Management Reports - What
the Team Should be Monitoring
CVC West 2010
Tom A. McFerson, CPA, ABV
www.gattomcferson.com
Managing the Practice
– Where to start?
– What to look at?
– Limited time
– Limited resources
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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.
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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
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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
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Important to Remember…
• Frequency of information
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Daily
Weekly
Monthly
Quarterly
Annually
• Set up reports to be as automated/easy to prepare as
possible.
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Important to Remember…
• Determine who prepares these reports.
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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?
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Management reports are only as good as the
information they are created from. Always
ensure that your source documents are
accurate and timely.
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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
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Source Documents/Data
– Quickbooks
– Financial Statements
– Tax Returns
– Overtime/Vacation Information
– Budget
– Competition
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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
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Cancellations
Walk ins
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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
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Daily
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Helps you monitor day to day activity
Keep an eye on spikes
Monitor checking account
Issues with schedule
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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
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Weekly
– Helps you monitor weekly activity
– Keep an eye on spikes – trends begin to develop
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Monthly
– Financial Statements
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Profit and loss
Balance Sheet
Statement of Cash Flows
All important…all give you results
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Importance of Understanding
Clinic Financial Matters
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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
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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?
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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
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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
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Monthly
– Accounts Receivable Aging
• Depends on whether your practice has much in way of
A/R
• Should show
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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?
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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
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Monthly
– Doctor Production Summary
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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
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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?
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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
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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
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Quarterly
– Inventory Count
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Update your quarterly inventory counts
Look for fluctuations/surprises
Reason?
Big drug order? Something not accounted for?
Adjust ordering for next quarter accordingly
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Quarterly
– Staff Overtime Analysis
• Summarizes number of overtime hours paid to each employee
• If excessive, why?
– Short-staffed?
– Someone out sick?
– Busy month?
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Who approved these hours?
Is it becoming a pattern?
Cost?
Need another employee?
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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?
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Quarterly
– Analysis of Competition
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Hours they’re open
Doctor schedules
Exam fees
Prices on other shopped items
Specials or discounts running
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Quarterly
– Analysis of Vendors
• When possible, compare prices of certain drugs/medications
• Quantity ordered per month
• Possible savings
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Annual
– Annual Financial Statements
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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
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Annual
– Annual Financial Statements
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How did you do?
Improvement?
Changes implemented?
Important to have good historical data for next year’s
budget.
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Annual
– Next Year’s Budget
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Where do you want practice to go?
Month by month
Helps plan for cash flow
Use historical data
Goal setting
Motivating
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Annual
– Tax Return
• Ultimate management report
• Everything according to plan?
• What about next year?
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Annual
– True Profitability Analysis
• Income statement often includes:
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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
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Annual
– Valuation Analysis
• What is the practice worth?
• Important to know:
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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
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Copy of slides and budget
template by email?
Questions?
Answers