Finance management

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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1.

Basic finance literacy

Income and expenditure statement

2.
3. 4.

Cash flow: outgoing, incoming

Balance sheet: final accounting item (what the practice is worth) Budgeting: a process of estimation of income and expenditure

5.
6. 7.

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 > 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 -

a)
b) c) d) e)

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 1. Project budget : probable expenditure and likely revenue for a specific project 2. Departmental budget
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Types of budget
3. Operating revenue budget- related to volume of work anticipated

4.

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

5.

6.

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
a) Costing: to find out money spent on a service

b)

Cost center: an allied group of activities in a hospital

eg laboratory, immunization, laundry service

c)

Cost object: anything for which separate measurement of cost is desired e.g. rooms, OT, ICU, equipment

d)

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 1. 2. 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.
2.

To get clear picture of financial situation

Identifying profitable and non profitable segments and taking action accordingly

3. 4.

To decide pricing of services and discounts To decide for out sourcing of services
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Advantages of costing
5. Helps in entering into agreements with TPA, corporate clients etc 6. Helps in identifying wastages 7. 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.
3.

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

1. 2.

variations, work on them

3. Cost management: establish systems with responsibility and accountability
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4.Strategies for expenditure control

a) Decrease the cost of inputs relative to outputs:
materials, man power

b)

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

a) Streamlining of services e.g. laboratory, OT, indoor

b)
c)

Purchases : planning, budgeting, bargaining, group

purchasing Preventive maintenance AMCs, back ups

d)
e)

Planning stage: quality manpower and machines,

planned recruitment, up gradation Good accounting practices: automation, internal audit

f)

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

6. Equity
7. ULIP

2. Gold and Jewellery

3. Government
Securities 4. Company Deposits 5. Mutual Funds

8. Bank & company

FDs

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Some tips on day to day activities

1.Accounting

a)
b) c) d)

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
5. Deposit cash in bank daily or twice weekly

6.

Have 2 distinct streams of cash flow

Cash inflow deposit daily Cash outflow by withdrawal

7. 8. 9.

Make schedule for making payments Documentation support for all payments Filing system: cash memos, paid bills, pending bills
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10. Get personally involved for big transactions

Tips
11. Reconcile bank statements
12. Do not allow anyone to take records home 13. 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

a)
b) c)

Keep your cool

Call your best friends as witnesses Know your rights

d)

Prevention is better than cure

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Thanks

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