Hospital Financial plan

Hospital Financial plan






Financial planning in a hospital involves handling routine financial operations, such as making cash available for expenses such as payroll, and maintaining a cash cushion for unexpected costs. To add on, financial plan aids in providing the members of the leadership team with information to make strategic plans to prepare for the future (Berger, 2014). Helping to make decisions and finding the best way to pay for it are both part of financial planning. Below are some of important aspects that XYZ healthcare should put into consideration:

Key financial policy targets

It is seen that, XYZ has an aim of creating a new wing for the cancer Centre. Nevertheless, the board of management is faced with financial constraints to establish the cancer Centre and they opt to take a debt in order manage the establishment of the Centre (Kerin & Peterson, 2013). In order to make the new project readily available they have to consider some key financial policy targets. These include:

Growth rate in assets

Growth rate in assets in an organization is valued for the fact that it helps maintain a target capital structure. It increases a firm profitability and great financial leverage in the market. In this context, taking this into consideration will help the healthcare growth rate increase consistently.

Free cash flow

This is a measure of the firm’s financial soundness and shows how efficiently its financial resources are being utilized to generate additional cash for the future investments. It represents the net cash available after deducting the investments and working capital from the firms operating cash flows. XYZ healthcare should utilize this metric when implementing the cancer Centre project for quality services.

Asset management

This calls for the efficient management of current assets (cash, receivables, inventory) and current liabilities (payables, accruals) turnovers and the enhanced management of its working capital and cash conversion cycle.

Debt policy

Debt policy is important in any organization for the reason that it helps in making quality decisions and articulate the policy goals. Moreover, debt policy provides additional guidelines on the structure of debt issuance. In most cases, it enables a commitment towards a long term capital and financial planning of the organization.

Profitability objective

This is important for the board of directors in an organization to target a financial plan policy. Profitability objective helps to tackle unforeseen circumstances and reward employees for their excellent work. It outlines on how to manage the funds for marketing programs and also build credit history for the organization. XYZ healthcare must set profitability ratio goals for them to operate effectively and pursue improvement in their activities.

Economic value added

It’s the bottom-line contribution on a risk adjusted basis and helps management to make effective timely decisions to expand business that increases the firm’s economic value and implements corrective actions in those that are destroying it. XYZ should set economic value-added goals to effectively asses their healthcare value contribution and improve the resource allocation process in order to achieve its goal of the cancer Centre project effectively.

Growth indices

Growth indices evaluate sales and market share growth and also determine the acceptable trade off of growth with respect to reduction in cash flows, profit margin and returns on investment. Growth normally drains cash and reserve borrowing funds and also ensure sufficient cash and limited borrowing. In this context, XYZ should set growth index goals when they have high operating leverage.

Tax optimization

Many functional areas and business units need to manage the level of tax liability undertaken in conducting business and to understand that mitigating risk also reduces expected taxes. More so, the initiatives and product development projects must be weighed against their tax implications and net after tax contributions to the firm’s value. In general, XYZ healthcare system should adopt this measure when operating in different tax environments where they shall be able to take advantage of inconsistency in tax regulations.

Alignment of the financial planning and strategic planning

The financial planning and the strategic planning of the private with profit healthcare status align with the strategic planning and financial planning of the existing community healthcare due to the fact of quality services. The quality healthcare services provided by ABC have led to the establishment of this Centre in such an economic challenging environment (Mackay Hospital and Health Service, 2012). Furthermore, the strategic planning and financial planning of the new for-profits also align due to establishment of it in a quality hospital with quality physicians and attendants. ABC has got an IT system that help monitors the healthcare system value of XYZ making it appropriate to be designed within ABC (Kastor, 2008). ABC community hospital has been profitable for the last five years and has been able to make a profit of 3-4% making it align effectively the financial planning of XYZ. The strategic planning is aligning due to the services available with ABC community healthcare will be available to the new for-profit status.

Management control

The management control is used in conjunction with the financial planning to gather and use information that was available to ABC to evaluate the performance of different resources like finance. According to Berger (2014), this will help track the profit margin of the existing community hospital and evaluate on the progress of the future. The management control is used in conjunction with financial planning to subsume all of the planning and controlling activities of the for-profit healthcare. It will also help in programming, budgeting and controlling processes of the new facility by ABC. The existing community hospital will come in conjunction with the new facility board of directors and help them decide on which programs that the facility will undertake and the appropriate amount of resources needed to be allocated. This aspect of planning process includes the formulation of objectives and strategies based on marketing, legal, regulatory and organizations own perception of its role. The new for-profit status will identify the types of medical services to be provided and the research activities to be conducted, the population to be served and the general mode of operation for both long term and short term. Here, the existing community board of members will help them in calculating the amount of financial resources because they have a great experience on the community (Cape York Hospital and Health Service, 2013). They will budget for the new facility to be established and state the amount required for it to be set and ran effectively. Customer satisfaction is also another aspect to be put into consideration for the management control to use in conjunction with financial plan.

Decision making

After taking charge of ABC hospital community by XYZ healthcare system, its noted that the CFO can’t consult with executives for decision without permission from the authority. This is because XYZ healthcare system has full authority over ABC community hospital after taking over it. It’s only possible for CFO to consult the executives of XYZ healthcare system after seeking permission from higher authority. This will be the best procedure for the CFO to consult with the other executives for better decisions to attain quality and deliver the best services to the society.

It will be a best idea it the executive officers from the two parties come to a table and take the best decisions from each other. Exchange of different ideas and bringing together the different suggestions will yield the best of all decisions. It’s considered that when corporation comes into making investment decisions for the organization it follows four major steps (Kastor, 2008). These four states of capital decision making process can be considered as a planning phase, and an evaluation of the project or capital, as well as a way for status to be monitored, and a post completion report or review process. In planning phase, the kinds of decisions that are made in the cancer Centre capital investment decision analysis for the for-profit is funding and financing proposal. On the other side, nonprofit healthcare facilities makes capital decision making in the planning phase to determine whether the project is a major or a minor.

Moreover, capital investment decision of the cancer Centre for the for-profit in the second phase is viewed as analysis of expenses in research, development and marketing. Contrary, the decision of the non-profit healthcare facilities can be seen as management of human resource in a cost effective way (Mackay Hospital and Health Service, 2012). Further, the third stage of capital decision making is a process for status to be monitored in which case, the for-profit cancer Centre accounted the cost of doing business whereas the non-profit healthcare makes decision as the achievement of the investment.

Finally, the last phase which is the post completion report or review process, the decisions that are made in the investment of the Cancer Centers are usually determined after a period when the facility has already been established and completed within a short time of investment. On the other side, non-profit community healthcare, the decision about investment is considered on the basis of cash flow and other important information regarding the facility. After going through all the phases, it can be stated that the types of the decisions are different for for-profit and non-profit healthcare facilities.

Information needed to evaluate capital investment project

The information that is required by the CFO to evaluate the cancer capital investment project is the measurement of revenue estimate reason being it promises an acceptable ROI and adjusting cash flows. In addition the CFO should be able to know the time value of money that is available at the present time and its worth in the future time due to its potential earning capacity (Asian Development Bank, 2013). In most cases, the Net present value of money is always required by the CFO in order to evaluate the cancer Centre capital investment project mainly because it helps in calculation and determination of profits.

The internal rate of return is another factor that the CFO should put in to consideration in which he can adjust cash flows efficiently in a cost effective way. Besides this information, it’s not enough for the CFO to establish the cancer Centre capital investment project. Therefore, there will be need for him to employ the idea of discounting rate of return in capital budgeting (Berger, 2014). In addition, the CFO should also cover up the cost and borrow the idea of economic value in order for him to evaluate the cancer Centre capital investment project. Moreover, the balanced scorecard and financial comparison are some of the techniques that the CFO should also employ.

Furthermore, a top-level manager should be involved in setting up of the cancer Centre to determine its feasibility. Internally, the top level manager has full authority to make a decision concerning the cancer Centre investment project because of the knowledge, understanding and also the experience he or she has.

On the other hand, investors are the major members externally that can take part in decision making without involvement of the other responsible person. Here, the internal top manager would avoid taking part in the decision making to determine the feasibility of the cancer center.

Major categories of assumption for the future balance sheet.

It is always considered that a projected future balance sheet specifically communicates the expected changes regarding asset management and outstanding liabilities as well as equities. These assumptions are more of created in a future balance sheet as a way of creating and facilitating long term and strategic planning of the cancer Centre facility to achieve a future asset growth (Berger, 2014). Henceforth, a projected future balance sheet provides the most relevant financial information of the company needed in the business planning process. The major categories of assumptions that must be specified to project a future balance sheet, given a current balance sheet from ABC community hospital, now XYZ can be considered as assets and liabilities of the business as well as equity for a specified future time.

These major categories included in the future balance sheet include the cash and the accounts receivables and also inventories and fixed assets. In addition to that, accounts payable, short and long term debts can also be considered to be major categories in projecting a future balance sheet.


Asian Development Bank. (2013). Guidebook on public-private partnership in hospital management.

Berger, S. (2014). Fundamentals of Health Care Financial Management: A Practical Guide to Fiscal Issues and Activities, 4th Edition. Hoboken: Wiley.

Cape York Hospital and Health Service. (2013). Strategic plan.

Kastor, J. A. (2008). Selling teaching hospitals and practice plans: George Washington and Georgetown Universities. Baltimore: Johns Hopkins University Press.

Keene, N. (2015). Your child in the hospital: A practical guide for parents.

Kerin, R. A., & Peterson, R. A. (2013). Strategic marketing problems: Cases and comments. Boston: Pearson.

Mackay Hospital and Health Service. (2012). Strategic plan for Mackay Hospital and Health Service.

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