Finance management

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Finance management
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Finance management

• Why do we discuss? Introduction and Objectives
• Basic finance literacy
• Budgeting
• Accounting ,Cost Accounting and Cost Containment
• Investments
• Some general tips on day to day matters

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Why should we discuss?

• Profession vs. Business
• Every medical practice, small or big, is a
  business
• Huge investments expected returns
• An entrepreneur- by default
• Profit - a dirty word?
• Survival and growth
• Self employed - look after your own finances and
  control them
• Problems doctors tend to be ignorant careless
  about finances, sitting ducks, frauds

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Objectives

• To create awareness
• To stimulate to further learning
• To develop a vision
• To develop an ability to plan and control with
  clinical precision
• To equip our selves to ask right questions to CA
• To develop a healthy practice with patients as
  beneficiaries

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Financial management definition

• It is the art and science of managing money
• The most essential requirement of any organized
  business or activity
• The process of procuring and judicious use of
  resources with a view to maximize the value of
  the firm
• Interdependence with other areas of management

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Basic finance literacy

• Income and expenditure statement
• Cash flow outgoing, incoming
• Balance sheet final accounting item (what the
  practice is worth)
• Budgeting a process of estimation of income and
  expenditure
• Assets
• Liabilities
• Capital

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Balance Sheet

• A statement of assets, liabilities and capital on
  a given date
• Assets
• Fixed land, building, equipments etc
• Current Cash in hand or in bank, stocks,
  debtors
• Liabilities
• Long term Loans gt 1 yr
• Current/ short term overdraft, taxes
• Capital Assets -Liabilities

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Some core issues

• Budget
• Accounting
• Cost Accounting
• Break even point
• Cost benefit analysis
• Cost reductions and containment
• Day to day activities

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Budget

• An important instrument of the financial
  management used as aid in planning, programming
  and control
• A budget may be defined as a financial and
  quantitative statement, prepared and approved
  prior to defined period of time, of the policy to
  be pursued during that period for the purpose of
  achieving the given objective.

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Budget advantages

• It is a tool for -
• Quantitative expression of the planning
• Evaluation of financial performance in accordance
  with plans
• Controlling costs
• Optimizing the use of resources
• Directing the total efforts in to the most
  profitable channels

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Planning preparing budget

• Well in advance
• An opportunity to plan expansion or improving
  services , hence involve staff and all
  departments
• Plans must be realistic

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Types of budget

• Importance Understanding of various types of
  budget can indirectly help us understand various
  methods of finance management
• Project budget probable expenditure and likely
  revenue for a specific project
• Departmental budget

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Types of budget

• Operating revenue budget- related to volume of
  work anticipated
• Operating expenditure budget recurring
  expenditures for operation and maintenance of
  services e.g. salaries and wages, supplies,
  support utilities, maintenance
• Capital budget ( non recurrent ) meant for
  growth ( new facilities), replacement of
  obsolete. Needs are many prioritize
• Cash budget provision for anticipated cash
  expenditures , for planning the cash flow e.g.
  salaries, bills etc.

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Accounting

• An art of recording , classifying and summarizing
  data in a significant manner and interpreting the
  results
• Data may be in form of money transactions and
  events which are, in part at least , of a
  financial character

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Types of accounting

• Financial accounting documentation of facts,
  daily transactions
• Cost accounting expenditure for a particular
  service
• Management accounting Analysis and
  interpretation of financial information for
  management purpose

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Nomenclature

• Costing to find out money spent on a service
• Cost center an allied group of activities in a
  hospital eg laboratory, immunization, laundry
  service
• Cost object anything for which separate
  measurement of cost is desired e.g. rooms, OT,
  ICU, equipment
• Cost unit a measurable detail of service
  rendered e.g. linen, laboratory investigation

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Categories of expenditures

• Important in understanding dynamics of costing
• Capital Vs Recurring
• Fixed Vs Variable
• Fixed Remains unchanged despite changes
  in related level or volume of activity e.g.
  salary of permanent staff
• Variable volume dependent, varies in
  proportion to changes in level of activity e.g.
  medicines, consumables, power cost

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3.Direct vs indirect expenditures

• Direct Clearly linked to a service
• Indirect can not be clearly linked to a
  particular cost object e.g. administration
  cost,security cost

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Objectives advantages of costing

• To get clear picture of financial situation
• Identifying profitable and non profitable
  segments and taking action accordingly
• To decide pricing of services and discounts
• To decide for out sourcing of services

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Advantages of costing

• Helps in entering into agreements with TPA,
  corporate clients etc
• Helps in identifying wastages
• Helps in budgeting, planning

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Effective cost accounting

• Proper records
• Proper segmentation of costs
• Sound accounting practices,regularity
• Record of utilization of equipments
• Record and analysis of man power utilization

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Difficulties in cost accounting

• Many inputs have to be considered e.g. labor,
  material, depreciation,
• Every transaction has to carry a price tag
• Variation in quality of service e.g. consultant
  to consultant, patient to patient

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Break - even analysis

• Volume of activity at which total income just
  equals total variable and fixed costs
• Lower break even point is more desirable e.g. bed
  occupancy 60 Vs 80
• Advantages Equipment selection and purchase
  decision, formulating price policy

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Cost - benefit analysis

• An economic technique and formalized way of
  comparing the cost and benefit of undertaking an
  activity / project

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Expenditure - containment and cost - cutting

• Sound economic sense
• It does not mean compromising quality
• Promote awareness amongst staff
• Practice cost monitoring analyze actual
  expenditure against budget and standards , find
  reasons for variations, work on them
• Cost management establish systems with
  responsibility and accountability

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4.Strategies for expenditure control

• Decrease the cost of inputs relative to outputs
  materials, man power
• Increase output relative to input scheduling of
  procedures, automation , remove bottle - neck in
  the flow of services

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5.Cost saving areas

• Streamlining of services e.g. laboratory, OT,
  indoor
• Purchases planning, budgeting, bargaining,
  group purchasing
• Preventive maintenance AMCs, back ups
• Planning stage quality manpower and machines,
  planned recruitment, up gradation
• Good accounting practices automation, internal
  audit
• Energy audit

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Investments

• We work hard to make money, but learn to make
  your money work for you
• Daily wage earners
• Save, invest, build wealth, spend, give it away
• Invest some percentage in improving services,
  facilities
• Stagnation without growth

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Personal investments

• Required for future expansion and growth
• Commitment to the financial needs of the family
• Retirement planning
• Building wealth.

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Various investment avenues

• Real Estate
• Gold and Jewellery
• Government Securities
• Company Deposits
• Mutual Funds

• Equity
• ULIP
• Bank company FDs

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Some tips on day to day activities

• 1.Accounting
• Financial memory of practice
• Matter of self discipline
• Meticulous record of financial transactions -
  legal requirement e.g. Form 3c
• Employ accountant - good documentation and
  reports generation
• 2. Computerization
• 3. Periodic meetings with CA

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4. Handling cash

• Staff handles lot of cash
• Doctors are too busy to supervise
• Easy temptation
• Introduce checks and balances - ensure strict
  cash control
• Cash collection at counter (many advantages )
• Minimize temptation for staff

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Tips

• Deposit cash in bank daily or twice weekly
• Have 2 distinct streams of cash flow
• Cash inflow ? deposit daily
• Cash outflow ? by withdrawal
• Make schedule for making payments
• Documentation support for all payments
• Filing system cash memos, paid bills, pending
  bills
• Get personally involved for big transactions

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Tips

• Reconcile bank statements
• Do not allow anyone to take records home
• To your staff, demonstrate your awareness about
  what is going on and that you are careful about
  money

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14.Handling search and seizure

• Keep your cool
• Call your best friends as witnesses
• Know your rights
• Prevention is better than cure

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• Thanks