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Management Reports - What the Team Should be Monitoring

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1 Management Reports - What the Team Should be Monitoring
CVC West 2010 Tom A. McFerson, CPA, ABV

2 Managing the Practice Where to start? What to look at? Limited time
Limited resources

3 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.

4 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

5 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

6 Important to Remember…
Frequency of information Daily Weekly Monthly Quarterly Annually Set up reports to be as automated/easy to prepare as possible.

7 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?

8 Management reports are only as good as the information they are created from. Always ensure that your source documents are accurate and timely.

9 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

10 Source Documents/Data
Quickbooks Financial Statements Tax Returns Overtime/Vacation Information Budget Competition

11 Daily Daily Deposit Practice Schedule for following day
From practice management software 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

12 Daily Flash Report Summarize activity by day: Daily Revenue
Daily Deposit Daily A/R Balance Daily Checking Account Balance Client Visits New Clients

13 Daily Helps you monitor day to day activity Keep an eye on spikes
Monitor checking account Issues with schedule

14 Weekly Flash Reports Summarizes activity by week Weekly Revenue
Weekly Deposit Weekly A/R Balance Weekly Checking Account Balance Client Visits New Clients Cash Flow Compared to prior year

15 Weekly Helps you monitor weekly activity
Keep an eye on spikes – trends begin to develop

16 Monthly Financial Statements Profit and loss Balance Sheet
Statement of Cash Flows All important…all give you results

17 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

18 Income Statement (P&L)
Financial Statements Income Statement (P&L) Balance Sheet Revenues Services Other revenue Expenses Direct costs drugs/supplies lab costs Indirect costs payroll rent utilities insurance other Earnings ASSETS Tangibles Cash Inventory Equipment Liabilities $ from lenders + Equity Personal $ Intangibles Goodwill Earnings $ = $

19 Basic Financial Statements
Balance sheet Income statement Statement of cash flows

20 Balance Sheet Accounting statement summarizing the financial position of an entity at a point in time Assets = Liabilities + Equity

21 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

22 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

23 Uses of Financial Statements
Basis for tax returns Provide information Results of operations Assets (resources) Liabilities (claims against resources)

24 Uses of Financial Statements
Identify weaknesses Business Internal control Plan for the future

25 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

26 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 %

27 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

28 Cash vs. Accrual Accounting

29 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

30 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

31 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

32 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

33 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 days Over 120 days…(deadbeats) Ask yourself, what to do about certain clients?

34 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

35 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 days Over 120 days…(you’re the deadbeat) What to do about lagging payables/cash flow problems

36 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

37 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

38 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

39 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

40 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

41 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

42 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?

43 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?

44 Quarterly Analysis of Competition Hours they’re open Doctor schedules
Exam fees Prices on other shopped items Specials or discounts running

45 Quarterly Analysis of Vendors
When possible, compare prices of certain drugs/medications Quantity ordered per month Possible savings

46 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

47 Annual Annual Financial Statements How did you do? Improvement?
Changes implemented? Important to have good historical data for next year’s budget.

48 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

49 Annual Tax Return Ultimate management report
Everything according to plan? What about next year?

50 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: % Used for valuation

51 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

52 Copy of slides and budget template by email?

53 Questions? Answers

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