Management Reports - What the Team Should be Monitoring CVC West 2010 Tom A. Mc. Ferson, CPA, ABV www. gattomcferson. com
Managing the Practice – Where to start? – What to look at? – Limited time – Limited resources www. gattomcferson. com
Managing the Practice Technicians, managers and owners can be bombarded with financial information. Given the limited amount of time they can devote to management, determining which information to focus on can be an important task. www. gattomcferson. com
Financial Information Goals – Have good handle on practice finances and issues – Be efficient with time • Work-life balance – Find management information “sweet spot” • Not too little • Not too much www. gattomcferson. com
Financial Information Goals – System of financial reports in place • Timely • Reliable • Automated as possible – Paints the “picture” – Use to make decisions – Be sure to follow up www. gattomcferson. com
Important to Remember… • Frequency of information – – – Daily Weekly Monthly Quarterly Annually • Set up reports to be as automated/easy to prepare as possible. www. gattomcferson. com
Important to Remember… • Determine who prepares these reports. – – Technician Manager Bookkeeper Accountant • Determine what are you looking for when you review these reports. • What action should you take based on the information you’ve reviewed? www. gattomcferson. com
Management reports are only as good as the information they are created from. Always ensure that your source documents are accurate and timely. www. gattomcferson. com
Source Documents/Data – Daily Totals – Accurate bank balance – Payroll registers – Doctor production reports – Monthly Production Reports by Service Area – Bills/Vendor Invoices/Disbursements/Checks Written www. gattomcferson. com
Source Documents/Data – Quickbooks – Financial Statements – Tax Returns – Overtime/Vacation Information – Budget – Competition www. gattomcferson. com
Daily – Daily Deposit a. From practice management software 1. 2. 3. Breakdown of deposit: cash/check/CC Breakdown of service Breakdown by doctor – Practice Schedule for following day – Practice Schedule for day just ended • • Cancellations Walk ins www. gattomcferson. com
Daily – Flash Report a. Summarize activity by day: a. b. c. d. e. f. Daily Revenue Daily Deposit Daily A/R Balance Daily Checking Account Balance Client Visits New Clients www. gattomcferson. com
Daily – – Helps you monitor day to day activity Keep an eye on spikes Monitor checking account Issues with schedule www. gattomcferson. com
Weekly – Flash Reports a. Summarizes activity by week a. b. c. d. e. f. g. h. Weekly Revenue Weekly Deposit Weekly A/R Balance Weekly Checking Account Balance Client Visits New Clients Cash Flow Compared to prior year www. gattomcferson. com
Weekly – Helps you monitor weekly activity – Keep an eye on spikes – trends begin to develop www. gattomcferson. com
Monthly – Financial Statements • • Profit and loss Balance Sheet Statement of Cash Flows All important…all give you results www. gattomcferson. com
Importance of Understanding Clinic Financial Matters • • Financial statements are the only reports a practice has that summarize the results of all the decisions made when operating the practice Financial acumen is key to increased personal earnings
Financial Statements Revenues Services Other revenue Expenses Direct costs • drugs/supplies • lab costs Indirect costs • payroll • rent • utilities • insurance • other Earnings Income Statement (P&L) ASSETS Liabilities Tangibles • Cash • Inventory • Equipment • $ from lenders + Equity Intangibles Goodwill $ • Personal $ • Earnings = $ Balance Sheet
Basic Financial Statements • Balance sheet • Income statement • Statement of cash flows
Balance Sheet • Accounting statement summarizing the financial position of an entity at a point in time Assets = Liabilities + Equity
Income Statement • Accounting statement reflecting the financial performance of an entity between two points in time • The statement of many names – Profit and loss statement (P&L) – Statement of operations – Statement of revenues and expenses • Represents the equation Revenue – Expenses = Net Income
Financial Statements and the Passage of Time Balance sheet Dec. 31, 2009 Balance sheet Dec. 31, 2010 Income stmt 2010 Stmt of cash flows 2010
Uses of Financial Statements • Basis for tax returns • Provide information – Results of operations – Assets (resources) – Liabilities (claims against resources)
Uses of Financial Statements • Identify weaknesses – Business – Internal control • Plan for the future
Monthly – Profit and loss for month and year-to-date • Organized according to AAHA Chart of Accounts • With percentages (occupancy costs were 9% of gross revenues) • Comparable to industry • Gives you financial results for the month, and also year to date www. gattomcferson. com
Monthly – Profit and loss comparable to prior year • Show differences in $ and % • Should make you ask why? – Profit and loss comparable to budget • Show difference in $ and % • Should make you ask why? www. gattomcferson. com
Monthly – Balance Sheet • Comparable to prior year • Show differences in $ and % • Accurate Current assets – Cash – Inventory – A/R • Accurate Current liabilities – Accounts payable – Accrued Expenses www. gattomcferson. com
Cash vs. Accrual Accounting
Cash Accounting • Process of reporting revenues and expenses in the financial statements of the period when the cash is received or paid • Do not have a “matching” between when revenue generating activity occurs and when revenue recognized • Comparative financial statements less reliable
Accrual Accounting • Process of recording revenues and expenses in the financial statements of the period in which the transaction occurs vs. when cash is received or paid • Revenue recognized when earned • Expenses recognized when incurred • Comparative financial statements more reliable
Modified Cash Accounting • Primarily cash based • Some transactions handled on an accrual basis—inventory capitalization, fixed asset capitalization and depreciation • Accrual items usually determined by IRS requirements
Monthly – Statement of Cash Flows • P&L says I made money. Where is it? • Tracks where your cash went for the month – Bought fixed assets – Paid down debt – Owner distributions www. gattomcferson. com
Monthly – Accounts Receivable Aging • Depends on whether your practice has much in way of A/R • Should show – – – Current (under 30 days) 31 -60 days 61 -90 days 91 -120 days Over 120 days…(deadbeats) • Ask yourself, what to do about certain clients? www. gattomcferson. com
Accounts Receivable • Extra profit you generate from offering this service must exceed costs to administrate and bad debt write-offs • Chance of collection if receivable is one month old— 93. 8%, chance of collection if 12 months old— 26. 6%--don’t wait too long! : Commercial Collection Agency Section of the Commercial Law League of America
Monthly – Accounts Payable Aging • Are you current with bills? • What bills are coming due (property taxes, delayed drug bills) • Should show – Current (under 30 days) – 31 -60 days – 61 -90 days – 91 -120 days – Over 120 days…(you’re the deadbeat) • What to do about lagging payables/cash flow problems www. gattomcferson. com
Monthly – Doctor Production Summary Total production for each doctor for the month Should also include benefit versus cost analysis If on straight production pay, easy…. If not, need to calculate what they would have made if on production versus what they were paid • Average per client • Number of clients seen • Number of days worked • • www. gattomcferson. com
Total Doctor Revenue • Includes revenue for all medical and surgical services • Does not include revenue for ancillary services— boarding, grooming, OTC product sales • Usually 85 -90% of total practice revenue
What Can Cause Changes? • Fee increases • Change in transactions (# clients or # of visits per client) • Change in ATC • Change in support staff (#, competency) • Equipment additions
What Can Cause Changes? Demographics Range and mix of services Changes in economy Not recommending all appropriate diagnostics and treatments • Not charging for everything done • Discounts • Efficiency • •
Quarterly – Income Tax Analysis • • Estimated taxes for year are usually based on prior year income Compare expected quarterly profit to actual Determine whether estimated taxes or withholding need to be adjusted Important if income is up or down significantly www. gattomcferson. com
Quarterly – Inventory Count • • • Update your quarterly inventory counts Look for fluctuations/surprises Reason? Big drug order? Something not accounted for? Adjust ordering for next quarter accordingly www. gattomcferson. com
Quarterly – Staff Overtime Analysis • Summarizes number of overtime hours paid to each employee • If excessive, why? – Short-staffed? – Someone out sick? – Busy month? • • Who approved these hours? Is it becoming a pattern? Cost? Need another employee? www. gattomcferson. com
Quarterly – Vacation/Sick Pay • Summarizes by employee what each is currently owed in vacation/sick/personal days • Helps you plan ahead • Depending on policy, plan for upcoming vacations or extra compensation • Someone not taking vacation? Why? • Someone “overdrawn”? Why? www. gattomcferson. com
Quarterly – Analysis of Competition • • • Hours they’re open Doctor schedules Exam fees Prices on other shopped items Specials or discounts running www. gattomcferson. com
Quarterly – Analysis of Vendors • When possible, compare prices of certain drugs/medications • Quantity ordered per month • Possible savings www. gattomcferson. com
Annual – Annual Financial Statements • • • Profit and loss – comparable to prior year Profit and loss - comparable to budget Profit and loss – comparable to industry Balance Sheet Statement of Cash Flows www. gattomcferson. com
Annual – Annual Financial Statements • • How did you do? Improvement? Changes implemented? Important to have good historical data for next year’s budget. www. gattomcferson. com
Annual – Next Year’s Budget • • • Where do you want practice to go? Month by month Helps plan for cash flow Use historical data Goal setting Motivating www. gattomcferson. com
Annual – Tax Return • Ultimate management report • Everything according to plan? • What about next year? www. gattomcferson. com
Annual – True Profitability Analysis • Income statement often includes: – – Extra compensation Excess rent Owner perks Other unusual or one-time only expenses • What was your true profit, after you adjust for all of these? • Tax versus value often butt heads • Target: 15 -20% • Used for valuation www. gattomcferson. com
Annual – Valuation Analysis • What is the practice worth? • Important to know: – – Future sale Future buy-in Estate planning Curiosity • What have outside forces done to the value of your practice? • Often largest asset in net worth – important to know its value www. gattomcferson. com
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Questions? Answers
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