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SaskMedical Diagnostics (P.C.) Business Plan

Prepared for Dr. Painter

By Bjorn Hunter

MBA 992

3 June, 2016

Table of Contents

1.0 Executive Summary..1-2

2.0 Introduction..3-5

2.1 Proposed Business..3-4

2.2 Positioning Statement.4

2.3 Goals and Objectives......4-5

3.0 Industry Overview...6

4.0 Operations...7-23

4.1 Organizational Structure.7-9

4.2 Development Plan.9-10

4.3 Site Plan...11

4.4 Floor Plan.12

4.5 Work Process Plan..12-13

4.6 Quality Control Program14-15

4.7 Average Work Schedule.15-17

4.8 Suppliers and Service Providers...18

4.9 Capital Expenditures...19-20

4.10 Capital budget21

4.11 Operating Expenses (2020-2025)...21

4.12 Operating Expenses (2026-2030)...22

4.13 Cost of Revenues23

5.0 Human Resources.24-35

5.1 Job Descriptions and Qualifications...24-26

5.2 Work Schedule for Medical Director/Radiologist......26-27

5.3 Work Schedule for Radiologists..27

5.4 Work Schedule for MRTs28

5.5 Work Schedule for the Secretary and Secretarial Assistant.29

5.6 Work Schedule for Custodian..30

5.7 Compensation and Benefits31-34

5.8 Training and Education...34-35

6.0 Marketing..36-51

6.1 Market Demand for MRI Services..36-38

6.2 Competitor Analysis...38-41

6.3 Customer Analysis..41-42

6.4 Target Market.42-44

6.5 Services Offered.44-46

6.6 Revenue and Service Level Targets46-47

6.7 Distribution Strategy...47-48

6.8 Pricing Policy...48

6.9 Segmentation, Targeting and Position.49

6.10 Marketing Strategy and Advertising Budget50-51

6.11 SWOT/TOWS Summary of Marketing Strategy...51

7.0 Accounting and Finance...52-60

7.1 Projected Profitability..52

7.2 Sensitivity Analysis53-54

7.3 Break Even Analysis...54-55

7.4 Ratio Analysis.56-57

7.5 Risk Analysis..58-60

8.0 Business Plan Summary...61-63

9.0 References..64-67

List of Tables

Table 1: Summary of suppliers and service providers...18

Table 2: Summary of capital expenditures19

Table 3: Summary of capital expenditures for furniture....20

Table 4: Summary of capital expenditures for furniture continued...20 Table 5: Capital budget summary..21 Table 6: Summary of operating expenses from 2020-2025...21 Table 7: Summary of operating expenses from 2026-2030...22 Table 8: Summary of cost of revenues for SaskMedical Diagnostics...23 Table 9: Job Descriptions and required qualifications for staff at SaskMedical Diagnostics...24 Table 10: Planned work schedule for the Medical Director of SaskMedical Diagnostics26 Table 11: Planned work schedule for radiologists.27 Table 12: Planned work schedule for MRTs.28 Table 13: Planned work schedule for secretary and secretarial assistant..29 Table 14: Planned work schedule for custodian30 Table 15: Projected salaries and wages for staff and projected EI and CPP benefit costs31 Table 16: Projected workers compensation and holiday pay expenses for staff..33 Table 17: Main MRI clinics in Alberta and Saskatchewan...39 Table 18: Percentage of Canadian operating funds by source...41 Table 19: SMA pricing guidelines for MRI exams...45 Table 20: Targeted cities with population and expected demand of private MRI services...49 Table 21: Pro Forma Income Statement from 2020 to 2030.69 Table 22: Pro Forma balance statement from 2017 to 2025..70 Table 23: Pro forma balance statement from 2026 to 2030...71 Table 24: Pro forma retained earnings from 2017 to 203072 Table 25: Predicted economic variables from 2020 to 2030.72 Table 26: Pro forma cost of revenue from 2020 to 2030...72 Table 27: Pro forma cash flow statement from 2017 to 203073 Table 28: Pro forma revenues from 2020 to 2030.74 Table 29: Pro forma capital budget from 2017 to 2030.74 Table 30: Financing budget with equity debt breakdown for SaskMedical Diagnostics..74

Table 31: Pro forma operating expenses from 2017 to 2030.........75 Table 32: Pro forma total salary and wages...75 Table 33: Pro forma annual salary and wages...76 Table 34: Pro forma benefit expenses........................................................................76 Table 35: Pro forma marketing expenses...76 Table 36: Pro forma debt amortization schedule...77 Table 37: CCA depreciation schedule by asset class.77 Table 38: Tax schedule for federal, provincial and property tax...78 Table 39: Projected taxable income and after-tax income.78 Table 40: Rates used for the calculation of tax..78 Table 41: Sensitivity analysis of projected cash flows (Base case and 1% case)..80 Table 42: Sensitivity analysis of projected cash flows (2% case and 3% case)80 Table 43: Sensitivity analysis of projected cash flows (4% case and 5% case)81 Table 44: IRR at different annual service levels and market exam price discount rates...81 Table 45: Daily break even analysis for SaskMedical Diagnostics...82 Table 46: Sensitivity analysis of break even point up to 3% case.83 Table 47: Sensitivity analysis of break even point from 4% to 5% case...84 Table 48: Projected ratios for SaskMedical Diagnostics from 2020 to 203086 Table 49: Projected gross profit margin and interest coverage for SaskMedical Diagnostics..86 Table 50: Available pricing and MRI unit information from competitors........88 Table 51: Technical specifications for MRI units..89

List of Figures

Figure 1: Organizational structure for SaskMedical Diagnostics8 Figure 2: 5-year development plan for SaskMedical Diagnostics...9 Figure 3: Site plan for SaskMedical Diagnostics...11 Figure 4: Floor plan for SaskMedical diagnostics.12 Figure 5: Patient flow chart for SaskMedical Diagnostics13 Figure 6: General daily work schedule for staff at SaskMedical Diagnostics...16 Figure 7: Projected dividend payments as a percentage of operating cash flows..34 Figure 8: Number of MRI exams conducted annually in Saskatchewan...36 Figure 9: Wait times for MRI services in Saskatchewan from 2008-201537 Figure 10: Number of MRI exams per 1000 people by province and territory.38 Figure 11: Expected number of MRI exams for SaskMedical Diagnostics and competitors40 Figure 12: Number of Saskatchewan residents by total income group category for 201342 Figure 13: Median total income by family type for Saskatchewan in 2013..43 Figure 14: Number of married and common-law families in Saskatchewan.44 Figure 15: Number of Outpatient MRI exams in Ontario by anatomical site...46 Figure 16: Projected Revenue for SaskMedical Diagnostics from 2020-2030..47 Figure 17: Projected market price for MRI exams in Saskatchewan.48 Figure 18: Projected marketing costs for the first 10 years of operations.50 Figure 19: SWOT/TOWS summary of strategy implications in marketing plan..51 Figure 20: Projected net income and cash flows for SaskMedical Diagnostics....52 Figure 21: Sensitivity analysis of cash flows for SaskMedical Diagnostics.53 Figure 22: IRR at different service levels and market exam price discount rates.53 Figure 23: Projected breakeven points for SaskMedical Diagnostics from 2020 to 2030.54 Figure 24: Sensitivity analysis of daily break even points at varying discount rates55 Figure 25: Projected debt, debt to equity, and cash flow to total debt ratios.56 Figure 26: Projected gross profit margin for SaskMedical Diagnostics57 Figure 27: Projected interest coverage for SaskMedical Diagnostics...57 Figure 28: Risk factors for SaskMedical Diagnostics with mitigation strategies..58

List of Appendices

10. Appendix APro Forma Financial Statements....68-78

10.1 Pro Forma Income Statement.6910.2 Pro Forma Balance Statements.70-7110.3 Pro Forma Retained Earnings7210.4 Predicted Economic Variables...72 10.5 Pro forma Cost of Revenue7210.6 Pro Forma Cash Flow Statement...7310.7 Pro Forma Revenues..7410.8 Pro Forma Capital Budget..7410.9 Financing Budget...7410.10 Pro Forma Operating Expenses....7510.11 Pro forma Total Salary and Wages..7510.12 Pro forma Annual Salary and Wages for each Position...7610.13 Pro Forma Employee and Physician Benefits..7610.14 Pro Forma Marketing Expenses...7610.15 Pro forma Debt Amortization..7710.16 CCA Schedule for SaskMedical Diagnostics...7710.17Projected Tax Schedule with Tax Rates.78

11. Appendix BSensitivity and Break-even Analysis...79-84

11.1 Sensitivity Analysis of Projected Cash Flows..80-8111.2 Break Even Analysis.82-84 12.0 Appendix CRatio Analysis.85-86

12.1 Solvency, Investment Utilization and Profitability Ratio Analysis...8

13.0 Appendix DCompetitor Information and Technical Specifications..87-89

SaskMedical Diagnostics (P.C.) Bjorn Hunter

13.1 Competitor Information.8813.2 MRI Unit Technical Specifications89

1.0 Executive Summary

As of March 2016 private MRI services became legal in Saskatchewan. With demand for MRI services exceeding 40,000 exams a year (Figure 8) and wait times in the province remaining unchanged in the last 5 years (Figure 9), there is a significant demand for additional MRI capacity in the province. There are currently only two private MRI clinics in Regina and none in the rest of the province. This means that over 300,000 people in central and northern Saskatchewan are forced to travel to Regina or out of province to seek private MRI services.

SaskMedical Diagnostics will open in 2020 and will become the first private MRI clinic in Saskatoon, offering private MRI exams to patients as well as publicly funded exams for the Saskatoon Health Region. The clinic will have waiting room capacity for up to 20 patients with average times from when the patient enters the clinic to when they leave taking approximately 55 minutes (Figure 5). The clinic will be open 0800-