management reports - what the team should be monitoring cvc west 2010 tom a. mcferson, cpa, abv

Management Reports - What the Team Should be Monitoring

CVC West 2010Tom A. McFerson, CPA, ABV

www.gattomcferson.com

Managing the Practice

– Where to start?– What to look at?– Limited time– Limited resources


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.


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


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


Important to Remember…

• Frequency of information– Daily – Weekly– Monthly– Quarterly– Annually

• Set up reports to be as automated/easy to prepare as possible.


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?


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


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


Source Documents/Data

– Quickbooks– Financial Statements– Tax Returns– Overtime/Vacation Information– Budget– Competition


Daily

– Daily Deposita. From practice management software

1. Breakdown of deposit: cash/check/CC2. Breakdown of service3. Breakdown by doctor

– Practice Schedule for following day– Practice Schedule for day just ended

• Cancellations• Walk ins


Daily

– Flash Reporta. Summarize activity by day:

a. Daily Revenueb. Daily Depositc. Daily A/R Balanced. Daily Checking Account Balancee. Client Visitsf. New Clients


Daily

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


Weekly

– Flash Reports a. Summarizes activity by week

a. Weekly Revenueb. Weekly Depositc. Weekly A/R Balanced. Weekly Checking Account Balancee. Client Visitsf. New Clientsg. Cash Flow h. Compared to prior year


Weekly

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


Monthly

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


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

Balance SheetIncome Statement(P&L)

Financial Statements

+ • Personal $

• $ from lenders

RevenuesServicesOther revenue

ExpensesDirect costs

•drugs/supplies•lab costs

Indirect costs•payroll•rent•utilities•insurance•other

Earnings

•Earnings

Liabilities

Equity

$ = $

ASSETSTangibles

•Cash•Inventory•Equipment

IntangiblesGoodwill

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 equationRevenue – Expenses = Net Income

Financial Statements and the Passage of Time

Balance sheetDec. 31, 2009

Balance sheetDec. 31, 2010

Income stmt2010

Stmt of cash flows2010

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


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?


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


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


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?


: Commercial Collection Agency Section of the Commercial Law League of America

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!

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


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


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


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


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?


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?


Quarterly

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


Quarterly

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


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


Annual

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

budget.


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


Annual

– Tax Return• Ultimate management report• Everything according to plan?• What about next year?


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


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


Copy of slides and budget template by email?

Questions?

Answers

management reports - what the team should be monitoring cvc west 2010 tom a. mcferson, cpa, abv

Documents

equity slide

future slide

net income slide

financial results

personal earnings slide

uses of financial statements

financial position

financial performance