Lab Leaders Boot Camp - 2008 Lab Institute · 2017-06-06 · Lab Leaders Boot Camp - 2008 Lab...

© 2008 Chi Solutions, Inc. Proprietary and Confidential.

Lab Leaders Boot Camp -

2008 Lab Institute

Lab Budgeting and

Financial Management Basics

September 17, 2008Presented by Jim Root, MBAAdvisor and Senior ConsultantChi Solutions, Inc.

2 GRAPHICS/OTHER/WASHINGTON G-2/LABINSTITUTE2008/LABBUDGETINGANDFINMGMT.PPT

TopicsWhy Important

Financial Management Overview

Survey Results on Profitability

Income Statement

Case: Superior Laboratory

Key Performance Indicators/Benchmarks

Budgeting

Case Scenario Forecast


Why Important?Protect Your Career!

Build a reputation as a great, all around manager.

Survive future challenges:

Requirements continue to further cut expenses.

Survive a sale of your lab.

If you can’t measure it, you can’t manage it!

“What gets done is not what is expected, but what gets inspected!” Ichak Adizes, PhD, Business Expert and Author

What you don’t know may hurt you.

Knowledge is power and a confidence-builder.

In the lab business it is “Survival of the fittest.” Jim Fantus


Financial Management: An OverviewDefinition

Financial management is concerned with all aspects of how the business deals with its financial resources in order to maximizeprofit over the long-term.

Components

Financial Management involves the following activities:Financial planning: Predicts the performance of the business in financial terms to give an overall measure of how it is performing and provides a basis for financial decision-making and for raising capital.

Financial accounting: Clarifies, records, and interprets in monetary terms transactions and events of a financial nature; involves maintaining records of transactions (book-keeping), preparing balance sheets and profit and loss statements, and managing cash. The statements prepared by the firm will be audited to ensure that they present a “true and fair view” of its financial performance, and position.

Source: www.arunk.com


Financial Management: An OverviewFinancial Management involves the following activities: (cont.)

Financial analysis: Analyzes the performance of the business in terms of variance analysis, cost-volume-profit analysis, sales mix analysis, risk analysis, cost-benefit analysis, and cost-effectiveness analysis.

Management accounting: Accounts for and analyzes costs, provides the basis for cost allocation to products, offerings, or processes, prepares and controls financial budgets and deals specifically with overhead and responsibility accounting.

Capital appraisal and budgeting: Selects and plans capital investments based on the returns likely to be obtained from those investments. The capital appraisal techniques comprise rate of return, payback, and discounted cash flow.

Source: www.arunk.com


Financial Goals for Lab Outreach/GrowthGeneration of revenue, margin, and capital to benefit the organization and support new technology.

Cost reduction via volume growth.

Ability to support a broader test menu via higher volumes, new revenue, and lower unit cost.

Source: Earl Buck, Vice President, Chi Solutions, Inc., Executive War College 2008.


Outreach ProfitabilityNATIONAL SURVEY

Yes No Unsure

Has your outreach profitability been analyzed? 69.3% 19.3% 11.4%

Actual Estimated Unsure

Was net revenue actual or estimated? 40.6% 47.8% 11.6%

Yes No Unsure

Expenses included:Hospital OverheadLaboratory AdministrationOutreach Support

38.1%70.3%85.9%

54.0%23.4%7.8%

7.9%6.3%6.3%

Average Incremental Unsure

Technical costs based on:Average or Variable/Incremental 19.7% 54.5% 25.8%

Source: Chi Solutions, Inc.


Outreach Profitability (cont.)

Chief Financial Officer Survey Respondent

Yes 62.7%

General Opinion

No 7.2%

Uncertain 30.1% Yes

87.1%

No 3.5%

Uncertain 9.4%

Breakeven 16.1%

SomewhatProfitable

58.1%

Very Profitable

24.2%

78.9% indicated that their programs were very or somewhat profitable.

Loss1.6%

BELIEF THAT YOUR OUTREACH PROGRAM IS PROFITABLE



PROFITABILITY DATA

CoreLaboratory (8)

Full ServiceHospital Laboratory (28)

% Contribution Margin1 % Contribution MarginMaximumUpper QuartileMedianLower QuartileMinimum

Average (Mean)Standard Deviation

30.0%28.1%26.2%23.1%20.0%

25.4%5.0%

64.0%38.0%20.0%13.5%11.0%

27.6%18.9%

MaximumUpper QuartileMedianLower QuartileMinimum

Average (Mean)Standard Deviation

$ 13,768,823$ 7,525,297$ 4,750,000$ 1,658,333

$ 450,000

$ 5,581,668$ 4,899,447

$ 50,000,000$ 10,202,977

$ 4,967,432$ 2,260,312

$ 661,789

$ 9,412,652$ 12,614,310

1Data excludes

two core laboratory organizations with a contribution margin of

greater than 75.0%.



CONTRIBUTION MARGIN -

LAST FOUR YEARS

21.2%

17.5%

20.7%

18.0%

24.8%

21.0%

27.6%

20.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

2004 2005 2006 2007

Average Contribution Margin Median Contribution Margin

20.0%

15.0%

31.5% 30.0% 29.8% 28.1%25.4% 26.2%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

2004 2005 2006 2007

Average Contribution Margin Median Contribution Margin

Full-Service Hospitals Core Laboratories


Outreach Billing and ComplianceACCESS TO BILLING INFORMATION

Yes No Unsure

Access to net revenue information? 50.6% 38.8% 10.6%

Hospital Outside

Billing performed by hospital or outside service? 72.1% 27.9%

Yes No Unsure

Ability to obtain billing information by:ClientSales RepresentativeCourier RouteMarket Segment

71.7%9.3%9.1%

41.8%

25.0%87.0%87.3%49.1%

3.3%3.7%3.6%9.1%


Data Availability

Volume of Tests -

80.2%Corrected Reports -

74.4% Quantity Not Sufficient Specimens -

74.4% Lost Specimens -

67.4%Missed Pick-ups -

67.4%Data Entry Errors -

66.3%Volume of Requisitions -

66.3%Specimen Integrity Compromised -

64.0%Quality Control Failures -

59.3%Tests Per Requisition -

55.8%Turnaround Time for Key Test by Client -

52.3%Volume of Requisitions or Tests by Hour of Day -

33.7% Gross Revenue Per Requisition -

32.6%Payor Mix by Client -

30.2%Number of Calls Per Day Per Service Rep -

29.1% Profitability by Client -

26.7%Hold Time for Incoming Calls -

20.9%Denials by Client -

19.8%Rate of Abandoned Calls -

19.8%Net Revenue Per Requisition -

18.6%Variances to Average by Client -

15.1%Net Revenue Per Sales Rep -

7.0%Profitability by Sales Rep -

4.7%

0 % 2 0 % 4 0 % 6 0 % 8 0 % 10 0 %

ACCESS TO INFORMATION


Data Availability (cont.)

BENCHMARKING UTILIZATION

Yes No UnsureDo you participate in a benchmarking program that compares your lab costs to other similar organizations?

If so, do you benchmark financial and productivity metrics?

62.5%

55.8%

28.4%

44.2%

9.1%


The Big Three Financial Management ToolsIncome Statement

i.e., Profit and Loss Statement.

Home of the “Bottom Line.”

Helps contain expenses.

Track monthly.

Balance Sheet

Formula: Assets - Liabilities = Equity.

Equity = The owner’s stake; not necessarily value.

Review monthly.

Cash Flow Statement

Sources and uses of funds.

Where did your cash come from?

Where did your cash go?


Income StatementAccounting Methods

Cash Accounting: Records an expense when it is paid and revenue when the cash is received.

Accrual Accounting: Ties the expense and revenue of a transaction together, or “matches” expenses to revenue.

Basic Formula

Revenue - Expenses = Profit (Loss)

Key Definitions

Net Revenue: Money received from clients, patients, and third-party payors for laboratory services. In accrual accounting, this represents Gross Revenue (charges) minus estimated contractual allowances.

Cost of Services: Includes variable and fixed direct costs for the provision of laboratory services; for example, variable labor costs, supplies and reagents, vehicle costs, variable pathology fees, etc.


Income Statement (cont.)

Key Definitions (cont.)Selling Expense: Costs related to sales, marketing, and promotion.

General and Administrative: Most other expenses relating to general management, accounting, billing, etc.

Bad Debt: Uncollectables to be written-off.

Depreciation: Write-off of tangible assets such as equipment.

Amortization: Write-off of intangible assets, such as goodwill from the acquisition of another laboratory.

Operating Margin (Income): Profit before taxes, interest and unrelated income and expenses derived from non-testing activity. For example, the sale of an asset would be unrelated income.

Profit Before Taxes: Amount of excess income (or loss) resulting from the business, before applying state and federal income taxes.

Net Income: The amount of revenue left after all obligations.

EBITDA: Earnings (Net Income) before interest, taxes, depreciation, and amortization expenses are deducted.

Source: Business Strategies for Laboratory Outreach Programs, James Fantus, Washington G-2 Reports, 2002 Programs.


Income Statement - Superior Laboratory Example

Superior Laboratory CharacteristicsIndependent laboratory owned 100% by a not-for-profit health system comprised of:

240-bed hospital100-bed hospital225 physician clinic/multiple locations

Rural market coverage.$19.1 million in annual net revenue.Lab outreach is 64% of its volume (non-registered patient business).92 FTEs in variable cost; 52 FTEs in overhead allocation; 144 total FTEs.1.6 million billable tests.Test Sources: IP, 24%; OP, 12%; OR, 64%.Two free-standing specimen collection centers.Does not perform Blood Gas Testing, Special Immunology/Serology testing, TB testing, Molecular biology (PCR) testing, and Cytogenetics.Tax paying not-for-profit entity.


Income Statement Superior Laboratory Example -

Year Ending May 2008Actual Budget Variance %

Gross RevenueContractual Allowances

$45,532,73026,401,990

$45,522,71427,256,658

$10,016854,670

0%3.1%

Net RevenueCollection Rate

$19,130,74042.0%

$18,266,05440.1%

$864,686 4.7%

Operating Expenses:Salaries and WagesEmployee BenefitsReagentsSupplies, OtherFees/expenses, OtherBad DebtDepreciationRents and LeasesInterest ExpenseOccupancy ExpenseBusiness OfficeInformation Technology

$3,450,766938,574

1,939,3721,473,9021,123,968

573,356126,942528,91042,224

131,380585,742917,016

$3,267,924887,840

1,940,8321,499,152

864,048435,584120,790569,40246,268

139,126603,140784,322

($182,842)(50,734)

1,46025,248

(259,920)(137,770)

(6,152)40,4924,0467,746

17,398(132,494)

(5.6%)(5.7%)

0.0%1.7%

(30.1%)(31.6%)(5.1%)

7.1%8.7%5.6%2.9%

(16.9%)

Total Operating ExpensesOperating Income Before Overhead

$11,832,152$7,298,588

$11,158,626$7,107,428

($673,524)191,162

(6.0%)2.7%

(cont.)


Income Statement Superior Laboratory Example -

Year Ending May 2008Actual Budget Variance %

Overhead Allocation:Salaries and WagesEmployee BenefitsOther Expenses

$1,958,440145,70219,174

$1,733,938135,32811,478

($224,502)(10,374)(7,694)

(13.0%)(7.7%)

(67.0%)

Total Overhead ExpensesNet Income Before Location OverheadLocation Overhead

$2,123,316$5,175,274$1,368,570

$1,880,744$5,226,684$1,449,080

($242,572)($51,410)

$80,510

(12.9%)(1.0%)

5.6%

Net Income (Before Tax)% of Net Revenue

$3,806,70419.9%

$3,777,60420.7%

$29,100 1.0%


Income Statement Superior Laboratory Example (cont.)

What we learned:

Total Operating Expenses were high against budget by 6.0%, and total overhead expenses were high against budget by 12.9%. (We also know the line items that are out of whack.)

Net Income budget was achieved only by exceeding Net Revenue budget by 4.7%, accomplished by better collection rate - 42.0% to budget of 40.1%.

But, we did not learn:

How cost-efficient is the operation.

How much of the profitability is due to favorable pricing/payment environment.

What operational savings might be considered for next year’s budget.


Key Performance Indicators/BenchmarksOverall Financial Indicators (Understand Current and Trend):

Net Income Before Tax

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)

Contribution Margin (CM):

Variable Costs as a Percent of Net Revenue

Net Revenue -

Variable Costs = CM

or

Marginal Revenue -

Marginal Cost = CM

Revenue ∆MR =

Quantity ∆Total Cost ∆

MC =Quantity ∆


Key Performance Indicators/Benchmarks (cont.)

Overall Financial Indicators (Understand Current and Trend) (cont.):

Payback period (# of years to recover investment):

Current Ratio:

Quick Ratio:

Initial Investment= Payback Period

Annual Cash Inflow*

*Discounted method is more accurate; considers time value of money.

Current Assets= Current Ratio

Current Liabilities

Cash and Cash Equivalents= Quick Ratio

Current Liabilities



Revenue and Volume Indicators (Watch Total and By Client):

Net Revenue Trend

Collection Rate (Collections/Gross Charges)

Net Revenue per test and accession

Tests per accession

Client growth

Test and accession volume growth



Billing and Collections Indicators:

Days Sales Outstanding (DSO)

Pending Amount on missing information (total and by client).

Percent of Requisitions requiring follow-up (total and by client).

A/R aging analysis by payor.

Annual Net Revenue= Average Net Revenue/Day

365

Accounts Receivable= DSO

Average Net Revenue/Day



Billing and Collections Indicators (cont.):

Denied claims rate on first submission by payor

Bad debt write-off rate

Payer grid analysis:

Collection rate

Net Revenue/Test

Net Revenue/Accession

Medicare 12.1%

HMO 11.7%

Medicaid 10.7%

Fee for Service 9.8%

Source: Laboratory Economics’

Billing and Collections Survey, February 2008.



Operations Indicators (Compare to Benchmark):Net Revenue/FTEPerformed Tests/Total Paid HourPerformed Tests/Testing Paid HourStaff Average Labor Rate/HourTotal Expense/Total RVUsPerformed Expense/Performed TestLabor Expense/Performed TestBenefits Expense/Performed TestSupply Expense/Performed TestEquipment Expense/Performed TestRepair and Maintenance, Expense/Performed TestLease and Rental Expense/Performed TestDepreciation Expense/Performed TestOther (Misc.) Expense/Performed TestReferral Expense/Referred Test



Operations Indicators (Compare to Benchmark): (cont.)

Staffing Mix:% Supervisors to Total FTEs% Testing FTEs to Total FTEs% Support FTEs to Total FTEs% Phlebotomy FTEs to Total FTEs

Test Complexity:Performed Test Complexity Index (TCI)Referred Test Complexity Index (TCI)Total Test Complexity Index (TCI)

% OT Hours to Total Paid Hours% OT $ to Total Labor ExpenseEmployee TurnoverTotal Tests/Courier FTETotal Tests/Processor FTETotal Tests/Billing FTETotal Tests/Customer Service FTE


BudgetingCommon Budgeting Maladies:

Budget is based on past expenditures rather than on a thought out program for the future.

Responsibility for budget development is abdicated to the Financial Department.

Budget is held to be sacred and fixed.

How to Budget Properly:Develop your budget to support your program.

Develop a budget that will be variable in relation to actual accomplishment (flexible budget).

Focus on controllable revenue and expenses.

Specify how to handle unplanned expenditures.

Let each of your managers/supervisors decide on their component budget.

Set realistic targets; discourage overestimating costs to more easily “beat the budget.”


Budgeting (cont.)

Budgeting Process to Achieve Goal Congruence

Source: Management Accounting Demystified, 2006, McGraw-Hill.

Short-runObjectives

Organizational Unit’s Goals and Objectives

Periodic Performance Evaluation

Individual Beliefs, Values, and Expectations

Organizational Mission and Goals

StrategicEvaluation

Guidelines for Budget Preparation

Strategic Plan

ActualReported Results

Master Budget


Budgeting (cont.)

Lab Budget ElementsIncome Expenditure

Outreach/Service Support Operations Budget

Sales and Marketing Budget

Sales Budget

Roll-up Budget

General and Administrative Budget

Production Costs Budget

Income StatementBalance Sheet*

Cash Flow Statement*

Capital Budget

*For Free-Standing Lab Entities


Budgeting (cont.)

Sales BudgetFirst schedule to be prepared; foundation for all expenditure budgets.

Prepared in both billable tests and dollars.

Test Volume Jan Feb March Existing Billable Tests -

1% ↑

paNew Billable TestsAttrition -

Billable Tests

133,444500

(100)

120,2001,000(100)

133,6661,500(100)

Total Billable Tests 133,844 121,100 135,066Net RevenueExisting Net Revenue/BTExisting Revenue -

No Change AttritionNew Net Rev/BTNew Net RevenueIncreased Collections (Billing Efficiencies)

$11.94$1,593,321

($1,194)$12.00$6,000

$11.94$1,435,188

($1,194)$12.00

$12,0002,000

$11.94$1,595,972

($1,194)$12.00

$18,0002,000

Total Net Revenue $1,598,127 $1,447,994 $1,614,778

Example:


Budgeting (cont.)

Outreach/Service Support Operations Budget

Identifies costs directly related to operations expenses outside the processing/testing function, incurred primarily to service “non-patient” business.

Line item examples:Client Services:

LaborBenefitsOther Expense

Supplies:Client SuppliesOffice Supplies

Information Technology:LaborBenefitsPurchased ServicesDepreciation

Courier:LaborBenefitsContract Courier/ShippingVehicle ExpenseOtherDepreciation

PSC:LaborBenefitsRentSuppliesTelephone and UtilitiesOther ExpenseDepreciation


Budgeting (cont.)

Sales and Marketing Budget

Line item examples:

Salaries/Compensation:ManagementSales RepresentativesField Service Reps

BenefitsBusiness ExpensesVehicle Operations and MaintenanceVehicle DepreciationBusiness Mileage ExpenseCell Phone ExpensePromotional ExpenseOther Expense


Budgeting (cont.)

Special Notes

For an Integrated, Multi-lab System:

Suggestions:

Allocate expense line item of core or central lab on basis of each site’s percentage of RVUs compared to 100% of RVUsprocessed.

Allocate expense to each lab site that will bill for the service, regardless of the physical location where the test is performed.

Leases Defined:

Operating Lease: Ownership of the item being leased never passes from the lessor to the lessee. The total monthly charges are fully expensed.

Capital Lease: Virtually a lease-purchase agreement. At the end, there is a nominal buyout, often $1.00. This lease has Balance Sheet implications: The value of the equipment is listed as an asset and depreciated under a normal schedule.


Budgeting (cont.)

Special Notes (cont.)

Rule of 78Used to project revenue value for the first twelve months of a sales rep’s business development.

Year 2 = $5,000 x 12 x 12 = $720,000

Example: Net NewBusiness

Month

1 2 3 4 5 6 7 8 9 10 11 12

$5,000 x x x x x x x x x x x x

$10,000 x x x x x x x x x x x

$15,000 x x x x x x x x x x

$20,000 x x x x x x x x x

$25,000 x x x x x x x x

$30,000 x x x x x x x

$35,000 x x x x x x

$40,000 x x x x x

$45,000 x x x x

$50,000 x x x

$55,000 x x

$60,000 x

$390,000 = $5,000 x 78


Budgeting (cont.)

Flexible Budget (Simple Form)

Static Budget: Based on one level of activity.

Flexible Budget: Considers appropriateness of costs on any level of activity. It is normally presented in the contribution margin format.


Budgeting (cont.)Flexible Budget (Simple Form) Example:

Actual Budget Variance %Total Billable TestsNet Revenue/BT Net Revenue

140,000$12.00

$1,680,000

133,444$11.94

$1,598,127

6,556$0.06

$81,873

4.9%0.5%5.1%

Variable Costs:

Total Variable Costs $1,008,000 $958,876 $49,124 5.1%Contribution MarginContribution Margin %

$672,00040.0%

$639,25140.0%

$32,749 5.1%

Fixed Costs:

Total Fixed Costs $324,251 $324,251 – 0.0%Net Income $347,749 $315,000 $32,749 10.4%Net Income % 20.7% 19.7%


Case Scenario ForecastReview of Key Indicators

Revenue/FTE (2007)Superior LabBioReference

LabsQuest DxLab Corp

$132,852/FTE$173,189/FTE*$154,136/FTE*$153,517/FTE

*Laboratory Economics, April 2008.

Revenue/Requistion

(2007)Superior LabQuest DxLab CorpHospital LabsRoutine Indep. Labs

$35.82/Req$42.08/Req*$37.92/Req*$43.12/Req*$43.81/Req*

*Laboratory Economics, March 2008.

Net Revenue/Billable Test (2007)Superior LabRoutine Indep. LabHospital Lab Outreach

$11.94$14.60*$13.07*


Operating Profit Margin (2007)Superior LabQuest DxLabCorp

19.9%16.3%* ($6.1 Billion company)20.4%* ($4.1 Billion company)


PreTax

Profit/FTE (2007)Superior LabQuest DxLab CorpBioReference

Labs

$26,435$20,975$30,275$15,842

*Laboratory Economics, April 2008.


Case Scenario Forecast (cont.)

Review of Key Indicators (cont.)

Average Percent of Gross Charges Collected by Outreach FirmsSuperior LabRoutine Indep. LabsHospital Labs

42.0% (2007)

54.0%*44.0%*


Bad Debt RateSuperior LabQuest DxLab Corp

3.0% (2007)

4.4%*4.8%*


Managed Care Contract ProblemSuperior Lab has a FFS managed care contract encompassing 10% of

its outreach business (i.e., 6.4% overall). The pricing was unfavorable and the contract ended 12/31/07; the MCO did not agree to the new fee proposal. The average payment under this contract was $10.15 per BT. This business is expected to be lost in its entirety.



RR= Reportable Results = Billable Tests (AMA CPT codes) except panels and profiles count each analyte

(i.e., a Basic Metabolic Panel is counted as eight while a single glucose test is a one). Statistical analysis revealed this method better represents laboratory workload than counting profiles and panels as one each.




Actions for Forecast

Account for the lost managed care FFS contract effective immediately. The value of the lost business is $1,224,367 at $10.15/BT, involving 120,627 tests.

Improve new business development to $5,000 per month net new business effective beginning of forecast period.

No change in operational expense section due to high rankings onkey indices. Increasing sendouts from 0.2% to 1.0% would add $479,000 to expenses! Decision: Leave sendout rate as is.



Cost Assumptions ForecastRevenue/Volume Change Forecast:

Sendout test count: no change.

BTsNet Revenue

per BT Net RevenueManaged Care ContractNew Business

(120,627)59,603

$10.1512.08

($1,224,367)720,000

Net (61,024) ($504,367)



Cost Assumptions Forecast (cont.)

Expense Forecast:Salaries and Wages, Benefits:

No reduction in staff.Salaries increase of 3.1%; benefits increase of 7.8%

Supplies Expense:Increase of 3.0% per test.

Inflationary increases for the following:

Reference ExpRepair and MaintenanceOther ExpenseRental and Lease ExpensesDepreciation ExpenseOH Allocation:

Location ExpenseOverhead Allocation: Other

3.2%3.2%3.0%0.0%0.0%

0.0%1.5%



Budget (Annual) vs. Previous YE 5/08YE 5/08 Actual

Forecast Budget Variance %

Total Billable TestsNet Revenue/BTGross RevenueContractual Allowances

1,600,650$11.95

$45,532,73026,401,990

1,539,626$12.08

$44,348,50725,722,134

(61,024)$0.13

($1,184,223)(679,856)

(3.8%)1.1%

(2.6%)(2.6%)

Net RevenueCollection Rate

$19,130,74042.0%

$18,626,37342.0%

($504,367) (2.6%)

Variable Costs:Salaries and WagesEmployee BenefitsSupplies ExpenseReference ExpenseRepair and Maintenance ExpenseBad Debt ExpenseOther Expense

$3,450,766938,574

1,939,372473,29253,764

573,3562,070,814

$3,557,7401,011,7821,924,533

488,43755,484

558,7912,132,938

($106,974)(73,209)

14,839(15,145)(1,720)14,565

(62,124)

(3.1%)(7.8%)

0.8%(3.2%)(3.2%)

2.5%(3.0%)

Total Variable CostsContribution MarginContribution Margin %

$9,499,938$9,630,802

50.3%

$9,729,705$8,896,668

47.8%

($229,767)($734,134)

(2.4%)(7.6%)

(cont.)



Budget (Annual) vs. Previous YE 5/08YE 5/08 Actual


Fixed Costs:Rental and Lease ExpDepreciation ExpOverhead Allocation:

Salaries and WagesBenefitsLocationOther

$161,632140,112

1,958,440145,702

1,368,5702,049,642

$161,632140,112

2,019,152157,067

1,368,5702,080,387

––

($60,712)(11,365)

–(30,745)

––

(3.1%)(7.8%)

–(1.5%)

Total Fixed Costs $5,824,098 $5,926,920 ($102,822) (1.8%)

Net IncomeNet Income %

$3,806,70419.9%

$2,969,74815.9%

($836,956) (22.0%)



Forecast Impact

Questions:

Can Superior Lab develop enough new business to regain lost profits?

As a high performer in cost efficiency and productivity, what can Superior Lab do to further reduce unit costs?

Has Superior Lab passed its pinnacle in profitability; is it time to consider selling the entity for a higher value before further profit erosion?

YE 5/08 Actual


Net Revenue $19,130,740 $18,626,373 ($504,367) (2.6%)

Contribution Margin $9,630,80250.3%

$8,896,66847.8%

($734,134) (7.6%)

Net Income $3,806,70419.9%

$2,969,74815.9%

($836,956) (22.0%)


SummaryProtect your career–know your performance indicators and benchmarks.

Be certain of your profitability.

Get adequate detail on financial reporting to enable a good sales and operations budget.

Develop a flexible budget.

Remember:

If you can’t measure it, you can’t manage it!

Lab business is “Survival of the Fittest!”

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