Health Care Provider

New Business Pro Forma

Situation and Challenge

A fortune 500 health care provider was in the process of evaluating an internal start-up business: a new Electronic Health Records system for the physicians that use their services. Initial software development was complete and a small team was in place to assess market feasibility and software functionality.

Management was at a critical decision point. The software was viable and the initial market assessment was mixed. They needed to decide whether to continue with the project and commit to a full market rollout, which would require additional funding and resources. Or alternatively, to abandon the venture. It was not clear if the new business was a financially good decision.

Management needed sound financial projections to make a “go-no-go” decision. They needed a clear understanding of the best and worst case scenarios given various market assumptions. In addition, they needed to weigh the expected return from this project against other competing investment options that they were considering.

We were asked to develop a financial forecast for the project, including an integrated income statement, balance sheet and statement of cash flows. The objective was to determine profitability, test assumptions and determine if the project would meet internal ROI hurdles.

This venture was expected to generate over $7 million in revenue and would require dedicated teams in sales, marketing, field installation, training, software development, help desk and management.

Solution

We developed five-year financial projections assuming “Most Likely” and “Worst Case” market assumptions. Varying assumptions included market penetration as well as different pricing options and expense structures. Our model helped determine the optimal revenue model for the new venture.

We projected both a staged and rapid ramp-up for the project. We determined breakeven, stabilized profitability, and return on investment for a variety of scenarios to help management chose the optimal business model.

Additionally, we were able to bracket the possible outcomes within a range of best and likely potentials.

Results

The pro forma provided management with key operational and financial milestones from which to manage the business. The company decided to proceed with the venture and it has been successfully implemented.