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CVPM 2021 > Financial Management > Flashcards

Financial Management Flashcards

1
Q

Why is a Petty Cash system suggested over using cash from the reception drawer for smaller purchases?

A

Improves internal controls by providing a system for tracking cash purchases

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2
Q

What percent of gross revenue is said to be lost to embezzlement in small businesses annually?

A

5%

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3
Q 
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%
A

(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.

Formula = ($2.35 + $1.82) X (12 minutes) + ($3.09) X (3 minutes) + ($0.87 X 2) + 20%.
($4.17 X 12 = $50.04) + ($3.09 X 3 = $9.27) + ($1.74) + 20%
$50.04 + $9.27 + $1.74 =$61.05
$61.05 X 0.20 = $12.21
$61.05 + $12.21 = $73.26
$73.26

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4
Q

Client Credit Policy

A

establishes the pre-qualifications necessary to open a charge account. Example; a client may need a minimum of 2 years of perfect payment history without a problem.

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5
Q

Charge Account Policy

A

establishes credit limits, payment due dates, payment methods and invoicing procedures.

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6
Q

A simple method of creating an expense budget is to add what to the base expense figure?

A

The last three years average growth rate.

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7
Q

Patient volume is considered a _______ _______ of revenue growth

A

Key Driver

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8
Q

What is the final (or sixth) stage of budgeting (kudo points if you can name any other stages)?

A
  1. Determining the desired financial results.
  2. Analysis of the financial statements
  3. Normalizing the revenue and expenses
  4. Budgeting revenue
  5. Budgeting expenses
  6. Combining budgeted revenue and expense and making adjustments
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9
Q

What is the percent of gross if the gross revue is $1,250,000.00 and the expense is $87,365.00?

A

6.9%

expense / revenue = % of gross

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10
Q

Income Statement (profit & loss)

A

Core financial report

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11
Q

Balance Sheet

A

Assets = liabilities + owner’s equity

particular point in time

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12
Q

Cash Flow

A

where cash comes from, where it is used

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13
Q

Average net income of a practice (AVMA)

A

10-12%

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14
Q

Assets

A

Everything of value owned by a practice

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15
Q

Tangible Assets

A

Physical assets such as property, buildings and inventory, cash, equipment

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16
Q

Intangible Assets

A

Non-physical assets, software, trademarks, goodwill which add value to a business

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17
Q

Liabilities

A

debts, payables, mortgage

short term or long term

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18
Q

Equity

A

Equity = assets - liabilities

sometimes referred to as ‘net book value’

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19
Q

4 major areas regarding financial statements

A
  1. theory
  2. purpose
  3. practicality
  4. effect
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20
Q

Cash Based Accounting

A

when cash is received and expenses are paid

most common

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21
Q

Accrual Based Accounting

A

Revenue when earned, expenses when incurred
more accurate
required for practices if over $10M (IRS)

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22
Q

The ‘Purpose’ of financial statements

A

properly review what has happened in the period being measured
allows you to make good decisions
review monthly
understand past performance and use it as a basis for future trends

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23
Q

The “Theory’ of financial statements

A

based on either cash based or accrual based accounting

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24
Q

The ‘Practicality’ of financial statements

A

will help identify trends

recognize problems as they arise

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25
The 'Effect' of financial statements
Use financial statements to make sound business decisions enable the performance to be measured in historical and prospective terms ie. high expenses warrant an investigation into why
26
Fixed Expenses
set cost. Don't fluctuate (rent, insurance...)
27
Variable Expenses
will change based on business of the practice. | ie. staff costs will increase if you are busier
28
3 steps to troubleshooting the P&L
1. Compare %'s 2. Ask questions 3. Implement change
29
Evaluating the profitability of a service:
``` Gross revenue Sq. footage used by the service fixed costs for entire practice fixed costs for sq. ft for the service variable costs ```
30
Minimum goal for a revenue centre
15 - 20% profit | ie. grooming
31
Balance Sheet
summarizes assets, liabilities and equities No historical figures also known as a Statement of Financial condition
32
The Financial Reporting Process - 5 steps
1. Timeliness 2. Accuracy 3. Simplicity 4. Sufficiently detailed 5. Analytical
33
Financial Analysis Perspectives | principles to consider when analyzing finances
``` Safeguarding assets Pricing/fee structure Cost evaluation Procurement of capital Incremental performance (change in costs,cash flow, profit ) Accountability - profit centres Profitability Return on Capital ```
34
Return on Capital (formula)
income / avg. total assets = return on capital %
35
Percentage Statement Analysis
all expenses stated as a % of revenue. Compared with benchmarks, prior periods and budget performance
36
Variance Analysis
identifies the variance of a financial metric and may help explain why ie. wage expense is over budget, prompt investigation
37
Ratios
financial relationships between various financial metrics
38
Net Profit Margin
net profit / revenue
39
Gross profit margin
gross profit / revenue
40
Average transaction charge
revenue / # transactions
41
Revenue per FTE
revenue / FTE
42
AR Turnover
credit sales / average A/R (higher is better)
43
Average A/R
Beginning AR + Ending AR / 2
44
What is more accurate? Cash based or accrual based accounting.
Accrual based
45
Which financial statement is considered most important for small business?
Income Statement (Profit & Loss)
46
Is staff payroll considered fixed or variable?
Variable | it changes
47
Payroll Deductions
``` Federal Tax Provincial Tax CPP - employee max $3166.45 - employer matches - over 18 EI - employer share is 1.4% of employee share - max amount $899.54 ```
48
What is a budget for A/R
no higher than 1.5%
49
Average Accounts receivable
beginning AR + ending AR / 2
50
A/R Turnover
credit sales / avg. a/r
51
Days in A/R
days in period / a/r turnover
52
A/R over _% needs intervention to get the entire team to follow and A/R policy.
3%
53
What does the A/R turnover calculation tell us?
- how many times the a/r balance is converted to cash | - the ration shows how efficient a company is at collecting credit sales from clients
54
% of gross
expense / gross revenue x 100
55
The Economic Cycle | The Business Cycle
predictable long term pattern changes in national income. Impact on consumer confidence, labour market and inflation
56
Economic (Business) Cycle - 4 Stages
1. Expansion 2. Prosperity 3. Contraction 4. Recession
57
6 Steps of Budgeting:
1. Determine desired financial results (set a goal) 2. Analyze financial statements 3. Normalize revenue and expenses 4. Budget Revenue 5. Budget Expenses 6. Combine budgeted revenue & expense and make adjustments
58
Analyze financial statements
step 2 of budgeting Revenue - measure historical trends. Break down by profit centres Expenses - Reorganize into 4 categories: 1. Personnel 2. Variable/COGS 3. Occupancy 4. Fixed/Admin
59
Normalizing Revenue & Expenses | step 3 of budgeting
Remove one time, non-recurring items OR Average of last 3 years
60
Budget Revenue | step 4 of budgeting
``` - project the revenue growth things to consider: patient volume services - add or discontinue economic conditions advertising fee increases demographics ```
61
Determining Constraints
- Avg. time of DVM appt. - Avg. time of DVM procedure - Avg. # of each that fit into an 8 - 10 hr day - Consider 5 day work week and 48 weeks a year for potential and capacity
62
Budgeting Expenses | step 5 budgeting
Begin by normalizing figures | - last 3 years avg. growth rate + base expense
63
4 Expense Categories
1. Personnel wages - apply estimated raise % - consider future staffing needs 2. Occupancy - apply CPI (price index) 3. Variable expense/COGS - historical % of revenue 4. Fixed Costs/Admin - typically grows consistently with avg. growth % from last 3 years
64
Combine budgeted expense, revenue and make adjustments | step 6 of budgeting
Once complete, subtract budgeted expenses from budgeted revenue to derive an estimate for future profit. Revenue - expenses = profit
65
Expansion, Prosperity, Contraction and Recession are 4 stages of :
The Business Cycle
66
What are 2 ways of normalizing revenue and expenses when creating a budget?
1. Remove non-recurring items from previous year | 2. Combine the last 3 years as an average
67
Which metrics are important considerations when creating a budget?
- last 3 years P&L - all lease and loan documents - Fee Schedule - Operational changes expected in the next few years and their potential effect on revenue/expenses - list of major capital
68
Client Credit Policy
establishes pre-qualification necessary for a client to open a charge account
69
Charge Account Policy
establishes credit limits, due dates, payment methods and invoicing procedures
70
In regards to creating a credit policy, what are the 2 sub policies you should begin with?
Client credit | Charge Account
71
What elements should be included in the charge account policy for the practice?
the process for flagging a pre-qualified client in the system total invoice amount a client can charge without additional approval
72
A list of procedures to use when considering ways of extending credit to clients includes creating ranges of available credit amounts based on the clients longevity with the practice.
False * good, paying client (not sliding scale based on length of time as a client
73
Calculating Cost of a Service
(FC per min + staff costs per min) x (length of procedure in staff min) + (DVM cost/min) x (length of time in DVM min) + (direct costs x 2) + profit
74
Fixed Costs/minute
determined from P&L will billable minutes the hospital is open ie. open 10 hrs/day = 600 min open 5 days/week = 3000 min open 12000 min/mth FC for the month are $20,000 20,000 / 12,000 min/mth = $1.67 per minute
75
Staff Costs per minute
``` non DVM staff cost / billable minutes staff cost @ $17,000/mth open 12,000 min/mth 17,000 / 12,000 = $1.42 staff costs are $1.42/min ``` if more than 1 staff, multiply by that #
76
Direct Costs
cost of supplies used x 2
77
Profit
Determined by management ie. 20%
78
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.
79
The CPI can be instrumental in determining the cost of living increase for a variety of expenses associated with running a practice.
True
80
In relation to fee analysis, which of the following elements should be included in the calculation?
staff cost/min DVM cost / min FC /min
81
What % of gross is lost per year due to employee embezzlement?
> 5% | 67.8% of practices have embezzlement
82
It is recommended that practices do not prosecute confirmed cases of embezzlement unless it's over $2,000.
False | * always prosecute
83
What entity may be a good resource for the practice in the event embezzlement is suspected?
Your insurance carrier
84
Imprest Petty Cash
cash fund maintained for small purchases. Set amount. When depleted, receipts are added up and the fund is replenished. Investigate when the receipts do not add up to the amount left.
85
BESP (Break Even Sales Price)
FC + VC
86
BESP (Break Even Sales Price) including profit
SP = FC + VC + P
87
Theory Y
employees can be self directed
88
Theory X
people prefer to be directed

CVPM 2021 (7 decks)

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