Business plan for medical lab

Business plan

Swanthana Medical Laboratory

Submitted by

Arun Raj K., Job Thomas,

Mathew George, Raj Vinod,

Sreekumar and Vishnu Sankar M. M.

SHOOL OF MANAGEMENT STUDIESCochin University of Science and Technology

Cochin, Kerala, India, PIN 682 022

October 2012

Executive summary

Swanthana Medical Laboratories (SL) is a start-up company committed to providing the most convenient, friendliest blood testing service to people in and around Kalamassery. Swanthana Medical Laboratories is founded as partnership firm formed by group of committed enthusiastic gentlemen. The partners are Mathew George, Raj Vinod, Job Thomas, Arun Raj K., Sreekumar and Vishnu Shankar.

Swanthana Medical Laboratories has established three significant objectives to pursue. The first is securing 60% of customers from Co-operative Medical College, Kalamassery. The second objective is to develop 20% of their revenue from physicians who practice in the nearby vicinity. The third objective is the desire to reach profitability with 12 months.

Swanthana Medical Laboratories has identified three market segments they will serve. First segment is the large number of patients of Co-operative Medical College, Kalamassery, who will be attracted by giving quality testing at reasonable cost. This customer segment is expected to have growth rate of 10%. The second group of patients is expected from physicians having private medical practices in other nearby facilities. The third group of patients are expected locally, who come for routine health check-up.

Swanthana Medical Laboratories offers a comprehensive clinical test for potential patients. Several tests will be done in-house including: Clinical Pathology, Biochemistry, Hematology, Microbiology, X-ray, ultrasound and CT scan.

Swanthana Laboratories' will serve patients with fast, accurate, private, reasonably priced clinical testing services. Swanthana Medical Laboratories will exceed all of their customer's expectations. Swanthana Medical Laboratories will be providing home collection of samples, which will be unique for the customers in Kalamassery locality.

Business description

Swanthana Medical Laboratories will strive towards achieving the target health quotient of India. The total Indian healthcare sector is today INR 220 crores and it is projected to grow to nearly INR 250 crores by 2013. The diagnostic and pathology market is around two percent of the total market.

2 Business plan for Swanthana Medical laboratories

Indian diagnostic market has been growing fast, at 15-20 percent growth rate but there are lots of development needs. The growth rate is estimated to remain the same for the following ten years. One of the major driving forces is the basic demographic change: the migration to urban cities, with increasing number of people having access to modern healthcare. Consequently, more and more investments are being made in hospitals and clinical laboratories. However, the rural sector is not to be forgotten. The emerging industry structure is headed towards providing healthcare services as an integrated comprehensive package rather than the traditional concept of providing healthcare infrastructure and reactive medical care. Among the middle and high-income families in India there is a rapidly increasing health consciousness which leads to high demand on preventive health care.

Swanthana Medical Laboratories offers a comprehensive clinical test for potential patients under one roof. The tests include:

Clinical Pathology:- Laboratory chemical analysis of bodily fluids, such as blood, urine

Biochemistry:- Testing of proteins, carbohydrates, lipids, nucleic acids and other bio-molecules

Hematology:- Testing of blood cells, hemoglobin, blood proteins in blood

Microbiology:- Analysis of microorganisms including bacteria, viruses, fungi and parasites

X-ray:- Radiographs, Computer tomography, Fluoroscopy, Radiotherapy

Ultrasound:- Obstetric sonography, visualizing subcutaneous body structures including tendons, muscles, joints, vessels and internal organs

CT scan:- Computer processed medical imaging

Marketing

Swanthana Medical Laboratories has identified three market segments. First segment is the large number of patients of Co-operative Medical College, Kalamassery. The second group of patients is expected from physicians having private medical practices in other nearby facilities. The third group of patients are expected locally, who come for routine health check-up. The details of market segmentation are shown in Figure 2.


6025

15

Market segmentation

Patients from CMCReferral patientsHealth check-up

Figure 2. Market segmentation

Swanthana Medical Laboratories will provide services geared to three distinct customer segments.

1. Patients of Co-operative Medical College, Kalamassery - This segment is made up of patients visiting Co-operative Medical College, Kalamassery. The laboratory facility at Co-operative Medical College, Kalamassery is not sufficient to cater the present day demand because of the high volume. There are about 17 departments functioning in the medical college and about 10,000 patients are suggested to carry out the clinical test for diagnosis. However with the available infrastructure and staff, the delay for giving report is about 3 to 4 days. Hence, it is expected that there will be a flow from this regime to new laboratory facilities. Swanthana Medical Laboratories aims to receive about 60 percent of its customers from Co-operative Medical College, Kalamassery.

2. Referral patients: there are about 40 physicians doing private practices in small clinic or at home available in Edapally, Palarivattom, Kalamassery area. Most types of doctors need blood work done on their patients with some regularity. The physicians have always just had to send their patients to city to have blood drawn and analyzed. This is not convenient for their patients and is time consuming, so physicians in the said locality would generally be quite happy if there were a blood laboratory within Kalamassery.

3. Regular health check-up: In the modern urban life styles, deterioration of the health is increasing day-by-day due to stress, lack of physical exercise etc. Hence, most of the urban inhabitance does check their sugar and cholesterol level in the blood frequently. The large infrastructural facility in Cochin University Campus detained from traffic congestions are being utilized for routine morning exercises by the large


group of people around the locality. The proposed medical laboratory at Kalamassery will serve this health conscious group of people.

Operations

Swanthana Medical Laboratories is located at university road Kalamassery. The location is close to the bus stop and has good parking space. The location of the laboratory is about 2 km from Cooperative Medical College. There are about 40 physicians doing private practices in small clinic or at home within 2 km from the laboratory. The building is set in the ground floor, which helps easy access for the patients. The total of 500 square feet area is being rented for this purpose.

The building is accessible both for shipping and receiving customers. One senior technician and two junior laboratory technicians will be appointed on regular basis for the smooth functioning of the firm. The license will be obtained in the name of senior lab technician. In future, profit sharing to the licensee will be considered. The total estimate for the asset at start up is INR 83 lakhs.

The amount spent on operations is given in Figure 3.

Operation OthersINR 0

INR 2,000,000

INR 4,000,000

INR 6,000,000

INR 8,000,000

Cash Flow (Year 1)

Received Spent

Figure 3 Details of Cash Flow

Management

Swanthana Medical Laboratories is founded as partnership firm formed by group of committed enthusiastic gentlemen. The partners are Mathew George, Raj Vinod, Job Thomas, Arun Raj K., Sreekumar and Vishnu Shankar.


Mathew George is one of the managers of Swanthana Medical Laboratories. Mathew received his postgraduate degree in Business Management from Cochin University of Science and Technonolgy. While in college, Mathew owned an automobile spare parts shop at Trichur. In addition to this business Mathew ventured in e-business by selling paintings and handicrafts that purchased from artisans from different parts of Kerala. This provided him with hands-on business experience to combine with his business degree.

Raj Vinod and Job Thomas are Engineers by profession and also graduated from prestigious business school. Sreekumar and Vishnu Shankar have graduation in commerce and post graduation in Business administration. Arun Raj is working as a manager in a multinational company and his experience in handling perishable good will add advantage in inventory management.

Personal Plan Mathew George will handle business development, sales, marketing,

accounting. Senior lab technician will prepare and sign on reports. One junior lab technician will be engaged to draw and analyze

samples One junior lab technician will be responsible for doing onsite

collection of samples. He is expected to have valid driving license to drive mobile sample collection unit.

Table 1: Personnel Plan Year 1 Year 2 Year 3Mathew George INR 1,100,000 INR 1,400,000 INR 1,600,000 Junior Technician 1 INR 825,000 INR 900,000 INR 900,000 Junior Technician 2 INR 750,000 INR 900,000 INR 900,000 Senior Lab technician INR 1,100,000 INR 1,200,000 INR 1,200,000 Total People 4 4 4

Total Payroll INR 3,775,000 INR 4,400,000 INR 4,600,000


Finance

The cash flow statement, profit and loss account and balance sheet for the upcoming three years are projected for the financial analysis of the project. The charts of sale-profit details, asset-liabilities are given below. In year 1, profit is in negative, but it is positive in year 2 and 3. As the project involves huge investment, the project is not profitable in the first year but will be profitable in the second year onwards. The projected asset of the project is increasing in the upcoming years and liability is decreasing with time. In the first year, the capital was negative and in subsequent years capital is positive, which indicates a positive growth for the business.

Sales Margin Expenses Profit

(INR 4,000,000)

INR 0

INR 4,000,000

INR 8,000,000

INR 12,000,000

INR 16,000,000

Sale-Profit details

Year 1 Year 2 Year 3

Figure 4 Details of sale, margin, expenses and profit

Asset Liabilities Capital(INR 2,000,000)

INR 0

INR 2,000,000

INR 4,000,000

INR 6,000,000

INR 8,000,000

INR 10,000,000

Assest, Liabilities & Capital

Year 1 Year 2 Year 3


Figure 5 Details of assets, liabilities and Capital

Critical risk

In Kalamassery, there is a total of six blood drawing laboratories. Of the six, two only serve their specific clients and do not do work for other physicians. Of the remaining four, three offer Chemical tests and not having scanning facility and the remaining one is full-fledged laboratory not having on-site collection of samples.

The closest competitor to Swanthana Medical Laboratories is DDC, located at Edapally. This is the facility that 95% of the physicians in the Kalamassery currently use. It is used by these physicians because of convenience, it WAS the closest laboratory. As mentioned earlier, medical testing service providers are chosen based on convenience, how close they are to the patients. Hours of operation (i.e. longer hours/evening hours) are insignificant since physicians are only available during traditional daytime office hours.

Harvest strategy

When a few partners retire from the Swanthana Medical Laboratories and the remaining partners, who are two or more, take over and continue the business of the firm, there is merely change in constitution of the firm and the business continues. At the time of transfer, as business of the firm continues, stock can be valued at cost or market value which-ever is lower. In case of retiring partners, they are receiving balance in their capital accounts including the revaluation reserve on valuing land and building of the firm at market value. The buildings, equipments, machineries and people will be insured for secure functioning of the business.

Milestone schedule

The milestones are the guideline for the functioning of the business. The various milestones identified for Swanthana Medical Laboratories are given below.

Milestone Q1 Q2 Q3 Q4

Competition of business plan XXXXXX


Secure lease XXXXXXIncrease customers XXXXXX XXXXXX

Profitability XXXXXXMeet revenue target XXXXXX


Appendix

A1. Start-up Start-up Expenses Legal INR 50,000 Stationery etc. INR 0 Brochures INR 25,000 Consultants INR 0 Insurance INR 25,000 Rent INR 50,000 Research and Development INR 0 Expensed Equipment INR 100,000 Other INR 0

Total Start-up Expenses INR 250,000 Start-up Assets INR 0 Cash Required INR 4,600,000 Other Current Assets INR 0 Long-term Assets INR 3,650,000

Total Assets INR 8,250,000 Total Requirements INR 8,500,000


A2. Start-up Funding Start-up Expenses to Fund INR 250,000 Start-up Assets to Fund INR 8,250,000

Total Funding Required INR 8,500,000 Assets Non-cash Assets from Start-up INR 3,650,000 Cash Requirements from Start-up INR 4,600,000 Additional Cash Raised INR 0 Cash Balance on Starting Date INR 4,600,000

Total Assets INR 8,250,000 Liabilities and Capital Liabilities Current Borrowing INR 0 Long-term Liabilities INR 5,000,000 Accounts Payable (Outstanding Bills) INR 0 Other Current Liabilities (interest-free) INR 0

Total Liabilities INR 5,000,000 Capital Planned Investment Investor (6 memebrs) INR 3,500,000 Other Investor INR 0 Other INR 0 Additional Investment Requirement INR 0

Total Planned Investment INR 3,500,000 Loss at Start-up (Start-up Expenses) (INR 250,000)Total Capital INR 3,250,000 Total Capital and Liabilities INR 8,250,000 Total Funding INR 8,500,000


A3. Cash Flow Statement (Projected) Year 1 Year 2 Year 3

Cash Received Cash from Operations Cash Sales INR 1,226,650 INR 3,158,200 INR 3,488,200 Cash from Receivables INR 2,392,650 INR 7,447,400 INR 10,118,200

Subtotal Cash from Operations INR 3,619,300 INR 10,605,600 INR 13,606,400 Additional Cash Received Sales Tax, VAT, HST/GST Received INR 0 INR 0 INR 0 New Current Borrowing INR 0 INR 0 INR 0 New Other Liabilities (interest-free) INR 0 INR 0 INR 0 New Long-term Liabilities INR 0 INR 0 INR 0 Sales of Other Current Assets INR 0 INR 0 INR 0 Sales of Long-term Assets INR 0 INR 0 INR 0 New Investment Received INR 0 INR 1,300,000 INR 0

Subtotal Cash Received INR 3,619,300 INR 11,905,600 INR 13,606,400 Expenditures Year 1 Year 2 Year 3Expenditures from Operations INR 0 INR 0 INR 0 Cash Spending INR 3,775,000 INR 4,400,000 INR 4,600,000 Bill Payments INR 3,526,850 INR 7,007,150 INR 7,735,450

Subtotal Spent on Operations INR 7,301,850 INR 11,407,150 INR 12,335,450 Additional Cash Spent Sales Tax, VAT, HST/GST Paid Out INR 0 INR 0 INR 0 Principal Repayment of Current Borrowing INR 0 INR 0 INR 0 Other Liabilities Principal Repayment INR 0 INR 0 INR 0 Long-term Liabilities Principal Repayment INR 600,000 INR 600,000 INR 600,000 Purchase Other Current Assets INR 0 INR 0 INR 0 Purchase Long-term Assets INR 0 INR 0 INR 0 Dividends INR 0 INR 0 INR 0

Subtotal Cash Spent INR 7,901,850 INR 12,007,150 INR 12,935,450 Net Cash Flow (INR 4,282,550) (INR 101,550) INR 670,950 Cash Balance INR 317,450 INR 215,900 INR 886,850


A4. Profit and Loss Account (Projected)Year 1 Year 2 Year 3

Sales INR 4,906,700 INR 12,632,700 INR 13,952,700 Direct Cost of Sales (0.35-0.40) INR 1,717,350 INR 4,421,450 INR 4,883,450 Other Costs of Sales INR 0 INR 0 INR 0

Total Cost of Sales INR 1,717,350 INR 4,421,450 INR 4,883,450 Gross Margin INR 3,189,350 INR 8,211,250 INR 9,069,250 Gross Margin % 65.00% 65.00% 65.00%Expenses Payroll INR 3,775,000 INR 4,400,000 INR 4,600,000 Sales and Marketing and Other Expenses INR 120,000 INR 150,000 INR 175,000 Depreciation INR 730,200 INR 730,200 INR 730,200 Rent INR 600,000 INR 675,000 INR 725,000 Utilities INR 90,000 INR 90,000 INR 90,000 Insurance INR 120,000 INR 150,000 INR 175,000 Payroll Taxes INR 566,250 INR 660,000 INR 690,000 Other INR 0 INR 0 INR 0

Total Operating Expenses INR 6,001,450 INR 6,855,200 INR 7,185,200 Profit Before Interest and Taxes (INR 2,812,100) INR 1,356,050 INR 1,884,050 EBITDA (INR 2,081,900) INR 2,086,250 INR 2,614,250 Interest Expense (16.5%) INR 817,500 INR 760,000 INR 700,000 Taxes Incurred (30%) INR 0 INR 178,800 INR 355,200 Net Profit (INR 3,629,600) INR 417,250 INR 828,850 Net Profit/Sales -73.97% 3.30% 5.94%


A5. Balance Sheet (projected)Assets Year 1 Year 2 Year 3Current Assets Cash INR 3,817,450 INR 3,715,900 INR 4,386,850 Accounts Receivable INR 1,287,400 INR 3,314,500 INR 3,660,800 Other Current Assets INR 0 INR 0 INR 0

Total Current Assets INR 5,104,850 INR 7,030,400 INR 8,047,650 Long-term Assets Long-term Assets INR 3,650,000 INR 3,650,000 INR 3,650,000 Accumulated Depreciation INR 730,200 INR 1,460,400 INR 2,190,600 Total Long-term Assets INR 2,919,800 INR 2,189,600 INR 1,459,400

Total Assets INR 8,024,650 INR 9,220,000 INR 9,507,050 Liabilities and Capital Year 1 Year 2 Year 3Current Liabilities Accounts Payable INR 504,250 INR 582,350 INR 640,550 Current Borrowing INR 0 INR 0 INR 0 Other Current Liabilities INR 0 INR 0 INR 0 Subtotal Current Liabilities INR 504,250 INR 582,350 INR 640,550 Long-term Liabilities INR 7,900,000 INR 7,300,000 INR 6,700,000

Total Liabilities INR 8,404,250 INR 7,882,350 INR 7,340,550 Paid-in Capital INR 3,500,000 INR 4,800,000 INR 4,800,000 Retained Earnings (INR 250,000) (INR 3,879,600) (INR 3,462,350)Earnings (INR 3,629,600) INR 417,250 INR 828,850

Total Capital (INR 379,600) INR 1,337,650 INR 2,166,500 Total Liabilities and Capital INR 8,024,650 INR 9,220,000 INR 9,507,050

Net Worth (INR 379,600) INR 1,337,650 INR 2,166,500


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Business plan for medical lab