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