Financial management

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Financial 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

1. Income and expenditure statement
2. Cash flow outgoing, incoming
3. Balance sheet final accounting item (what the
   practice is worth)
4. Budgeting a process of estimation of income and
   expenditure
5. Assets
6. Liabilities
7. 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

1. Operating revenue budget- related to volume of
   work anticipated
2. Operating expenditure budget recurring
   expenditures for operation and maintenance of
   services e.g. salaries and wages, supplies,
   support utilities, maintenance
3. Capital budget ( non recurrent ) meant for
   growth ( new facilities), replacement of
   obsolete. Needs are many prioritize
4. 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

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

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Nomenclature

1. Costing to find out money spent on a service
2. Cost center an allied group of activities in a
   hospital eg laboratory, immunization, laundry
   service
3. Cost object anything for which separate
   measurement of cost is desired e.g. rooms, OT,
   ICU, equipment
4. 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

1. To get clear picture of financial situation
2. Identifying profitable and non profitable
   segments and taking action accordingly
3. To decide pricing of services and discounts
4. To decide for out sourcing of services

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Advantages of costing

1. Helps in entering into agreements with TPA,
   corporate clients etc
2. Helps in identifying wastages
3. Helps in budgeting, planning

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Effective cost accounting

1. Proper records
2. Proper segmentation of costs
3. Sound accounting practices,regularity
4. Record of utilization of equipments
5. Record and analysis of man power utilization

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Difficulties in cost accounting

1. Many inputs have to be considered e.g. labor,
   material, depreciation,
2. Every transaction has to carry a price tag
3. 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

1. Decrease the cost of inputs relative to outputs
   materials, man power
2. 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

1. Streamlining of services e.g. laboratory, OT,
   indoor
2. Purchases planning, budgeting, bargaining,
   group purchasing
3. Preventive maintenance AMCs, back ups
4. Planning stage quality manpower and machines,
   planned recruitment, up gradation
5. Good accounting practices automation, internal
   audit
6. 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

1. Real Estate
2. Gold and Jewellery
3. Government Securities
4. Company Deposits
5. Mutual Funds

1. Equity
2. ULIP
3. 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

1. Reconcile bank statements
2. Do not allow anyone to take records home
3. 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

1. Keep your cool
2. Call your best friends as witnesses
3. Know your rights
4. Prevention is better than cure

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• Thanks