How to create a financial forecast for a nursing home?
Creating a financial forecast for your nursing home, and ensuring it stays up to date, is the only way to maintain visibility on future cash flows.
This might sound complex, but with the right guidance and tools, creating an accurate financial forecast for your nursing home is not that hard.
In this guide, we'll cover everything from the main goal of a financial projection, the data you need as input, to the tables that compose it, and the tools that can help you build a forecast efficiently.
Without further ado, let us begin!
Why create and maintain a financial forecast for a nursing home?
In order to prosper, your business needs to have visibility on what lies ahead and the right financial resources to grow. This is where having a financial forecast for your nursing home becomes handy.
Creating a nursing home financial forecast forces you to take stock of where your business stands and where you want it to go.
Once you have clarity on the destination, you will need to draw up a plan to get there and assess what it means in terms of future profitability and cash flows for your nursing home.
Having this clear plan in place will give you the confidence needed to move forward with your business’s development.
Having an up-to-date financial forecast for a nursing home is also useful if your trading environment worsens, as the forecast enables you to adjust to your new market conditions and anticipate any potential cash shortfall.
Finally, your nursing home's financial projections will also help you secure financing, as banks and investors alike will want to see accurate projections before agreeing to finance your business.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
What information is needed to build a nursing home financial forecast?
The quality of your inputs is key when it comes to financial modelling: no matter how good the model is, if your inputs are off, so will the forecast.
If you are building a financial plan to start a nursing home, you will need to have done your market research and have a clear picture of your sales and marketing strategies so that you can project revenues with confidence.
You will also need to have a clear idea of what resources will be required to operate the nursing home on a daily basis, and to have done your research with regard to the equipment needed to launch your venture (see further down this guide).
If you are creating a financial forecast of an existing nursing home, things are usually simpler as you will be able to use your historical accounting data as a budgeting base, and complement that with your team’s view on what lies ahead for the years to come.
Let's now zoom in on what will go in your nursing home's financial forecast.
The sales forecast for a nursing home
From experience, it is usually best to start creating your nursing home financial forecast by your sales forecast.
To create an accurate sales forecast for your nursing home, you will have to rely on the data collected in your market research, or if you're running an existing nursing home, the historical data of the business, to estimate two key variables:
- The average price
- The number of monthly transactions
To get there, you will need to consider the following factors:
- Changes in government regulations and policies can affect the average price of your nursing home services. For example, if new regulations require you to invest in new equipment or increase staffing levels, this can result in a higher average price per patient.
- Demographic changes in your local area can impact the number of monthly transactions at your nursing home. For instance, an aging population with a higher demand for long-term care services can lead to an increase in monthly transactions.
- The reputation and quality of care provided by your nursing home can influence both the average price and number of monthly transactions. If your facility has a good reputation for providing high-quality care, you may be able to charge a higher average price and attract more patients.
- Technological advancements in the healthcare industry can also affect your average price and number of monthly transactions. For example, investing in new technology such as electronic health records or telemedicine services can increase your average price and attract more patients.
- Competition from other nursing homes in your area can impact both the average price and number of monthly transactions. If there are multiple facilities in close proximity, patients may have more options and be more price-sensitive, leading to a lower average price and fewer monthly transactions for your nursing home.
Once you have an idea of what your future sales will look like, it will be time to work on your overhead budget. Let’s see what this entails.
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The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
The operating expenses for a nursing home
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your nursing home on a daily basis.
Expenses normally vary based on how much revenue you anticipate (which is why, from experience, it is always better to start your forecast with the topline projection), and where your business is based.
Operating expenses for a nursing home will include some of the following items:
- Staff costs: This includes salaries and benefits for all nursing home employees, such as nurses, aides, and administrative staff.
- Accountancy fees: You will need to hire an accountant to help with financial management, tax preparation, and auditing.
- Insurance costs: It is important to have comprehensive insurance coverage to protect your nursing home from liability and other risks.
- Software licences: You may need to purchase software licences for electronic medical records, billing, and other administrative tasks.
- Banking fees: You will incur fees for services such as check processing, wire transfers, and account maintenance.
- Medical supplies: This includes items such as medications, bandages, and other medical equipment used in patient care.
- Food and dining: You will need to budget for nutritious meals and snacks for your residents.
- Housekeeping and laundry: Keeping the nursing home clean and sanitary is crucial for the health and well-being of your residents.
- Utilities: This includes expenses for electricity, gas, water, and other necessary services to keep the nursing home running.
- Maintenance and repairs: As with any building, there will be ongoing maintenance and repair costs for the nursing home.
- Training and development: You may need to invest in training programs for your staff to ensure high-quality care for your residents.
- Marketing and advertising: To attract new residents, you may need to allocate funds for marketing and advertising efforts.
- Professional fees: This includes fees for legal services, consulting, and other professional services that may be needed to run the nursing home.
- Transportation: You may need to provide transportation for your residents to medical appointments or other activities.
- Entertainment and activities: It is important to provide engaging and enjoyable activities for your residents to improve their quality of life.
This list will need to be tailored to the specificities of your nursing home, but should offer a good starting point for your budget.
What investments are needed to start or grow a nursing home?
Creating and expanding a nursing home also requires investments which you need to factor into your financial forecast.
Capital expenditures and initial working capital items for a nursing home could include elements such as:
- Medical Equipment: This includes items such as hospital beds, wheelchairs, and medical supplies that are necessary for providing care to residents.
- Renovations and Repairs: As a nursing home ages, it may require updates and repairs to maintain a safe and comfortable environment for residents. This can include things like roof repairs, painting, and plumbing upgrades.
- Technology Upgrades: With the advancement of technology in the healthcare industry, nursing homes may need to invest in new equipment or software to improve the quality of care for residents. This can include electronic health record systems, telemedicine tools, and communication devices.
- Furniture and Fixtures: Nursing homes may need to regularly replace or upgrade furniture and fixtures to ensure the comfort and safety of residents. This can include items like beds, chairs, and lighting fixtures.
- Safety and Security Systems: Keeping residents safe is a top priority for nursing homes, so they may need to invest in security cameras, alarms, and other safety systems to ensure the facility is secure at all times.
Again, this list is not exhaustive and will need to be adjusted according to the circumstances of your nursing home.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
The financing plan of your nursing home
The next step in the creation of your financial forecast for your nursing home is to think about how you might finance your business.
You will have to assess how much capital will come from shareholders (equity) and how much can be secured through banks.
Bank loans will have to be modelled so that you can separate the interest expenses from the repayments of principal, and include all this data in your forecast.
Issuing share capital and obtaining a bank loan are two of the most common ways that entrepreneurs finance their businesses.
What tables compose the financial plan for a nursing home?
Now let's have a look at the main output tables of your nursing home's financial forecast.
The forecasted profit & loss statement
The profit & loss forecast gives you a clear picture of your business’ expected growth over the first three to five years, and whether it’s likely to be profitable or not.
A healthy nursing home's P&L statement should show:
- Sales growing at (minimum) or above (better) inflation
- Stable (minimum) or expanding (better) profit margins
- A healthy level of net profitability
This will of course depend on the stage of your business: numbers for an established nursing home will look different than for a startup.
The projected balance sheet
Your nursing home's projected balance sheet provides a snapshot of your business’s financial position at year-end.
It is composed of three types of elements: assets, liabilities and equity:
- Assets: represent what the business possesses including cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: represent funds advanced to the business by lenders and other creditors. They include accounts payable (money owed to suppliers), taxes payable and loans from banks and financial institutions.
- Equity: is the combination of what has been invested by the business owners and the cumulative profits and losses generated by the business to date (which are called retained earnings). Equity is a proxy for the value of the owner's stake in the business.
The cash flow forecast
Your nursing home's cash flow forecast shows how much cash your business is expected to consume or generate in the years to come.
It is best practice to organise the cash flow forecast by nature to better explain where cash is used or generated by the nursing home:
- Operating cash flow: shows how much cash is generated by the operating activities
- Investing cash flow: shows how much will be invested in capital expenditure to maintain or expand the business
- Financing cash flow: shows if the business is raising new capital or repaying financiers (debt repayment, dividends)
Keeping an eye on (and regularly updating) your nursing home's cash flow forecast is key to ensuring that your business has sufficient liquidity to operate normally and to detect financing requirements as early as possible.
If you are trying to raise capital, you will normally be asked to provide a monthly cash flow forecast in your nursing home's financial plan - so that banks or investors can assess seasonal variation and ensure your business is appropriately capitalised.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Which tool should you use to create your nursing home's financial forecast?
Using the right tool or solution will make the creation of your nursing home's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial projection software to build your nursing home's forecast
The modern and easiest way to build a forecast is to use professional financial projection software such as the one we offer at The Business Plan Shop.
There are several advantages to using specialised software:
- You can easily create your financial forecast by letting the software take care of the financial calculations for you without errors
- You have access to complete financial forecast templates
- You get a complete financial forecast ready to be sent to your bank or investors
- You can easily track your actual financial performance against your financial forecast, and recalibrate your forecast as the year goes by
- You can create scenarios to stress test your forecast's main assumptions
- You can easily update your forecast as time goes by to maintain visibility on future cash flows
- You have a friendly support team on standby to assist you when you are stuck
- It’s cost-efficient and much cheaper than using an accountant or consultant (see below)
If you are interested in this type of solution, you can try our forecasting software for free by signing up here.
Calling in a financial consultant or chartered accountant
Enlisting the help of a consultant or accountant is also a good way to obtain a professional nursing home financial forecast.
The downside of this solution is its cost. From experience, obtaining a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to cost a minimum of £700 or $1,000.
The indicative cost above, is for a small business, and a forecast is done as a one-shot exercise. Using a consultant or accountant to track your actuals vs. forecast and to keep your financial projections up to date on a monthly or quarterly basis will cost a lot more.
If you opt for this solution, make sure your accountant has in-depth knowledge of your industry, so that they may challenge your figures and offer insights (as opposed to just taking your assumptions at face value to create the forecast).
Why not use a spreadsheet such as Excel or Google Sheets to build your nursing home's financial forecast?
Creating an accurate and error-free nursing home financial forecast on Excel (or any spreadsheet) is very technical and requires both a strong grasp of accounting principles and solid skills in financial modelling.
Most entrepreneurs lack the expertise required to create an accurate financial forecast using spreadsheet software like Excel or Google Sheets. As a result, it is unlikely anyone will trust your numbers.
The second reason is that it is inefficient. Building forecasts on spreadsheets was the only option in the 1990s and early 2000s, nowadays technology has advanced and software can do it much faster and much more accurately.
This is why professional forecasters all use software. With the rise of AI, software is also becoming smarter at helping us detect mistakes in our forecasts and helping us analyse the numbers to make better decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and updating your forecast as the year progresses is manual, tedious, error-prone, and time-consuming. Whereas financial forecasting software like The Business Plan Shop is built for this.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Use our financial forecast templates for inspiration
The Business Plan Shop has dozens of financial forecast examples available.
Our templates contain both a financial forecast and a written business plan which presents, in detail, the company, the team, the strategy, and the medium-term objectives.
Our templates are a great source of inspiration, whether you just want to see what a complete business plan looks like, or are looking for concrete examples of how you should model financial elements in your own forecast.
Takeaways
- Having a financial forecast enables you to visualise the expected growth, profitability, and cash generation for your business over the next three to five years.
- Tracking actuals vs. forecast and keeping your financial projections up-to-date is the only way to get a view on what your nursing home future cash flows may look like.
- Using financial forecasting software is the mordern and easy way to create and maintain your forecasts.
This is the end of our guide on how to build the financial forecast for a nursing home, we hope you found it useful. Don't hesitate to contact us if you want to share your feedback or have any questions.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Also on The Business Plan Shop
- Example of financial forecast
- How to write a business plan for a nursing home
- How to project sales for a business?
- Example of financial forecast for business idea
Know someone who owns or is thinking of starting a nursing home? Share our forecasting guide with them!
Founder & CEO at The Business Plan Shop Ltd
