Debit Logic and Risk Essay Example

Debit Logic and Risk Essay Example Debit Logic and Risk Paper Debit Logic and Risk Paper When any organization requires a debt, the organization has to first judge its own position, and there may be deals with the supplier to get a deal that will satisfy everybody. (Considering Alternatives to Bankruptcy) This is not possible when the supplier is a large organization, but it is always worth a try. The next alternative is to try to reduce the payments to a level where the hospital may pay without any difficulties, and some organizations may accept this considering that it is a method through which they will be able to service their own judgment of their social obligations at the cost of the profits on which they will have to pay out a large share as taxes to the government any way. For all these methods to be tried it is better to have associates with the organization who have gone on this route before and would like to do it again as a social service. (Preparing a business case) The correct method of taking any loan is to provide the requirement of loan as a business case. The case for the particular item has to be supported by the duration, scale and complexity of the proposal. Generally the purchases will be divided into two classes small scale asset purchase and large scale asset purchase. For purchase of small scale assets the loan will be given as a short term debt. Of course for the asset to be viewed as a small scale asset, the turnover of the hospital has to be large enough. The documentation that will be required will have to include details of the expected increases in terms of turnover and the additional benefits that can be provided by the hospital; descriptions of the uncertainties and other risks that are associated with the proposed investment; proof to show that the purchase of the item is in line with the general objectives that the hospital is supposed to do as per its objectives and goals; in applicable cases it should also show that the purchase is in line with the stated objectives of the government and its plans; details of income, expenditure and cash flow for the areas of the hospital that will be changed through the equipment and the differences from the flows that would have existed otherwise; when cash flows are given there should be clear provision for the repayment for the item being purchased; the financial rationale for purchase as worked out through a complete cost benefit analysis and this analysis should also indicate the non-fi nancial benefits to the hospital and the society as a whole; and finally the signed approval of the Chief Executive Officer. (Preparing a business case) Sometimes the asset will be of a bigger size in relation to the hospital and this will require a more detailed analysis. Then it will require an analysis of all the activities of the organization and this also has to be presented. These details should consist of the purpose that the fund will be used for and the expected results; estimates of cost and revenue for both the purchase and changed position of the organization due to the asset in the organization; proof of the present financial position of the organization with operating results, cash reserves and existing debt; a comprehensive risk analysis which should include the effects of variation in interest rates, variations in demand that may occur, or risks of delay in setting up the facility; the proof of a link to the stated aims of the organization, the plans for the medical services in the region, the business plans of the organization; for capital assets there should be evident proofs of links to the master plan of the organization, development plans and master plans; an analysis of the options available in terms of long, medium or short term loans, combinations of equity, reserves, client contributions together with fund raising, and even lease optio ns; and a projected annual cash flow of the organization in terms of source of funds, activity and program as also types of payments and receipts. The logic for the financing of the project should have options for short term financing with a loan of five years or less, as also for long term financing. The method of financing should have cost benefit analysis in terms of both financial and other benefits to the organization or the community and the government. In this case the definition of long term financing is for projects with durations longer than five years, or for funds more than $4 million, or a complex borrowing with loans being taken of different types. The methods for repayment should be accompanied by the concerned cash flows and expected balance sheets for the period. Finally this type of a proposal also has to be signed by the Chief Executive Officer. Well the details are quite confusing for a non-finance person, and may be summed up by saying that it should be based on solid evidence, the amount required has to be justified, the method chosen should be proven to be the best that is available and confirm that the financial strategies that are proposed are the best for the organization. (Preparing a business case) The risks for the hospitals on purchase of assets or development of any sort are quite high today. This is leading hospitals to find out developers to take charge of the entire project and the concerned equipment in 9 out of ten cases. The situation was different earlier when only one in ten of hospitals went this route. In todays situation hospitals are not willing to take the risks themselves. The developers are being called on to develop important outpatient health care centers within the grounds of the hospitals. There may also be doctors in partnership with the incoming developers. The main advantage of this strategy is that it permits the hospital to build up an alternative stream for collection of revenue. This is important as community hospitals have their own limitations in terms of revenue that they get and the liabilities that they have. In one case, a hospital wanted to build up facilities for treatment of cancer, and this required a new building, new physicians, and new equipment. (Developer-Owned Projects Help Hospitals Meet Capital Demands) This made the hospital turn to some financing groups and they took up the project with the construction of a 70,000 square foot three story medical building with a cancer center. Due to financial constraints the hospital wanted to own only the cancer care facility on the second floor with an area of 24,600 square foot and the parking garage. It did not want to own the physicians office spaces on the lower levels. Along with the expert it was decided that two condominium structures be built with one for the cancer center and the other for the physicians. The bank took the responsibility for the one they needed and left the other to the other group as this also gave the benefits in terms of tax to both the groups. When discussions are held with banks, it is possible for banks to advise the hospitals as to how the investment can be planned to achieve the goals of the hospital through creative financial methods for executing the mission. (Developer-Owned Projects Help Hospitals Meet Capital Demands) Bibliography : Considering Alternatives to Bankruptcy Retrieved from dummies. com/WileyCDA/DummiesArticle/id-1780,subcat-PERSONAL. html Accessed on 25 June, 2005 Huber, Matthew T. Developer-Owned Projects Help Hospitals Meet Capital Demands Retrieved from cnybj. com/hcpart_fullstory. cfm? article_id=2490return=stay Accessed on 25 June, 2005 Preparing a business case Retrieved from health. vic. gov. au/borrowing/case. htm Accessed on 25 June, 2005