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Sunset Medical: A Statement of Cash Flow Case
Overview of Dr. Sally Jones Case Study
Dr. Sally Jones is a practicing Orthopaedic Surgeon in Colorado. A trade show was attended by Dr. Jones, the managing director at the Sunset Medical, when consultation firm, Physicians Medical Inc. (PMI) approached him, with the aim to provide the billing and administrative services. Dr. Jones decided to collaborate with PMI and signed the contract on February 2019. Dr. Jones gave the day to day operational control to PMI. PMI fired the office manager from her duties and took control of the company. In 2020, the financial statements for 2019 were made public and were not as satisfactory as that of previous year. Dr. Jones was worried that the increased control given to PMI is a mistake and has asked PMI to give a full assessment of the situation. Even after earning more than $400,000 in additional revenue, Sunset’s cash was low during the year. Moreover, Dr. Jones had borrowed $200,000 during the year, out of which $100,000 was utilized to purchase an X-Ray machine.
Key Issues
After analysing the case two issues were bought in light:
- Why it was required by the company to have significant amount of money for positive cash flow?
- Was the contact between Dr. Jones and PMI is needed to be terminated?
Facts Pertaining to Issue
The facts that connects to the issues are the sheets that are provided in the case is exhibit 1. i.e the Income statement
The Fact pertaining to issue number 2 is Exhibit no. 3 where the authority and responsibility of Medical Management Inc. is provided.
Solution to The Problem
- PMI and Jackson and Associates have prepared the financial assumption using different methods. Jackson and Associates have reduced the revenue by the amount receivable and has recorded the net receivables as nothing whereas no bad debts are shown by the PMI. Hence the effect of these differences in method has shown difference in inflation of revenue and receivables.
- With regard to reduce the conflict in the contract between sunset medical and PMI is to take away the authority on preparing financial statement duties from the PMI. The organisation can alter the contract with better terms and conditions
Recommendations on Dr. Sally Jones Case Study
- When there is absence of written directions from the CEO of the company in any respect it is important for PMI to exercise the reasonable business judgement and operation of the practice. The explanation regarding ‘reasonable business Judgement’ is needed to be provided.
- Jones must retain the right to hire and fire the employee of the company to himself or the CEO.
- The business manager of the company should consult, confer and cooperate with PMI regarding the service agreement set forward for the purpose of this agreement. Clear management hierarchy in regard to reporting and operations are needed to be provided
- Parties responsibilities are needed to be mentioned clearly with the set amount of consideration. The ambit of billing and administrative operation is needed to be explained very clearly in the contract.
- How the compensation is to be paid should it be on the revenue basis. Should it be fixed or variable these all should be kept in mind
- Sunset Medical should limit the authorisation in terms of finances, hiring, allocation of resources and marketing. A clear description of the job responsibilities is needed to be made by PMI. The PMI should be held liable for the wrong. Hence the company should have a risk management tool.
Conclusion on Dr. Sally Jones Case Study
Though nothing illegal is done by PMI with the financial statements. It can be concluded that the interim financial statements were used to persuade Dr. Jones which gave more control to the company. However, the responsibility given to PMI has actually decreased the internal control of Sunset. In regard to the contract with PMI can be rewritten according to the recommendation provided. It the teams are not suitable to the parties than that can even be terminated
References for Dr. Sally Jones Case Study
Deo, P. (2013). Pricing, Cost Structure, And Cash Flow. Journal of International Finance & Economics, Retrieved From http://www.iabe-doi.org/IABE-DOI/article.aspx?DOI=JIFE-13-3.6
Glassman, J. K. (2012). Go with the Cash Flow. Kiplinger's Personal Finance, 66(8), 16-18
Harnish, V. (2013). How do you get out of a cash-flow crunch?, Retrieved From https://fortune.com/2013/12/16/how-do-you-get-out-of-a-cash-flow-crunch/.
Mayberry, W. (2013). Cash Flow Relief Valves, Smart Business Akron/Canton, Retrieved From http://connection.ebscohost.com/c/articles/91977294/cash-flow-relief-valves
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