how to better manage your veterinary practice finances
Post on 30-Oct-2014
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1. Mark J. McGaunn, CPA/PFS, CFPPresident
MJM Financial Advisors, LLC114 Turnpike Road, Suite 107Westborough, MA 01581-2861 phone:(978) 405-3133e-fax:(978) 776-2609e-mail:email@example.com
New Ways to Manage Your Veterinary Practice with Financials
2. Todays Agenda
Who to Blame
Key Performance Indicators
Financial Strength Index
3. The Great Number Deluge
How healthcare organizations use financial data greatly affects current and future operational and financial performance. Two schools of thought:
1st school-Managers ask, Whats the number? If bad, they ask Whose fault? Organizations focus only on bottom line.
2nd more successful school led by Leaders who say, Now that we have the number, what proactive ideas can we implement based on it?
4. Lots of Responsibility
Veterinary practice owners and managers responsible for tracking projects, initiatives, clinical outcomes, policies, and procedures.
Data deluge causes owners to lose focus and fail to keep strategic thinking aligned with their veterinary practice's long-term vision.
Great strides in information collection and distribution, but
Significant improvements in decision-making value of that information not realized.
5. Bad Tech Solutions Not Better
Technology often just simply delivers more, irrelevant or inappropriate data quicker.
Great practices demand timely, relevant data.
Jack Welch, former General Electric CEO, had worldwide operating results delivered to his desk by day 5 of each month.
Much smaller businesses have trouble with 30 days.
6. Use Your Data
Knowing how to read financial statements and understand the information within them is often the difference between prosperity and just getting by.
Time-honored question asked by every healthcare professional is:
Are we making money?
7. Know Your Stuff
Veterinarians who don't carefully read such financial outcomes measurements run risks much as they would in failing to read medical outcomes carefully.
Your financial statements are key diagnostic tools for managing the veterinary practice, tracking revenues and expenses, identifying financial problems, and ultimately increasing everyones compensation.
8. Reporting Basics
You have to know the basics. The 3 financial reports used to monitor an organizations financial health are:
Income statement-lists revenue, expenses, and residual net income for specified period of time,
Cash flow statement-tracks operational, investing, and financing cash flows, and
Balance sheet-indicates veterinary practices degree of solvency and ownership equity
9. Basis of Accounting
Most healthcare-practice CPA's utilize "cash basis" method of accounting. Cash basis shows whats been collected and whats been paid.
Accrual basis presents income thats earned (not necessarily collected) and expenses incurred (not necessarily paid).
Both relevant for tax purposes. Accrual basis must be used for those practices where inventory a material income-producing factor.
10. Income Statements (P&L)
Of the three financial statements, P&L most adept and flexible device for monitoring practices financial health.
Most practices should review P&L review these at least monthly.
In addition to reporting patient income, employee costs, and overhead (office and medical expenses), income statements can even breakout incremental costs for various ancillary services (QuickBooks class system).
11. Comparisons & Budgets?
Income statements augmented by footnotes can explain to practice owners major deviations in revenue and expenses compared to previous periods.
Checking against a well laid out budget (that already incorporates these timing issues) can show that no extraordinary management is needed.
Budgets are not meant to be punitive tools.
12. Cost Structures
When studying your costs, remember that there are two general categories: fixed or variable.
Fixed costs remain the same regardless of volume. They include rent, insurance and utilities.
Variable costs, such as medical supplies, fluctuate with volume.
13. Variable Costs
Recognize, however, that variable costs vary differently.
i.e. medical supplies have a close relationship to volume, but staffing may vary in steps.
Important to recognize in budgeting, as well as in developing strategy.
14. Helpful Hint
BEFORE printing out financial statements to review:
Make sure all deposits, checks, and credit card charges have been entered to month end, and
Make sure all checking and credit card accounts have been reconciled
Then print out reports and use for analysis!
And it wont mess with your tax planning!
15. Simple QuickBooks Format
You should modify your QuickBooks chart of accounts to incorporate the AAHA chart of accounts format. No longer sold in healthcare version.
Makes practice to practice comparison easier.
It is not necessary for you to re-create the wheel in your endeavors of practice-to-practice uniformity.
16. AAHA Chart of AccountsBalance Sheet
Assets-Current, Fixed & Other (100 Series)
Liabilities-Current, Long-term (200 Series)
Equity (300 Series)
-Corporations (C or S)
-Equity for Partnerships or LLCs
-Proprietors Capital (Sole Proprietorship)
17. AAHA Chart of AccountsIncome Statement
Income (400 Series)
Cost of Goods Sold (500 Series)
Operating Expenses (600 and 700 Series)
Other Income & Expenses (800 Series)
Income Taxes (900 Series)
Measurement must incorporate key factors in developing measures that:
Extend throughout entire practice..
Tie into practice overall strategic plan.
Have consensus as to relevant and appropriate factors.
Based on both internal and external factors.
Empower employees, not stifle them.
Allow systematic review, and
Encompass each operating division in a veterinary practice.
Franchisors have utilized benchmarks to highlight financial strengths and weaknesses in store-to-store and intra-store measurements.
True progressives utilize intra-entity benchmarking and metrics to measure their progress (if already > average).
Financial metrics are typically only a component.
Customer Service s/b measured in all aspects.
How can we be cutting edge?
20. Your Primary Competition Is..,
What relevant benchmarking data are available to assess performance?
Comparative benchmarking data are crucial to the success of any reporting systems.
Ideally, a practice should have some comparative reference points to evaluate how it is doing with respect to its primary competitor-itself.
21. Key Performance Indicators
Quantifiable measurements that reflect the critical success factors of an organization.
They reveal a high-level snapshot of a practices financial and operational status.
Before Key Performance Indicators are selected, vital to identify what the practices goals are, which are in turn dependent upon its mission and owners.
KPIs act as a measure of progress towards these goals.
Whatever they may be, KPIs must be critical to the success of the practice.
Application of Key Performance Indicators provides practice owners with a high-level, real-time view of the progress of a practice.
Combination of reports, spreadsheets and charts.
Revenue figures, trends, or any long-term consideration which may be essential in gauging the health of the practice.
Should not only reflect the organizational goals but also be quantifiable.