Menotomy Essay

1091 Words5 Pages
1.**Pro Forma in excel attachment.

MMHS is a successful home health service company which has expanded constantly over the intervening 20 years, with further patient growth forecasted in 2012. The home healthcare business is seasonal with 66% of the entire annual sales occurring in the late Fall and Winter months. The evolving expansion of the agency and seasonality of the business makes cash management challenging for Ms. Ringer and has landed her in the predicament of requiring a loan to pay salaries. Aligning operating expenses to revenue, improving management of operating costs and decreasing the amount of cash in accounts receivable will improve her immediate cash flow crisis. For details see prior question.

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Ms. Ringer is largely supporting operations through her line of credit versus managing costs. In review of the operating costs, overhead and administration have increased by 8% from 2008-2011 or $116,870. In addition salary dollars continue to increase from 2008-2011 by $111,150 with no efforts to flex. The other expenses are staying steady in proportion to gross revenues. There may be opportunities in these areas however salaries and overhead is the greatest opportunity to scale back costs and contribute to increased net income and ultimately positive cash flows. Flexing salaries and benefit to 44% of gross revenue and reducing overhead and expenses to 10% of gross revenue is recommended for Ms. Ringer to increase net income to $152,956 and equity to $240,214 (exhibit Operating Statements-2012 proforma).

3. One source of MHHS’s cash flow problems are the steady staff salaries and benefits in the face of a seasonal industry. Ms. Ringer uses the promise of regular employment for full and part time staff as a recruitment tool, despite the variation in demand for home health services, which is higher in the winter months, but markedly decreased in summer. The seasonal nature of the home health industry, coupled with the steady labor expense, which she is actively expanding, requires Ms. Ringer to utilize a line of credit to cover her staff salaries, as they are not being covered by patient care.
It is also clear that the amount of money in
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