Finance Flashcards
What are two ways of normalizing revenue and expenses when creating a budget (Multiple Choice)?
Average the last 3 years; remove non recurring items from the previous year
Chart of Accounts
Systemic listing of all account names and numbers used by a company. It is recommended that practices include on the chart of accounts only those they use in the normal course of business.
Profit and Loss Statement
A core financial report showing income and expenses in a specific period of time.
Balance Sheet
a statement of the financial condition of the practicing listing assets, liabilities and owners equity. It is measured at a specific point in time only. Snapshot of the value of a business.
Cash flow Statements
shows where cash in the practice comes from
Net Income
Profit. Subtract expenses from revenue. Ave net income in GP is 10-12%
Intangible Property
Non Physical property that has value. coopyrights, good will, non compete agreements
Assets
Everything of value owned by the practice; Current are items consumed with a year; Fixed or Long Term Assets extend longer than a year
Liabilities
Practice debts, loans, mortgage, AP
Equity
Assets - liability; the net worth of the practice
COGS
Products used to provide a service or sold to clients
Cash Based Accounting
Recognizes revenue when cash is received and expenses are paid; allows clear day to day picture; important when running on a cash-based system that expenses are paid timely to avoid overstating net income
Accrual Based Accounting
Recognizes revenue when it is earned and expenses when they are incurred;
What does the AR turnover calculation tell us?
How many times the AR balance is converted to cash; How efficient a company is at collecting its credit sales from customers.
What is the formula for AR Turnover Calculation?
Credit extended / Average Accounts Receivable = Accounts Receivable Turnover
Calculation for Average AR
Beginning AR+Ending AR/2= Average AR
Days in AR - formula
Number of Days in Period/ AR turnover = Days in AR
What are some alternatives to extending credit?
Pet Insurance; Outside lenders- CareCredit; Held CC Payments with agreement; Wellness and Preventive Care Packages-
What info does a Collection Agency need to collect a debt?
Client Name, Address, Phone Numbers (all)
Total Balance due on Account
Client’s occupation if known
Clients employment address
Clients DL #
Copy of Client info sheet and signature of client guaranteeing payment for services rendered
Employee AR collection
Mandatory monthly payments are expected; Dont allow a balance to exceed $100; Managers must have documentation that employee authorizes any payroll deduction; cannot bring wage below min wage.
Collection Letters
Sent 30/60/90 days past due
Keep short, brief, firm, polite; date, amount and info correct; response date; date of collections; thank you
Collection Phone Calls
Call blocker? counsel team not to take negativity personally; keep convo focused on account; team members should introduce themself, confirm who they are speaking to; never leave vm w details; id practice, caller and phone number; document all convo in the record
Fair Debt Collection Practices Act
Regulates collection procedures; protects public from unethical collection procedures; debtors cannot be subject to harrassment; oppressive tacts; abusive treatment; cannot make false statements; cannot call employer if either objects; cannot call before 8 or after 9; only give details to client themselves
AR Collection Processes
paid within 30 days; software should age accounts 0-30, 31-60 , 61-90 and over 90 days; statement sent immediately after services are performed; collections increase when service is recent
Holding Checks
Not recommended; difficult; no guarantee; accidental deposit; post dating checks illegal in some states
No Charge Policy
All payment due at time of service sign is not sufficient; estimates must be givent o clients whose pet will receive services; client signature is critical; deposit of 50%+ must be paid
AR should be no higher than __ % of revenue; what is concerning %?
1.5%; over 3% should have entire team focus;
Income Statement is also known as
Profit and Loss Statement
Fixed Expenses
Ops expenses; Rent/facility; benefits; salary docs;
Variable Expenses
COGS; DVM production; Staff payroll
Profitability Calculation needs this info
Gross Rev for service
Sq ft used by service
Fixed Costs for entire practice (DVM, admin, facility)
Fixed Costs per square foot for service
Accountability via departmentalization
profit centers (such as boarding, grooming, retail sales) that have their own statement of performance may offer additional
insights into the profitability of the various centers.
Return on capital analysis
income/average total assets = return on capital percentage
Common KPIs include
Total revenue and total transactions by month
Average transaction charge by month
New clients and lost clients by month
Revenue, transactions, average transaction charge per DVM per month
Revenue by category/profit center
AR by aging classification (30, 60, 90d)
Net Profit Margin Calculation
Practice Profit/Practice Revenue
Gross Profit Margin Formula
Gross Profit/Revenue
Average Transaction Charge Formula
Practice Revenue/Practice Transactions
Rev Per FT DVM Formula
Practice Revenue/FT DVMs
AR Turnover Formula
CREDIT extended/Ave AR
FICA
Federal Insurance Contribution Act- Employer & Employee pay into SSI and Medicare insurance
Requirements for Wage & Tax Reporting
EIN/SS;
I-9
W-4 completed
Calc & Deduct Income Tax
Make Required tax deposits of withheld taxes as determined by IRS
File Form 941 Quarterly (Employer Quart Fed Tax Return)
File form 940 Annually (employer annual fed tax return)
Prepare and distribute W2 by Jan 31
Prepare W3 and file with IRS with W2s
what is a W3?
Transmittal of Wage and Tax Statement
Internal Payroll Controls Should Include
Defined PT & FT
How and when PTO is acrued, Roll over and pay out at term
Segregate duties for updating personnel data from duties of accumulation, reporting, recording.
Mgmt must approve any changes made to payroll records or personnel info
Restrict access to a need to know basis
Monitor timeclock
Track advances very carefully
Contractor Payroll
Contractors responsible for their own payroll taxes and paid a straight fee by the practice;
Send 1099 annually;
Contractor submits the 1099 w form
If practice doesnt issue 1099 and contractor doesnt report the income; Who will be responsible for all taxes, interest and penalties?
Likely, the practice
If spending > earning what steps can be taken
review fees
review charge capture
employee accountability for waste
consider line of credit
lower spending and increase revenue
What are 3 commonly outsourced financial responsibilities
Primary tax prep
Valuation of the practice
Large financial issues
What is an EIN (employer identification number)?
It is a business identification number assigned by the IRS to identify tax accounts of employers
What are the 4 stages of the Business Cycle
Expansion
Prosperity
Contraction
Recession
What are the 6 steps of budgeting?
Determine desired financial results.
Analysis of financial statements.
Normalizing the revenue and expenses.
Budgeting revenue.
Budgeting expenses.
Combining budgeted revenue and expense and making adjustments.
For a start-up budget, what is recommended to use for determining desired financial results at budget time?
25th percentile of industry benchmarks
What are the 4 categories of Expenses
Personnel Expenses
Variable Expenses/COGS
Occupancy/Facility
Fixed/Admin Expenses
How do you normalize the revenue and expenses?
Ave 3 years; remove any 1 time non recurring items from prior year
Factors for Patient Volume
Addition of or discontinuation of service
Addition or loss of DVM
Overall economic conditions and consumer spending trends
Advertising and promotion projects
Fee increase
Demographics of area
Contraints of schedule
What are the contraints of the schedule impacting patient volume
ave dvm appt time
ave dvm procedure time
ave number of each in workday
use 5 day work week with 48 work weeks per year
Normalized expenses only works if
Practice is established
expenses were stable over 3 years
will operate in similar way going forward
Why Petty Cash over Cash Drawer
Internal controls provide system for tracking cash purchases
Most Commonly use Chart of Accounts?
AAHA
What percent of gross revenue is lost to embezzlement annually? (small biz)
> 5%
What Formula is used to determine fees?
(Fixed costs/minute + Staff costs/minute) X (Length of procedure in staff minutes) + (DVM costs/minute) X (length of procedure in DVM minutes) + (direct costs X 2) + Profit.
Client Credit Policy
Establishes prequalifications necessary to open a charge account. (ex, min length of perfect payment history)
Charge Account Policy
Establishes credit limites, payment due dates, payment methods and invoicing procedures
When a veterinarian accepts custody of a client’s pet; which party is the Bailor and which is the Bailee?
Bailor is the client and a Bailee is the vet
What do you call the equation assets-liabilities=equity?
The Accounting Equation
