 for a short- term, interest-free loan she had made to the agency. This amount was payable in equal installments in December and March. The agency was also the lessee on long-term leases of furniture, equipment, and automobiles, with terms ranging from three to five years, beginning at various dates. The payments owed on these operating leases totaled $22.500. payable in equal installments in December and June. In October 2007. MHHS had borrowed $180,000 from a life insurance company under a 16- year mortgage loan secured by the property and equipment. The current portion of the loan was repayable in equal installments in March and September of each year. Interest of 9 percent per annum on the unpaid balance was payable at the same time. In preparing her financial forecasts, Ms. Ringer planned to show separately the two principal payments, totaling S11.250, and the two interest payments, totaling $13.922, due in FY 2011. The only other expenditure Ms. Ringer anticipated was $14,086 due to Medicare for payments received exceeding reimbursable costs for the period ending September 30, 2010. The sum payable was non-interest-bearing and due in equal installments in June and September. She did not expect to incur a liability of this sort during FY 2011. Inventory, prepaid expenses, other assets, and other long-term debt were expected to remain essentially unchanged during FY 2011. Although Mr. Jansen had not hesitated to grant MHHS a line of credit, he had stressed the importance of the bank's credit regulations. The bank required that for a line of credit of $200.000 or less, the agency maintain a compensating cash balance of S20.000 at all times. Second, the entire line of credit, including the $65,400 currently owed by MHHS, was to be completely liquidated for at least one month during the year. Using the worksheet in Exhibit 4. Ms. Ringer began to prepare a monthly cash flow forecast for FY 2011 that, she hoped, would show how much money the agency would need on a monthly basis. 2 of 5 2012 seady and psion program na Aller about the MENOTOMY HOME HEALTH SERVICES E 1. Balanesh plantar alar 2. 51234 30 Art Cash In 03 H 3156 To 315.345 13.5 4113 153 16 Property Obras To Les Nel of Arsip Sales and bene Detodiny Nepal.com More vo 2.145 45.00 154 3210 1S 26135 11.10 146 12 21:30 11:10 Mite Oer-te 17.30 10,20 2010 SSIVE ZO SORT 400 3.50 E 2. Operating sa For the Indicated heale 2.00 2.00 Gross patient 1649 72291 Lee Contractual alle collectible con 110378 160014 Netpieniem 3533 S. Operating Salary and hence 372.000 1.200 Overhead and went 63.129 9.IT 116310 Cost of medical applies 24473 21.91 C 60 10.30 Equipment Rental 17.30 1870 1980 Depreciation 22.500 33 Interest 0 15 Other expenses 3048 Total opening caps 551107 3533 Excess of repenses 2333 Unutricted to Sepumber 30 60 WS Exhi. Estimated Mothly and Monte Account Rechte For the poing Thalam Grow Net Patient Rhe Revenge Hem End Me October 567.300 5117ASO November 96.00 787 December 115.00 11 139.90 11450 February 156.450 88.JSO 12.450 215.00 April 73.500 14,100 May 61,20 50.00 17 June 51400 -2700 Augu HO 3 MENOTOMY HOME HEALTH SERVICES Exhibit 4. Cash Flow Worksheet Jul Aug Sep Jun Feb Apr Mar May Jan Oct Nov Dec CASH IN CASH OUT Salaries & Benefits Overhead & Adminis. Payment of Accounts/P Contract Services Misc. Expense Vehicle Expenditure Payment of Note/P Equipment Leases Mortgage principal Mortgage interest Third Party Payable TOTAL OUT 22.860 Net Inflow (Outflow) FINANCING Cash Beginning balance Increase (decrease) Ending balance Line of Credit Beginning balance Increase (decrease) Ending balance 65.400 * Note: Total financing (decrease in cash plus increase in line of credit) must equal net outflow. inflow first decreases the line of credit and then, if line of credit reaches zero, increases cash TOT University of Londoa from Jan 09, 2018 Apr 17.2012 son HBSP Product Number TCG 119 THE CRIMSON PRESS CURRICULUM CENTER THE CRIMSON GROUP, INC. Menotomy Home Health Services In November 2010. Ms. Carolyn Ringer. Treaware of My Home Health Services (MHHS), was preparing a loan request to go to the Norten Muncipal Bank. Less than cih months earlier, MHHS had expanded their staff by 30 percent. At that time, the bone health service had been in a secure financial position and Ms. Ringer, anticipating to financial problems, had spoken to the agency's board of directors in favor of the increase in services. However, in July, Ms. Ringer realized that although MHHS had begun training and paying their new staff in June, the agency would not receive the additional revenue generated by the new staff until later in the year With the staff totaling about 30 employees (full and part-time). Ms. Ringer realized that MHIHS could not always have on hand the cash it would require Faced with these unexpected expenses. Ms. Ringer had gone to the Norten Municipal Bank to apply for a short-term line of credit to cover the additional costs. Mr. Jansen, the bank officer, had granted MHHS a line of credit, which had reached almost $66.000 by September 2010. Although he had allowed the agency to continue using its line of credit into its ne fiscal year,' he had raised some important considerations He explained that the bank was willing to continue a line of credit for the agency but he was concerned that Ms. Ringer had not adequately anticipated the pency's cash needs. He asked Ms. Ringer to present the bank at the outset with a detailed monthly statement of MHHS's projected cash needs for fiscal year 2011. Consequently, Ms. Ringer began to review the agency's financial statements (contained in Exhibits 1 and 2) and collect data that would help her plan for MHHS'S future cash requirements. BACKGROUND Menotomy Home Health Services was a private, nonprofit home health agency founded in 1987 by four retired nurses. Each founder had between 10 and 35 years of experience working with elderly and disabled patients in Norten's hospitals. Realizing that a majority of their patients would not have needed hospitalization if Norten or the near vicinity had had a home health service, the nurses started their own agency. At first, MHHS was small and operated out of one person's home. The agency then employed the four founders, a part-time social worker, and six home health sides, three of whom were volunteers By 1996, the organization had outgrown its office space" as well as its organizational structure and objectives. Although two visiting nurse associations had sprung up in Norten in the mid 1990s, there was still greater demand for MHHS services than the agency could provide Demand had risen at an average rate of 10 percent per year, and forecasts at that time indicated a steady increase at the 10 percent level. During the late-90, MHHS underwent a gradual expansion. They purchased a small building in downtown Norten for management offices, employee training programs, and headquarters. They also bought some of the vehicles and equipment they had previously leased. In the subsequent 10 years, the staff grew from 10 to 20 people. In the early 2000s, in conjunction with increased pressure by managed care plans on hospitals to discharge their patients earlier, MHHS was again faced with an increasing demand for home health services. A poll taken at Norten's three hospitals in March 2010 indicated that there would be a 20 percent increase in home health care patients. MHHS management estimated that net patient revenue would reach $810,000 in FY 2011. an increase of 16 percent over the 2010 level. Further growth of between $75,000 and $100.000 a year was expected during the 2012-2013 period. MHHS had an October 1- September 30 fiscal year. For euample.fiscal year 2011 began on October 1, 2010, This case was prepared by Professor David W. Young. It is intended as a basis for class discussion and not to illus trafe eitler effective or ineffective handling of an administrative situation Copyright 2012 by The Crimson Group, Inc. To order copies or request permission to reproduce this document, contact Harvard Business Publications (http://hspharvard.edu. Under provisions of United States and interna tional copyright laws, no part of this document may be reproduced tod, or transmitted in any form or by any means without written permission from The Crimson Groop (www.thecrimsogepeeg) Consequently, MHHS was forced to decide whether to hold staff and services steady and hope that other health service organizations would fill in the gaps or to launch an expansion program aimed at providing more services to a greater number of patients in the Norten area. After examining MHHS's financial position and talking to Norten's healthcare providers about the agency's services, the board voted overwhelmingly to expand. DATA Demand for MHHS's services, like that for other home health agencies, was seasonal. Over two thirds of the agency's home visits were made during the late fall and winter months. Exhibit 3 contains the forecasted monthly revenue for FY 2011 based on the number of visits during FY 2010. In making these projections, Ms. Ringer took into account the contractual adjustments and bad debts from MHHS third-party payers and indigent patients. Although demand for the agency's services tended to be seasonal. MHHS's employee salaries and benefits were expected to be relatively steady throughout the year. The agency had a firm policy of regular employment for both full and part-time employees which according to manage- ment, enabled MHHS to maintain a highly skilled and committed staff. MHHS's management also believed that its employment policy contributed significantly to the agency's reputation for quality home health care Employees were paid on the first of each month for earnings from the previous month. Starting in October employee salary and benefit earnings were expected to be 541 250 a month except for June when many employees would be on vacation and some part-time wages would be climinated: payments in July would thus decrease to about $30.000 Disbursements related to overhead and administration were scheduled at $15.000 a month throughout FY 2011. Included in that $15.000-4-month was Ms. Ringer's estimate of the monthly interest on the Norten Municipal Bank loan. The initial depreciation expense was forecasted to be $33.000. Medical and office supply purchases were projected at $3.420 per month. The agency's policy was to charge these items and pay for each month's purchases in the following month. Contract service expenses were forecast at $900 a month. Other miscellaneous expenses were projected to total about $1,500 per month. The new van, ordered for the meals-on-wheels program, was due for delivery in December. The van cost $18,000 and would be paid for in four cqual monthly installments, beginning on delivery. The vehicle had an economic life of four years at the end of which its salvage value would be zero Depreciation would begin in the month of delivery. In FY 2011. MHHS would owe Dr. Wilson, one of the board members, S29,070 for a short- term, interest-free loan she had made to the agency. This amount was payable in equal installments in December and March. The agency was also the lessee on long-term leases of furniture, equipment, and automobiles, with terms ranging from three to five years, beginning at various dates. The payments owed on these operating leases totaled $22.500. payable in equal installments in December and June. In October 2007. MHHS had borrowed $180,000 from a life insurance company under a 16- year mortgage loan secured by the property and equipment. The current portion of the loan was repayable in equal installments in March and September of each year. Interest of 9 percent per annum on the unpaid balance was payable at the same time. In preparing her financial forecasts, Ms. Ringer planned to show separately the two principal payments, totaling S11.250, and the two interest payments, totaling $13.922, due in FY 2011. The only other expenditure Ms. Ringer anticipated was $14,086 due to Medicare for payments received exceeding reimbursable costs for the period ending September 30, 2010. The sum payable was non-interest-bearing and due in equal installments in June and September. She did not expect to incur a liability of this sort during FY 2011. Inventory, prepaid expenses, other assets, and other long-term debt were expected to remain essentially unchanged during FY 2011. Although Mr. Jansen had not hesitated to grant MHHS a line of credit, he had stressed the importance of the bank's credit regulations. The bank required that for a line of credit of $200.000 or less, the agency maintain a compensating cash balance of S20.000 at all times. Second, the entire line of credit, including the $65,400 currently owed by MHHS, was to be completely liquidated for at least one month during the year. Using the worksheet in Exhibit 4. Ms. Ringer began to prepare a monthly cash flow forecast for FY 2011 that, she hoped, would show how much money the agency would need on a monthly basis. 2 of 5 2012 seady and psion program na Aller about the MENOTOMY HOME HEALTH SERVICES E 1. Balanesh plantar alar 2. 51234 30 Art Cash In 03 H 3156 To 315.345 13.5 4113 153 16 Property Obras To Les Nel of Arsip Sales and bene Detodiny Nepal.com More vo 2.145 45.00 154 3210 1S 26135 11.10 146 12 21:30 11:10 Mite Oer-te 17.30 10,20 2010 SSIVE ZO SORT 400 3.50 E 2. Operating sa For the Indicated heale 2.00 2.00 Gross patient 1649 72291 Lee Contractual alle collectible con 110378 160014 Netpieniem 3533 S. Operating Salary and hence 372.000 1.200 Overhead and went 63.129 9.IT 116310 Cost of medical applies 24473 21.91 C 60 10.30 Equipment Rental 17.30 1870 1980 Depreciation 22.500 33 Interest 0 15 Other expenses 3048 Total opening caps 551107 3533 Excess of repenses 2333 Unutricted to Sepumber 30 60 WS Exhi. Estimated Mothly and Monte Account Rechte For the poing Thalam Grow Net Patient Rhe Revenge Hem End Me October 567.300 5117ASO November 96.00 787 December 115.00 11 139.90 11450 February 156.450 88.JSO 12.450 215.00 April 73.500 14,100 May 61,20 50.00 17 June 51400 -2700 Augu HO 3 MENOTOMY HOME HEALTH SERVICES Exhibit 4. Cash Flow Worksheet Jul Aug Sep Jun Feb Apr Mar May Jan Oct Nov Dec CASH IN CASH OUT Salaries & Benefits Overhead & Adminis. Payment of Accounts/P Contract Services Misc. Expense Vehicle Expenditure Payment of Note/P Equipment Leases Mortgage principal Mortgage interest Third Party Payable TOTAL OUT 22.860 Net Inflow (Outflow) FINANCING Cash Beginning balance Increase (decrease) Ending balance Line of Credit Beginning balance Increase (decrease) Ending balance 65.400 * Note: Total financing (decrease in cash plus increase in line of credit) must equal net outflow. inflow first decreases the line of credit and then, if line of credit reaches zero, increases cash TOT University of Londoa from Jan 09, 2018 Apr 17.2012 son