An independent family clinic located in a poor neighborhood struggles to reach its breakeven point each month. At their current visit levels, they need to collect an average of $100 per patient visit in order to breakeven each month. They have asked for your consultation on some options that could help them remain profitable and not have to shut down, even if they have tough decisions to make. What advice would you offer them? Reference the Flexing Your Budget article as part of your response, in addition to at least one other literature/article.
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Breakeven Point is a companyâ€™s financial position where the money raised from sales can cover the total expenses for the company. The variables required for the development of a companyâ€™s breakeven include fixed cost and variable costs. From the case provided, the independent family clinic requires an alternative mechanism for in its daily operation in order to achieve its breakeven for survival. The financial operation for a private hospital is dependent on the customerâ€™s financial stability and service pricing recommendation based on customer demand.
According to Barr, (2005), some of the common uncertainties surrounding the financial stability of a healthcare facility depend on the system of budget. The system determines the possible errors or opportunities made through the budget setting. Budget-busting comes as a result of poor financial decision making where the stakeholders make outrageous risks and uncertainties for the business. Basing on the case provided, the hospital management should establish a proper budgeting system that will drive their business within financial limits. These calls for critical decision making on the two most important factors for the achievement of a breakeven point: variable cost and independent cost. Since the business depends on the cost of services and products provided, management of variable costs will play a major booster to the achievement of the breakeven point.
To determine breakeven based on the organizationâ€™s sales, the organization will be required to make a rationale for service and product pricing that will ensure customer retention and achievement of maximum sales. The test whether the breakeven point basing on the $100 dollars price margin will be achieved, the organization will divide the fixed cost by the contribution margin. This contribution margin will be determined by subtracting the variable costs from the price of products and services provided at the hospital. However, considerable measures about customer relationship management should be assessed before implementation.
Barr, P. (2005). Flexing your budget. Experts urge hospitals, systems to trade in their traditional budgeting process for a more dynamic and versatile model. Modern healthcare, 35(37), 24-26.
Gregory, D., Baigelman, W., & Wilson, I. B. (2003). Hospital economics of the hospitalist. Health services research, 38(3), 905-918.