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 STUDIES
Cochin 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.
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.

2 Business plan for Swanthana Medical laboratories

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.

Market segmentation
15
Patients from CMC
25 60
Referral patients
Health 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.

Cash Flow (Year 1)
INR 8,000,000
INR 6,000,000 Received
INR 4,000,000 Spent
INR 2,000,000
INR 0
Operation Others

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 3
Mathew 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.

Sale-Profit details
INR 16,000,000

INR 12,000,000
Year 1

INR 8,000,000 Year 2
Year 3
INR 4,000,000

INR 0
Sales Margin Expenses Profit
(INR 4,000,000)

Figure 4 Details of sale, margin, expenses and profit

Assest, Liabilities & Capital
INR 10,000,000

INR 8,000,000

INR 6,000,000 Year 1
Year 2
INR 4,000,000
Year 3
INR 2,000,000

INR 0
Asset Liabilities Capital
(INR 2,000,000)

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 XXXXXX
Increase customers XXXXXX XXXXXX
Profitability XXXXXX
Meet 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)
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 3
Expenditures 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)
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 3
Current 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 3
Current 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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