The financial health of a medical practice can easily be assessed by analyzing the financial statements. They are the foundation of your business. Reading financials is a skill that can be learned and practiced.
Let’s begin: where do you find financial statements? If you are using a software program such as QuickBooks, click on the “Reports” tab and then “Company & Financial” then “Profit and Loss”, “Balance Sheet” and “Statement of Cash Flows”. I am assuming other bookkeeping software programs are similar.
I understand. I’m a science person as well. Memorizing a biochemical pathway is much easier than reading a financial statement. We were recently reminded of the importance of analyzing these reports on a regular basis.
Our medical practice is a S corporation.
In tax terms, this means our taxes are due March 15. It’s always interesting how preparing the tax info forces us to deal with the numbers, whether we want to or not. I will admit, we are not good about keeping up on this as we should. Let’s face it, it’s not exciting and we can be afraid of what the numbers show. After all, they don’t lie. Back to our story: our end of the year numbers did not look good at all. This forced us to look at our reports, not only the financials but also the reports from our billing service. We found that our charges were down not because we were seeing less patients but because we down charged our services. In plain English, we were working harder for less money (again!). This actually went on for many months. It was a subtle change that we did not notice but at the end of the year, it adds up. Ouch!
Learn from us: successful practice management depends on the regular analysis of financial statements.
My intention is to make this as painless and as simple as possible. Once you understand how these reports interact and what story they tell, you will no longer need to solely rely on your financial advisor or in-house accounting staff and hope that everything is okay.
Financial Statements are made up of 3 parts:
- 1. Balance Sheet: shows assets, liabilities and owner’s equity (what you are worth, at a glance)
- 2. Income Statement (AKA: Profit and Loss Statement): shows income, expenses and profit (how much money you’ve made over a specific time)
- 3. Cash flow statement: shows how the cash is flowing between the Income Statement and the Balance Sheet. The Cash flow statement connects the Income Statement with the Balance Sheet.
That’s enough for now. I’ll delve into these in more detail in subsequent blogs.
Even if you are not in private medical practice or you do not have a business, you do have a personal financial statement. Also, if you have ever invested or considered investing in real estate or stocks, wouldn’t it be nice to be able to quickly read and analyze the financial statements of a property or company and arrive at your own conclusion if this is a good investment rather than relying on someone else who just sees your MD as a reason to gouge you financially?
What do you think?