Financial Management Flashcards
Assets - Current
Any asset reasonably expected to be sold, consumed, or exhausted through the normal operations of the business within the current fiscal year.
Assets - Fixed
Any asset that cannot easily be converted to cash
Benchmark
Measurable quantities for a given period of time that are considered industry standards
Benchmarking
The process by which a business compares itself to others.
Average Transaction Charge (ATC)
Total revenue of a time period divided by the total number of transactions in that period.
Audit Trails
A record of financial transactions form which an accountant can reconstruct the sequence of events.
Asset Control
A trust which can be used to maintain control over the trust assets for a designated period of time, which may survive death.
Asset - Intangible
Any asset that lacks physical substance and is usually very hard to evaluate.
Capital
The rights (equity) of the owners in a business enterprise.
Balance Sheet
Also referred to as the “statement of financial conditions,” the balance sheet summarizes the assets, liabilities, and owner’s equity at a particular date.
Bank Statement
Summary of financial transactions which have occurred over a given period on a bank account.
Capital acquisitions
One entity acquiring control of another entity
Break-Even Analysis
An analysis that is used to determine when your business will be able to cover all of its expenses and begin to make a profit.
Budget
A financial projection used to estimate and control the results of future business operations
Certified Public Accountant (CPA)
Accounting professional who has attained certification by passing a comprehensive exam, and maintained with continuous professional education, and subscribing to a heightened level of business ethics.
Cash Flow Statement
Financial report on the sources of cash and uses of cash
Cash Budget
An estimate of cash receipts and disbursements for a specific period of time. Used to determine whether a business has enough money to maintain standard operations. Also helps determine if cash money is being used in unproductive capacities.
Cash Basis
Accounting method that measures income when cash is received and expenses when cash is spent.
Cash Accounting
A system that recognizes income only when cash is collected from a sale, and recognized expenses when cash is actually paid for goods and services received.
Client discounts
A reduction in price for services or products rendered to an individual.
Checks and Balances
Procedures set in place to reduce mistakes of improper behavior.
Chart of Accounts
A systematic listing of all account names and numbers used by a company
Credit Policy
Clear, written guidelines that set the terms and conditions for supplying goods and services on credit, customer qualification criteria, procedure for making collections, and steps to be taken in case of customer delinquency.
Cost of Living (COL)
Theoretical price index that measures relative cost of living over time or regions. It is an index that measures differences in the price of goods and services, and allows for substitutions with other items as prices vary.
Consumer Price Index (CPI)
An index of prices used to measure the change in the cost of basic goods and services in comparison with a fixed base period.
Commission Pay Garnishments
Any legal or equitable procedure through which some portion of an employee’s earnings is required to be withheld by an employer for the payment of commission-based pay on services or products that have not been collected.
Collections
The act or process of collecting funds owed to the business or organization
Deposits
A sum of money placed or kept in a bank account, usually to gain interest
Deductions
Business expenses or losses that are legally permitted to be subtracted from the gross revenue from a business when computing its taxable income
Debt
A duty or obligation to pay money, deliver goods, or render services under an express or implied agreement
Day End Procedures
A fixed, step-by-step sequence of activities or course of action (with a definite start and end points) that must be followed in the same order to correctly perform a task.
Differential Pay
A compensating differential, which is also called a compensating wage differential or an equalizing difference, and is defined as the additional amount of income that a given employee must be offered in order to motivate them to accept a given undesirable job.
Depreciation
The process of allocating the cost of an asset across the time period for which it provides benefit (known as the assets depreciable or useful life).
Exempt Worker
An employee who is exempt from minimum wage and over-time requirements of the Fair Labor Standards Act. The FLSA clearly defines what employees are eligible for exempt status.
Equity
The owner’s claim on the practice’s assets.
Embezzlement
The fraudulent appropriation of funds or property entrusted to your care, but actually owned by someone else.
Electronic Funds Transfer (EFT)
The process of moving transactions funds from one bank to another via the Automated Clearing House of the Federal Reserve Network.
Dunning Letters
A notification sent to a customer, stating that the customer is overdue in paying an account receivable to the sender.
Direct Deposit
The electronic transfer of a payment directly from eh account of the payer to the recipient’s account.
Discounts (A/P)
A reduction in price for services or products.
Finance Fees
Any fee representing the cost of credit, or the cost of borrowing.
Federal Income Tax
A tax levied by the U.S. Internal Revenue Service (IRS) on the annual earnings of individuals, corporations, trusts and other legal entities.
Finance Charge
Money charged for payments that extend beyond an agreed-upon time limit; the amount charged is governed by the usury laws in the State within which you practice.
Experience Rating
A system used by insurance companies in the U.S. to set the premium to be paid by the insured on the basis of risk to the company providing the insurance.
Expenses
Measured outflow of services and/or goods, matched to the revenue generated for the outflow.
Pro-Sal
A compensation structure for associates which combines a guaranteed salary base with a percentage of an associate’s production.
Pro-Forma Budget
A projection or estimate of what may result in the future, given current assumptions and predictions.
Sales Tax
A tax on sales or on the receipts from sales
Salary Compensation
When employees in lower-level jobs are paid almost as much as their colleagues in higher-level jobs, including managerial positions
Shareholder’s equity
A practice’s total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders’ equity represents the amount by which a practice is financed through common and preferred shares.
Shareholders
An individual or institution (including a corporation) that legally owns a share of stock in a public or private corporation.
Service Charges
An extra charge assessed for a service.
Semi-variable costs
Expenses which contain both a fixed cost component and variable cost component. The fixed cost element is part of the cost that needs to be paid irrespective of the level of activity achieved by the entity.
Statement reconciliation
A form that allows individuals to compare their personal bank account records to the bank’s records of the individual’s account balance in order to uncover any possible discrepancies.
Stock
The goods or merchandise kept on the premises of a veterinary practice that are available for sale or distribution
Short-Range Planning
The process of setting smaller, intermediate milestones to achieve within closer time frames when moving towards an important overall goal. Many business operators will engage in short term planning that typically covers time frames of less than one year.
Time Clock Systems
Methods for collecting employee hours worked during the pay period.
Third Party Lenders
Outside lending services for clients with large balances, offering the option to pay back that balance over time
Succession Planning
Succession planning is a process for identifying and developing new leaders who can replace old leaders when they leave, retire or die. Succession planning increases the availability of experienced and capable employees that are prepared to assume these roles.
Strategic Planning
An organization’s process of defining its strategy, or direction, and making decision on allocating its resources to pursue this strategy
Assets (current, fixed, intangible)
Current = short-term assets such as general inventory, cash and accounts receivable. Fixed = long-term assets such as land, buildings, and equipment. Intangible = not physical in nature such as copyrights and goodwill.
Aging
A particular period of time, as distinguished from other periods.
Amortization
Periodic expense attributed to the decline in usefulness of intangible assets over its estimated useful life.
After-tax
Relating to income that remains after the deduction of taxes due.
Assets
Things of value owned by a business enterprise, such as cash, accounts receivable, and equipment.
Unemployment Taxes
Taxes paid by employers into a federal or state fund to pay benefits to employees who are terminated.
Transaction Receipt
A written record of a financial transaction
Transaction
An instance of buying or selling something; a financial transaction
Time Off Accrual
Benefits’ coverage earned by an employee, usually based on years of service with an employer. Accrued benefits may include vacation, sick, or personal time off.
Timely Deposits
Deposits should be made as often as possible, preferably daily. Failing to make timely deposits increases the risk of error and the risk of misappropriation of funds.
Volume
The quantity or number of goods sold or services sold in the normal operations of a company in a specified period. Example: High volume or low volume practice regarding length and number of appointments.
Variable Costs
Expenses that increase or decrease as a dollar amount in direct relation to the volume of practice activity.
Use Tax
A sales tax on purchases made outside one’s state of residence on taxable items that will be used, stored or consumed in one’s state of residence and on which no tax was collected in the state of purchase.
Unemployment Insurance
A source of income for workers who have lost their jobs through no fault of their own.
Hourly/Salary Compensation
Hourly compensation must include overtime pay for all time worked in excess of 40 hours per week. Salary compensation is exempt from the overtime laws.
Flexible/Variable Expenses
Costs that may be manipulated in amount, or eliminated by not engaging in the activity that incurred the expense.
Fixed Expense/Cost
A cost that does not change with an increase or decrease in the amount of goods or services produced.
Fixed Costs
Expenses that have to be paid by a company, independent of any business activity.
Imprest Account
A fund or cash reserve that is maintained at constant level for lengthy periods of time.
Income
A gain or recurrent benefit, usually meausred in money
Rent
A tenant’s regular payment to a landlord for the use of property or land.
Revenue
All sales of the practice for goods and services
Reimbursement
The act of compensating someone for an expense
Generally Accepted Accounting Principles (GAAP)
A framework of accounting standards, rules and procedures defined by the professional accounting industry, which has been adopted by nearly all publicly traded U.S. corporations.
General Ledger
The collection of all Assets, Liability, Equity, Revenue, and expense accounts form which the financial statements are derived.
Fraud
An act or course of deception; intentional concealment of the truth to gain an unlawful or unfair advantage.
Return on Investment (ROI)
A measure of profitability used to refer to a single project and expressed as a ratio. Formule = revenue generated divided by the costs of assets consumed for the project.
Payroll Tax
Imposed on employers or employees, and are usually calculated as a percentage of the salaries that employers pay their staff.
Production Pay
Productivity-based pay rewards employees based on measurements of the quantity of work and outputs.
Gross Domestic Products (GDP)
The total value of goods produced and services provided in a country during one year.
Petty Cash
A small fund of cash maintained for incidental expenditures.
Perceived Value
The worth that a product or service has in the mind of the consumer. The consumer’s perceived value of a good or service affects the price that he or she is willing to pay for it.
Present Value of Money
The current monetary value of some defined investment return, given a specified rate of return
Practice Management Software
A category of healthcare software that deals with the day-to-day operations of a veterinary practice
Wages
A fixed regular payment, typically paid on a daily or weekly basis, made by an employer to an employee
W-4
A W-4 form is a form completed by an employee to indicate his or her tax withholding preferences to the employer.
Pre-Tax
Considered or calculated before the deduction of taxes.
Profit Centers
A section of the practice that can be assessed in terms of its revenues and expenses.
Receipts
A written acknowledgment that something of value has been transferred from one party to another.
Write-Offs
A cancellation from an account of a bad debt or worthless asset.
Record Transfer
The transfer of the legal and physical custody of permanent records
Reconcile
Reconciliation is an accounting process used to compare two sets of records to ensure the figures are in agreement and are accurate. It is the kye process used to determine whether the money leaving an account matches the amount spent.
Paid Time Off (PTO)
An employee benefit that provides a bank of hours in which the employer pools sick days, vacation days, and personal days allowing employees to use as they need or desire.
Owernship Equity
The portion of a business’s equity which remains for the owners after all liabilities have been paid and all other creditors have been reimbursed.
Overtime
Hours worked in excess of the maximum regular number of hours fixed by a statute, union contract, or custom.
Operating Income
Revenues or income resulting from veterinary activities and veterinary related sales, such as pharmacy sales. Does not include non-veterinary related income such as interest income.
Historical Data
Past periods data, usually used as a basis for forecasting future trends.
Interest Rate
Typically noted on an annual basis, known as the annual percentage rate (APR)
Internal auditing controls
Processes in place to provide management reasonable assurance that no practice resources are being lost, that financial reporting is reasonably accurate, and that profitability targets are achieved.
Internal Control
All measures, systems, and protocols used by a business to prevent errors, waste, and fraud; to ensure the reliability of accounting data, and promote policy compliance.
Operating Expenses
The expenses of a business not directly associated with the making of a product, or providing of a service, such as administrative, technical, or selling expenses.
Income Statement
Also known as the profit and loss statement, a report on financial performance that covers a period of time and reports income and expenses during that period.
Income Tax
Tax levied by a government directly on income, especially an annual tax on personal income.
Incorporated
Formed into a legal corporation
Inflation Rate
The percentage rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
Limited Liability Company (LLC)
A limited liability company is a corporate structure whereby the members of the company are not personally liable for the company’s debts or liabilities.
Liquid Assets
Assets that can be converted into cash quickly and with minimal impact to the price received.
Long-Range Planning
The exercise aimed at formulating a long-term plan, to meet future needs estimated usually by extrapolation of present or known needs
Interest Charges
The cost of borrowing money, assessed by the lender over time, usually expressed as a percentage.
Interest Fees
The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets.
Net 10/30
Payment terms on an invoice. On a net 10, the net amount is due within 10 days of the date of the invoice. A net 30 would be within 30 days.
No-Lo Practice
A veterinary practice with little, to no profitability
Key Performance Indicator (KPI)
Also called Key Success Indicator, a term used for any metric or measurement that is deemed important to monitor for the evaluation of the practice’s success in meeting objectives and goals.
Journal
A bookkeeping term that describes teh document in which business transactions are originally recorded as they occur. The book of entry prior to the Ledger.
Margins
Revenue less expenses. Also known as the profit margin.
Liabilities
The practice’s debts
Accounting
The art of measuring, communicating, and interpreting financial activity
Accounts Payable (AP)
The amounts the practice owes to suppliers that are payable in the future.
Non-Exempt Worker
A worker on employee who is not exempt from the minimum wage and overtime requirements of the FLSA
Monthly Statements
Account statement mailed or sent by electronic mail to a customer that lists debits, credits, service charges, and account adjustments during the prior month.
Leasehold Improvements
Enhancements paid for by a tenant to leased space
Profit
A financial gain, especially the difference between the amount earned and the amount spent in buying, operating, or producing something
Accounts Receivable (AR)
Money that is owed to the practice by a client for products or services provided on credit.
Accrual Bases
Accounting method that recognizes income when it is earned, and expenses when they are incurred regardless of when cash is received or disbursed.
Accrual Accounting
A system that recognizes revenus as earned and expenses as incurred.
Payroll System
A system that calculates teh amount you owe your employees based on factors such as the time they worked, their hourly wages or salaries, and whether they took vacation or holiday time during the period.
Payment Options
The various methods used to collect payment from a client
Profit and Loss (P&L or P/L)
Summary of the practice’s income, expenses, and resulting profit or loss for a specified period.
What percentage of gross revenue should Accounts Receivable be?
1.5% or less
What act regulates collection procedures of past due accounts?
The Fair Debt Collection Practices Act of 1996
According to the Fair Debt Collection Practices Act, what hours are phone calls restricted to when attempting to collect on overdue accounts?
Between 8 am and 9 pm
On average, what percent of the total balance do collection agencies charge when collecting overdue balances?
40 to 60% of the total balance.
If income is measured when cash is received and expenses are measured when cash is spent, what type of accounting system is the practice using?
Cash-basis accounting
If a practice is recording income and expenses as they occur, then the practice uses what type of accounting system?
Accrual-basis accounting
On average, a veterinarian should be producing what times the amount of his or her salary?
5 times
What is another term for a Balance Sheet?
Statement of the financial condition of the practice.
What is the basic accounting equation?
Assets = Liabilities + Owner Equity
Define Income Center
Those that produce revenue for the hospital.
What information is required in order to evaluate the profitability of a service?
- Gross revenue per month (or year) for a specific service
- Square footage used by service
- Fixed costs per square foot (entire practice)
- Fixed costs per square foot for service
- Variable costs for service
What key points must be known in order to be able to determine how much a service costs a practice to produce?
- Fixed costs of hospital per minute
- Direct costs used to produce service (inventory)
- Staff costs per minute
- Veterinary costs per minute
- Number of staff minutes used to complete service
- Number of doctor minutes used to complete the service
- Desired profit
What is the equation to obtain service pricing?
(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
What are ares where expenses can be audited to reduce overall costs?
- Credit Card Charges/Fees
- Health insurance
- Communications
- Professional fees
- Cost of goods fees
- Payroll
What issues should be addressed when purchasing new equipment?
- Is the equipment completely new, or is it replacing an existing piece of equipment?
- Is the new piece of equipment going to provide improved, more accurate results compared with the piece it is replacing?
- Is the money used to purchase the new equipment being used in the most efficient manner?
- How will the equipment be paid for? Cash? Leasing? Financing?
- If the practice is going to finance the capital, what is the interest rate? Can a better rate be found elsewhere? How much are the doctors going to use this piece of equipment?
- What will the client charge be?
- How long will it take to achieve the payback period?
- How long will it take to make a profit on the equipment?
Break-even analysis equation
Price of equipment ÷ (Client cost - cost to produce service)
What are reasons for cash flow crunches?
- Mismanaged inventory (excess product sitting on shelves)
- Mismanaged payroll (excess overtime)
- Embezzlement
- Large dividends paid to owner(s) when income is low or nonexistent
A clear understanding of the veterinary practice’s financial statements requires a review of what four major areas?
- The theories
- The purpose
- The practicality
- The effect of financial reporting
What is the Modified Accelerated Cost Recovery System (MACRS)
An accelerated depreciation method is required by the U.S. income tax code. Under MACRS, the depreciation is accelerated so that more of the cost is recognized in the first several years, and less near the end, of the asset’s useful life.
What characteristics are present in good financial reporting?
- Timeliness
- Accuracy
- Simplicity
- Sufficient Detail
- Analytical Relevance.
How oftens hould basic financial statemetns be completed?
Preferably monthly, but at least quarterly
When should a review of the financial performance for the prior month be conducted?
Within five to ten business days of the end of the month.
What reports should a typical financial reporting package include?
The balance sheet, the income statement, and the statement of cash flows.
What key principles should be considered when using financial analysis to make decisions?
- Safeguarding assets
- Pricing/fee structure
- Cost evaluation
- Procurement of capital (through financing and/or investors)
- Incremental performance
- Accountability via departmentalization
- Profitability analysis
- Return on capital analysis.
In addition to KPIs, what three key areas of financial analysis should be considered?
- Percentage statement analysis - expenses as a percentage of revenue (also called common sizing or right sizing)
- Ratios - generally used to assess aspects of profitability, solvency, and liquidity.
- Variance analysis - method of reviewing financial statements in relation to either prior periods or budgeted amounts to determine where variances in the financial accounts are occurring and why.
Equation for Net Profit Margin
Practice Profit
Practice Revenue
What is the difference between net profit margin and gross profit margin?
The net profit margin looks at the overall profit of the practice compared with sales, the gross profit margin looks more specifically at how much it costs to make a product or provide a service.
Equation for Gross Profit Margin
Gross Profit
Revenue
Equation for Average Transaction Charge
Practice Revenue
Practice Transactions
Equation for Revenue per FTE Veterinarian
Practice Revenue
FTE Veterinarians
Equation for Accounts Receivable Turnover
Credit Sales
Average Accounts Receivable
Equation for Days in A/R
Number of Days in Period
Accounts Receivable Turnover
What is common size analysis?
Considering expenses as a percentage of revenue
What are the key credit indicator ratios that creditors examine?
- Debt service coverage
- Debt to capital
- Return on equity (current ratio)
- Days cash on hand
What is the equation for debt service coverage and what is the ideal ratio number?
Net Operating Income (after veterinarian compensation)
Principal and interest payments
- Net operating income is typically prior to income taxes, depreciation, and interest expense.
- A debt service coverage ratio below 1.0 is not a good indicator. Most desirable above 1.5
What is the equation for Debt to Capital ratio?
_Total Debt (including leases)_ Total debt plus total equity
What is the equation for Return on equity?
Net Income
Average Equity
- A higher ratio is desired
- Can be calculated bot before and after veterinarian compensation
What is the equation for the current ratio?
Current Assets
Current Liabilities
- This ratio illustrates an organization’s liquidity by showing the level of liquid assets over liquid liabilities
- A high current ratio is preferred
What is the equation for days cash on hand?
Cash
- It is a good business practice to keep 20 to 30 days’ worth of cash on hand to ensure liquidity issues do not arise.
(Annual Operating Expenses ÷ 365 Days)
What questions should be asked when using benchmark comparisons?
- Is the external source defining revenue in the same manner in which revenue is captured in the practice?
- Does the external source comprise practices in the same geographical location or metropolitan status?
- Does the external source have a patient population similar to that of the practice?
- Does the external source include practices that are similar in size?
- Are the expenses inclusive of any veterinarian benefits or salaries?
- Are employed veterinarians’ expenses included in overhead?
What are the common productivity benchmarks that are used?
- Revenue per FTE veterinarian
- Visits per FTE veterinarian
- Compensation-to-revenue ratio per FTE veterinarian
- Hours worked per FTE veterinarian
- Average revenue per visit
- Average length of visit
Which financial statement is considered the most important of the financial statements?
The income statement (P&L)
What are fixed expenses?
In general, they are a set cost to the hospital and do not fluctuate with how busy the practice may or may not be.
What are variable expenses?
Expenses that change with the amount of business produced by the practice.
What are the three steps of analyzing a profit and loss statement?
- Compare percentages
- Ask questions of the percentages
- Implement change
What are the steps to evaluate the profitability of a service?
- Gross revenue per month (or year) of the specific service
- Square footage used by the service
- Fixed costs for the entire practice
- Fixed costs per square foot for service
What are the most common KPIs?
- Total revenue and total transaction by month
- Average transaction charge by month
- New client and lost clients by month
- Revenue, transactions, and average transaction charge per DVM per month
- Revenue by category
- Accounts receivable by aging classification
What are the most common payroll methods?
- Manual payroll - involves totaling the amount of time worked; calculating gross wages; calculating and deducting all appropriate taxes, deferrals, and deduction; then writing the check.
- Automated in-house processing - utilizes a payroll specific software program such as Quick Pay to create paychecks
- More efficient than manual payroll
- Reliable calculations
- Offers the option to schedule regular reoccurring deductions
- Automatically creates and maintains legible payroll records
- Third-Party Payroll Service - Offer convenience, expertise, and savings.
- It is expected that these companies remain up to date with the most current regulations and tax tables that lower errors.
What are the different payroll deductions?
- Federal Payroll Taxes - employers are responsible for withholding federal income tax and forwarding it to the IRS
- FICA - a tax paid by both the employer and the employee to fund SS and Medicare
- FUTA - a tax paid by employers only, and only the first $7,000 of an employee’s earnings is taxed for FUTA
- State Payroll Taxes
- Miscellaneous Deduction
- employee portion of medical/dental/insurance premiums
- The balance on the employees account with the practice
- Some states require school district tax, state disability insurance tax, city income tax, and others.
What are the requirements for wage and tax reporting?
- Obtain an employer identification number
- Obtain a completed I-9 form for each employee
- Confirm each employee has completed a W-4 indicating requested withholding
- Calculate and deduct employees income tax
- Make required deposits of withheld taxes as determined by the IRS
- File form 941 (Employers Quarterly Federal Tax Return)
- File form 940 (Employers Annual Federal Unemployment Tax Return)
- Prepare and distribute W-2 to each employee by January 31st
- Prepare W-3 and file with the IRS along the W-2s
- All taxes should be automatically deducted from the practice checking account to ensure all tax payments are on time.
What should be included in the written payroll policy?
- Definitions of full and part-time
- Define how and when paid time off is accrued and if it rolls over at year-end, or is paid out at termination
- Segregate the duties for updating personnel data rm the duties of payroll accumulation, recording, and reporting.
- Require management approval to any changes made to payroll records and/or personnel information
- Restrict access to payroll and personnel files to a need to know basis
- Consider mandatory direct deposit to eliminate written payroll checks
- Process new hires and terminated employees in a timely manner
- Personnel records should include the date of hire, PTO pad vs used, non-paid time off vs used, tardiness
- When using an outside company for payroll, internal records should be compared to the payroll company’s records to catch discrepancies immediately. Also periodically review all payroll transactions.
- Monitor the time clock to be sure employees are not clocking in and out for each other.
- Track employee payroll advances very carefully and payback should be via a payroll deduction.
What is it not recommended to accept held checks?
- It can add another level of difficulty for the receptionists in storing, tracking payment date, and depositing that check on the correct date
- There is no guarantee the funds will be available went the check is deposited
- If a team member accidentally deposits the check on the incorrect date the client will likely be alienated from the practice, and will often ask to be reimbursed for returned check fees due to the practice’s negligence
What information should be available to give to a collection agency for a delinquent account?
- Client’s full name, address, and all telephone numbers
- Total balance due on account
- Occupation if known
- Employment address
- Driver’s license number
- Copy of client information sheet and signature of client guaranteeing payment for services rendered
What are alternatives to extending credit to clients?
- Pet insurance
- Outside financing institutions
- Held credit card payments
- Wellness and preventive care packages
What is considered more accurate, cash based accounting or accrual based accounting?
Accrual based
Which financial statement is considered the most important for small businesses?
Profit and Loss Statement
Is staff payroll considered a fixed or variable expense?
Variable
The Federal Insurance Contribute Act - or FICA is a payroll tax that is paid by the employer or employee?
Both employer and employee
Which payroll tax is paid by employers only and only on the first $7,000 of an employee’s earnings?
Federal Unemployment Tax Act (FUTA)
What is an Employer Identification Number?
It is a business identification number assigned by the IRS to identify tax accounts of employers
AR that are over _____% need intervention to get the entire team to follow an AR policy.
3%
Which Act prohibits placing “delinquent account” stickers on the outside of an envelope when mailing statements to clients?
The Fair Debt Collections Practices Act
What does the accounts receivable turnover calculation tell us?
How many times the accounts receivable balance is converted into cash and how efficient a company is at collecting its credit sales from customers.
What three financial responsibilities are typically outsourced in most practices?
- Primary tax preparation and advice
- Valuation of the practice
- Large financial issues
Are wages for doctors who are paid on a salary basis considered a fixed or variable expense?
Fixed
Define cost of goods sold.
The products used to produce a service for the client, or products sold to the client.
This type of accounting recognizes revenue when it is earned and expenses when they are incurred. When goods are received and services are performed.
Accrual
What type of accounting is typically considered more accurate?
Accrual
What is another name for the Profit and Loss Statement?
The Income Statement
When comparing expenses on the Profit and Loss Statement it is Important to express expenses in dollar amounts but also as _________.
A percentage of gross
The basic accounting equation is Assets = _______________
Liability + Owner Equity
Regarding payroll deductions; what does FICA stand for, what does it fund,a nd is it paid by the employer, employee, or both?
Federal Insurance Contribution Act - a tax paid by both the employer and the employee to fund Social Security and Medicare
At the end of the year, any independent contractor who received more than $______ in wages from the practice must be issued a 1099 form.
$600
If the contractor fails to file and pay their taxes, and the practice did not issue a form 1099 at the end of the year, what risk is the practice subject to?
The practice can be held responsible to pay all back taxes, interest, and penalties.
If the practice is found to be spending more than it is generating, what steps can be taken to gain control?
- Decrease spending and increase revenue
- Hold employees accountable for waste
- Consider reevaluating your fee structure
- Review charges to be sure they are being captured correctly and not missed
- If a line of credit is necessary to keep the practice viable in the short term, have a plan to pay back the loan as soon as possible.
AR should be no higher than _______% of gross revenue?
1.5%
When a non-sufficient funds check has been written to the practice, the practice has three choices of action, what are they?
Accept the financial loss
Attempt to collect
Use a third-party collection agency
Which act regulates collection procedures of past due accounts?
Fair Debt Collection Practices Act
Accounts receivable turnover - how many times the account receivable balance is converted to cash. What is the formula for AR turnover?
Credit Sales ÷ Average Accounts Receivable
Regarding the value of the accounts receivable turn-over; is it better to have a higher or lower number?
A higher value for the accounts receivable turnover ratio is better because it indicates the AR balance is turned into cash more often.
How can you calculate the average age of the accounts receivable entries?
Average AR x 360 days
credit sales
What are the most common forms of payment?
Cash (including debit card), check, or credit card.
What is the average percentage of gross revenue that credit card fees average?
1.5% of total gross revenue
What is the red flags rule and why was it developed?
The Red Flags Rule was created by the Federal Trade Commission, along with other government agencies such as the National Credit Union Administration, to help prevent identity theft. The rule was passed in January 2008 and was to be in place by November 1, 2008. However, at this time, veterinary practices are exempt from the Red Flag Rule.
What are the risks associated with accepting cash?
Cash can be counterfeit. Cash can be stolen easily from the drawer.
Define reconciliation
The process of matching and comparing figures from the transaction totals sheet with the actual receipts and funds accepted as payments.
Define Petty Cash
A term used to describe cash set aside int eh practice to purchase items needed for the business when a check is not available.
When developing a pricing structure, what two categories should fees be divided into?
Shopped and non shopped services
What percent of the profit should be reinvested back into the practice (either in equipment, continuing education for the team, building maintenance and improvements, or staff compensation)
10%
What are common things that a bookkeeper is responsible for?
Accounts payable, Accounts receivable, and payroll
What is an accountant?
A professional that specializes in producing and interpreting financial statements, tax planning, cash flow projections,a nd estate planning.
True or False: Accounts Receivable are included when practicing cash-basis accounting.
False, only fees paid by clients are recognized in cash-basis accounting; therefore accounts receivable are not included.
What are external benchmarks used for?
To help understand what is going on in the industry and where your practice compares with those similar to it.
What are internal benchmarks used for?
Used to monitor trends within the practice.
What is the benefit of measure Annual revenue per patient?
Manage client compliance for the entire year instead of focusing on the average client transaction of one visit.
What is another name for the balance sheet?
Statement of financial condition of the practice.
When a veterinarian is paid a salary only, what kind of expense does this fall under?
This would be considered a fixed expense, because regardless of the production of the veterinarian and/or practice, the salary of the veterinarian remains the same (or fixed)
According to AVMA, the average net income of a general practice is what percentage of gross?
10% to 12%
What three steps should be taken when analyzing P&Ls?
- Look at the percentages and compare
- Ask questions of the percentages
- Implement change
Define Budgeting
A process of planning expense and revenue and measuring these values against the actual financial results, which will provide management with indications of how the operational plans are being executed.
What are the four stages of a traditional business cycle?
- Expansion
- Prosperity
- Contraction
- Recession
What are the six steps of budgeting?
- Determining the desired financial results
- Analysis of the financial statements
- Normalizing the revenue and expenses
- Budgeting revenue
- Budgeting expenses
- Combining budgeted revenue and expense and making adjustments
What are the four categories that expenses are categorized in when creating a budget?
- Personnel Expenses
- Variable Expenses/Costs of Goods Sold
- Occupancy/Facility Expenses
- Fixed/Adminsitrative expenses
What are factors that influence patient volume?
- Addition or discontinuation of services
- Addition or loss of a DVM
- Overall economic conditions and consumer spending trends
- Advertising and promotion projects
- Fee increase
- Demographics associated with the area such as population age, gender, and household income
- Scheduling Pattern
How do you normalize figures when creating a budget?
- Average the revenue and expenses over the last three years
- Remove any one time, non-recurring items from the financials used to create the budget
What are the two policies that should be a part of a Credit Policy?
- Client Credit Policy - establishes the pre-qualifications necessary to open a charge account
- Charge Account Policy - establishes credit limits, payment due dates, payment methods and invoicing procedures
What are two simple pre-qualification procedures to consider?
- Call the client’s listed phone number/s. Make sure they are in service and correct. If the lines are disconnected, consider offering only minimal or no credit.
- Call the client’s employer to verify employment and length of employment.
How often should the fee schedule be reviewed?
Minimally once a year
What are daily banking procedures?
- The end of day deposit report should match exactly with what was taken in as payments for the day. Correct any errors prior to closing the end of the eday.
- Close out the credit card batch for the day
- Perform the end of day closing in the practice software and print daily reports for audit purposes
- Have the closing receptionist prepare the bank deposit for teh next day
- Each method of payment (cash and check) separated on teh deposit slip
- Each check listed separately on teh deposit slip
- Compare computer or manual ledgers of revenue collected for the day against eh bank deposti slip from teh previous days deposit. Review irregularities, including possible delay sin teh daily bank deposit policy.
What are monthly banking procedures?
- Reconcile bank statements
- Comparisons on the time monies were collected for deposit and when the deposit was actually made
- Look for discrepancies on deposit amounts that are documented on the bank statement vs the daily deposit reports
- The book balance of the cash in the bank account against the bank’s monthly statement. The amounts should match taking into consideration:
- Checks issued that have not cleared
- Deposits that have not cleared
- Deposits that have not been recorded by the bank
- Any errors made by the practice or the firm.
What are clues that embezzlement may be occurring in your practice?
- Sudden unexplained wealth or extravagant purchases
- Constant conversations about money problems
- Receives calls at work from creditors
- Frequently complains about bookkeeping errors made by others
- Declines to take vacations or share responsibility
- Known gambling tendencies
- Under significant life stress such as divorce, family illness, etc.
What do you do when there are losses evident, but proof of embezzlement is absent?
- Proceed with caution and a careful plan of action
- Notify the owner(s) and other leaders in the practice
- Secure important practice records. Confirm working backup copies of computer data and store offsite with the owner and potentially a second copy with your attorney or other trusted party
- Inform the bonding or insurance company. Review the insurance policy for theft coverage and consult the insurance firm for any embezzlement resources.
- Contact the hospital accountant and attorney for advice and potential aid in reviewing practice records and internal control systems.
- Reassign duties concerning money handling and financial record keeping
- On the attorney or insurance provider’s advice, contact police but make no accusations
- Do not talk about specific dollar amounts involved.
Define chart of accounts
A list of created numbered categories is used to define each class of items for which money is spent or received.
Expansions, prosperity, contraction, and recession are the four stages of what?
The business cycle
What are two ways of normalizing revenue and expenses when creating a budget?
Remove any non-recurring items from the previous year
Combing the last 3 years as an average.
Which metrics below are important considerations when creating a budget
- Last three years Profit and Loss and Productivity Statements
- All lease and loan documents
- Fee Schedule
- List of operational changes expected in the next few years and their potential effect on revenue and/or expenses (new services, expansion, etc)
- List of major capital
All of those listed
- Last three years Profit and Loss and Productivity Statements
- All lease and loan documents
- Fee Schedule
- List of operational changes expected in the next few years and their potential effect on revenue and/or expenses (new services, expansion, etc)
- List of major capital
What elements should be included in the Charge Account Policy for the practice (Multiple Choice)?
a. The pre-qualification procedures for a client of unknown standing
b. The process for flagging a pre-qualified client in your practice management system.
c. Acceptable forms of payment as well as storage of credit card numbers to be used as a backup guarantee the client agrees to at signing
d. Total invoice amount a client can charge without additional approval of management/ownership
a. The pre-qualification procedures for a client of unknown standing
b. The process for flagging a pre-qualified client in your practice management system.
and
d. Total invoice amount a client can charge without additional approval of management/ownership
True or False:
A list of procedures to use when considering ways of extending credit to clients includes creating ranges of available credit amounts based on the client’s longevity with the practice.
False
What is the consumer price index?
A list or index of prices used to measure the change in the cost of basic goods and services
In relation to Fee Analysis; which of the following elements should be included in the calculation (Multiple Choice)?
a. Variable cost per minute
b. Staff cost per minute
c. Veterinary cost per minute
d. Fixed cost per minute
b. Staff cost per minute
c. Veterinary cost per minute
d. Fixed cost per minute
Marsha Heinke DVM states ______% of practices have been victims of fraud or embezzlement
67.8%
True or False: It is recommended that practices do not prosecute confirmed cases of embezzlement unless the loss is determined to be greater than $2,000.
False
What entity may be a good resource for the practice in the event embezzlement is suspected?
a. The Federal Trade Commission
b. Your Insurance Carrier
c. Business Protection Agency
d. All the above
Your Insurance Carrier
What is the percent of gross if the gross revenue is $1,250,000.00 and the expense is $87,365.00?
6.9%
What is the final (or sixth) stage of budgeting (kudo points if you can name any other stages)?
- Determining the desired financial results
- Analysis of the financial statements
- Normalizing the revenue and expenses
- Budgeting Revenue
- Budgeting Expenses
- Combining budgeted revenue and expense and making adjustments
Patient volume is considered a _____ _____ of revenue growth.
Key Driver
A simple method of creating an expense budget is to add what to the base expense figure?
The last three years average growth rate.
What is the difference between the Client Credit Policy and the Charge Account Policy?
- Client Credit Policy establishes pre-qualifications necessary to open a charge account.
- Charge Account Policy establishes credit limits, payment due dates, payment methods and invoicing procedures
The fee schedule should be reviewed minimally _________ a year.
Once
As a refresher the following is the formula 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.
Using the totals below what price should you charge for this service?
- Fixed costs = $2.35.
- Staff costs per minute = $1.82
- Staff time = 2 technicians, 6 minutes each.
- DVM cost per minute = $3.09
- DVM time = 3 minutes.
- Direct costs = $0.87
- Profit set point = 20%
$73.26
What percent of gross revenue is said to be lost to embezzlement in small businesses annually?
>5%
What is the most often used chart of accounts?
AAHA
Why is a Petty Cash system suggested over using cash from the reception drawer for smaller purchases?
Improves internal controls by providing a system for tracking cash purchases.
What are some disadvantages of using a manual system for invoicing?
- Compiled data would be tedious to collect
- It is vulnerable to internal theft
- Override of standardized fee schedules and how services and products are invoice
What are the purposes of financial-transaction recording?
- Providing the client with a detailed and informative breakdown of services provided and products purchased
- Providing the client with a statement of the total charges to be paid
- Providing the hospital bookkeeping department with the data needed to record the transaction in the hospital’s financial records
- Providing the bookkeeping department with income information required by law
- Providing medical staff with a history of completed services that become part of the medical record.
Define Revenue
The price of goods sold and services rendered during a given period of time.
How much of practice receipts is typically in cash?
15%
What are the two primary risks in accepting cash payment fo veterinary services?
- Cash may be counterfeit and of no value to the practice3
- Cash is hard to trace and is highly susceptible to internal theft.
What are ways to safeguard against risks of taking/keeping cash?
- Keep cash reserves at low levels
- Don’t retain cash receipts over several days running
- Do not keep large amounts of cash within view or reach of clients or employees
- Have locking cash drawers
What criteria do most check-acceptance policies put in place?
- Adequate identification
- In-state account
- Payer’s account
- Written for the amount owed
- Written from an established account
- Preauthorization by a check-verification service.
Define Cashier’s check
A demand draft drawn on the bank itself
Define Traveler’s Check
Draft is drawn on the institution issuing the check. They are negotiable instruments only when they have been completed with the identifying signature.
What is a certified check
A draft that has been pre-accepted by the payer’s bank
How often should you compare merchant bank fees and alternatives to credit card processing companies?
Every twelve to thirty-six months
What are the four basic processes that make up the accounts receivable function?
- Credit prequalification
- Charge-account policy management
- Remittance processing
- Collections
When a practice allows clients to pay for services on credit, what must the record system be able to do?
- Identify which clients owe the hospital money
- Accurately track the amounts owed
- Adds a billing charge or an interest charge to an account as determined by the hospital policy
- Adequately discloses finance rates and other charges in accord with local and states laws
- Ages account receivable by the number of days since the account was charged
- Generates a statement for billing purposes on at least a monthly basis
- Records those accounts that are paid and enter that information into cash receipts for the day payment is received
- Produces reports of current and overdue amounts owed to the hospital
Hospital collection policies should cover what invoicing and collection issues?
- Interest charge assessment
- Discounts, including when who, why, and how authorized
- Account balance write-offs
- Use of outside collection services
- Procedure for deciding and taking legal action
- Discontinued client relationship, including what circumstances and the authority for final decision and communication of same
- Shifting of collection responsibility to a doctor, an owner, or other specified personnel
How is a statement different from an invoice?
A statement summarizes the client’s charge account activity, including each outstanding invoice, aged totals, and assessed finance charges.
What things need to be considered before suing a client for fees?
- The possibility that the client may file a counterclaim for malpractice, whether or not valid (even if you believe that no malpractice was involved, remember that the litigation costs and time involved in such cases may surpass any recoverable outstanding fee, plus foregone revenue from not being available for other work)
- The potential detrimental effects of litigation on insurance premiums
- The effect of possible negative publicity on the potential and current client base
- The possibility that even if a suit for fees is successful, the client may have no recoverable funds
- The possibility that recovery of funds may take several years, even with a judgment in favor of the practice.
What are the danger signs that indicate problems with billing and collection policies?
- Declining profits
- Difficulty paying bills as they come due
- Final invoices for cases frequently higher than care plan estimates costs, resulting in more service write-offs
- Increase in the number of bad accounts written off and the monetary value of write-offs
- lower average transaction charges
- More client “controversy”
- Employee unhappiness or resistance to fees, and dissatisfaction or discomfort with the billing process
- Accounts receivable balances aging longer
- More client invoices going into accounts receivable, rather than being paid at time of service
- More discussion at management meetings about fees, billing and collection issues
- Less owner compensation and stagnant wages for all employees
What is bookkeeping?
The process of recording business data in a prescribed manner
How are accounting activities different from bookkeeping functions?
Accounting requires the use of transactional data gathered by bookkeeping to identify, measure, and report financial information to practice owners, managers, and other parties interested in economic measurements of a business’s activity results. Bookkeeper’s duties basically involve recording the transactions into the journals and ledgers.
What is a disbursement journal?
Includes all documentation related to purchase orders, inventory receipt, vendor invoices and monthly statements, authorization of service maintenance contracts, dates of insurance contract coverage, and so forth.
What are payroll journals?
Track and record employee hours worked, hourly rates, employee agreements, and benefit-program payments. Records of tax payments and timely remittance support the payroll journals.
What is the fixed-assets journal?
Tracks all of the practice’s equipment, furniture, computers, software, and other long-lived personal property.
What are compilation reports?
Reports compiled by a CPA represent the lowest level of service and are the most typical reports included in veterinary practice engagements with CPA firms. They are a non assurance service. The CPA assesses and makes adjustments to bookkeeping data and supporting documentation provided by the hospital. For compilation reports, no level of assurance is provided.
What is a reviewed financial report?
Financial reports reviewed by a CPA are subjected to a higher level of analysis than compiled reports. In a review engagement, the CPA must complete a more comprehensive and stringent financial analysis and tests of various accounts and transactions than occurs in a compilation engagement.
What is an audit engagement?
An audit engagement represents the uppermost level of assurance and attestation in financial reporting. Audits require an independent review of the accounting records in which the CPA examines the records that support the hospital’s financial reports. For audited financial statements, the CPA gives an opinion of the fairness and reliability of the financial reports.
What is an enrolled agent?
An EA is an individual who has demonstrated technical competence in the field of taxation. EAs are licensed, or enrolled by the federal government, and they are authorized as agents in that they can appear in place of the taxpayer at IRS proceedings about the taxpayer. EAs are required to demonstrate their competence in matters of taxation to the IRS before they may represent a taxpayer in IRS proceedings.
What are the components of the revenue cycle?
- Appointment Scheduling
- Check-In Process
- Client Compliance
- Charge CapturePatient and Insurance Billing
- Client Credit and Refunds
- Staff Investment
What are the four steps to ensure revenue maximization?
- Analyze the Practice’s Revenue Cycle
- Document Financial Policies and Procedures
- Review the Financial Tools
- Review the Practice’s Current Fee Schedule
What are the most encompassing productivity measures in a veterinary practice?
- Encounters/visits
- Procedures
- Surgical procedures
- Consultations
- Charges
- Payments
- Ancillary service procedures
- Ancillary service revenue
What information is needed for the budgeting process?
- Last three years’ productivity statements
- Lease documents
- Equipment lease documents
- Loan documents
- Fee schedule
- List of operational changes expected in the next few years and their consequent impact on revenue and expenses
- List of major capital expenditures planned for the next few years
- Employee roster and most recent year’s W-2s
What are outside influences on the budgeting process?
- The economic cycle
- Technology
- Interest rates and access to credit
What are the basic elements of a business plan?
- Operational overview
- Financial Management
- Capitalization Plan
- Budgeting
- Pro format financial statements
- SWOT analysis
What is a feasibility study?
A critical step in the business planning process. It provides a quantitative and qualitative measurement to help answer the question of whether a proposed project is financially viable. They outline and evaluate several alternatives for achieving business goals and identify the most financially and operationally viable method given the assumptions and parameters set forth in the study process.
