Case 4.6: Yakima Valley Medical and Dental Clinic
Even though the Yakima Valley Medical and Dental Clinic (YVMDC) was projecting a sizeable deficit for FY 2022 (see Exhibit 2), Tatyana Sanchez, Director of YVMDC, was optimistic about the clinic’s future. Edward Lowe, the loan officer at Umpqua Bank (UB), was not. He was alarmed that YVMDC was projecting a deficit of more than 15 percent of operating revenues. While the bank would likely continue to extend the line of credit (LOC) to its long-term client at a rate of 4 percent per year, Lowe thought he should have a more candid conversation with the clinic’s leadership team. In his most recent conversation with Sanchez, he noted, “… without changes to your current business model, we are not sure how you’ll turn this ship around. You have already tapped into the LOC several times this year alone, and your current cash balances barely cover a month of your operating expenses. If you do not report positive cash flows and a surplus in FY 2023, the bank is concerned the clinic would become insolvent and perhaps even file for bankruptcy protection.”
Sanchez knew she had a lot of work ahead. She had to develop Pro-forma Financial Statements (Statement of Financial Position and Statement of Activities) and a Monthly Cash Flow Budget for FY 2023 (July 1, 2022, through June 30, 2023). Even though the clinic had a long-standing relationship with UB, Sanchez knew that presenting Lowe with compelling evidence that YVMDC would be both liquid and profitable would allow YVMDC to secure an LOC with the bank.
BACKGROUND
Yakima Valley Medical and Dental Clinic (YVMDC) was founded in 2003 by two retired doctors who recognized the need for access to affordable medical and dental services for a largely rural and migrant population living and working in Yakima Valley.
At first, YVMDC was small and operated out of a founder’s existing medical practice. At that time, YVMDC employed the two founders and three assistants. It gradually grew its operations, and by 2009, YVMDC desperately needed new clinic space. It purchased and renovated a small building in downtown Yakima in 2018. It also invested in new equipment and hired additional staff.
In early 2020, the board decided it needed to expand its reach to a rural population that did not seek medical or dental services. The board knew it would need to invest in mobile medical and dental clinics but required a “needs assessment” to be completed before making that investment. In mid-2021, following the needs assessment report, but without prior knowledge of the magnitude of the operating and cash flow deficits, the board approved the clinic’s expansion plan, including the purchase of the mobile clinics and new staff hires.
FINANCIAL INFORMATION
Since YVMDC serves a rural migrant population, demand for its services is seasonal. Approximately three-fourths of the clinic visits are in the early spring through late summer. Exhibit 8 reports forecasted monthly gross patient revenu