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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
Q

The ‘Effect’ of financial statements

A

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

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26
Q

Fixed Expenses

A

set cost. Don’t fluctuate (rent, insurance…)

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27
Q

Variable Expenses

A

will change based on business of the practice.

ie. staff costs will increase if you are busier

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28
Q

3 steps to troubleshooting the P&L

A
  1. Compare %’s
  2. Ask questions
  3. Implement change
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29
Q

Evaluating the profitability of a service:

A 
Gross revenue
Sq. footage used by the service
fixed costs for entire practice
fixed costs for sq. ft for the service
variable costs
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30
Q

Minimum goal for a revenue centre

A

15 - 20% profit

ie. grooming

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31
Q

Balance Sheet

A

summarizes assets, liabilities and equities
No historical figures
also known as a Statement of Financial condition

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32
Q

The Financial Reporting Process - 5 steps

A
  1. Timeliness
  2. Accuracy
  3. Simplicity
  4. Sufficiently detailed
  5. Analytical
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33
Q

Financial Analysis Perspectives

principles to consider when analyzing finances

A 
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
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34
Q

Return on Capital (formula)

A

income / avg. total assets = return on capital %

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35
Q

Percentage Statement Analysis

A

all expenses stated as a % of revenue. Compared with benchmarks, prior periods and budget performance

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36
Q

Variance Analysis

A

identifies the variance of a financial metric and may help explain why
ie. wage expense is over budget, prompt investigation

37
Q

Ratios

A

financial relationships between various financial metrics

38
Q

Net Profit Margin

A

net profit / revenue

39
Q

Gross profit margin

A

gross profit / revenue

40
Q

Average transaction charge

A

revenue / # transactions

41
Q

Revenue per FTE

A

revenue / FTE

42
Q

AR Turnover

A

credit sales / average A/R (higher is better)

43
Q

Average A/R

A

Beginning AR + Ending AR / 2

44
Q

What is more accurate? Cash based or accrual based accounting.

A

Accrual based

45
Q

Which financial statement is considered most important for small business?

A

Income Statement (Profit & Loss)

46
Q

Is staff payroll considered fixed or variable?

A

Variable

it changes

47
Q

Payroll Deductions

A 
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
Q

What is a budget for A/R

A

no higher than 1.5%

49
Q

Average Accounts receivable

A

beginning AR + ending AR / 2

50
Q

A/R Turnover

A

credit sales / avg. a/r

51
Q

Days in A/R

A

days in period / a/r turnover

52
Q

A/R over _% needs intervention to get the entire team to follow and A/R policy.

A

3%

53
Q

What does the A/R turnover calculation tell us?

A
  • 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
Q

% of gross

A

expense / gross revenue x 100

55
Q

The Economic Cycle

The Business Cycle

A

predictable long term pattern changes in national income. Impact on consumer confidence, labour market and inflation

56
Q

Economic (Business) Cycle - 4 Stages

A
  1. Expansion
  2. Prosperity
  3. Contraction
  4. Recession
57
Q

6 Steps of Budgeting:

A
  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
Q

Analyze financial statements

A

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
Q

Normalizing Revenue & Expenses

step 3 of budgeting

A

Remove one time, non-recurring items
OR
Average of last 3 years

60
Q

Budget Revenue

step 4 of budgeting

A 
- project the revenue growth
things to consider:
patient volume
services - add or discontinue
economic conditions
advertising
fee increases
demographics
61
Q

Determining Constraints

A
  • 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
Q

Budgeting Expenses

step 5 budgeting

A

Begin by normalizing figures

- last 3 years avg. growth rate + base expense

63
Q

4 Expense Categories

A
  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
Q

Combine budgeted expense, revenue and make adjustments

step 6 of budgeting

A

Once complete, subtract budgeted expenses from budgeted revenue to derive an estimate for future profit.

Revenue - expenses = profit

65
Q

Expansion, Prosperity, Contraction and Recession are 4 stages of :

A

The Business Cycle

66
Q

What are 2 ways of normalizing revenue and expenses when creating a budget?

A
  1. Remove non-recurring items from previous year

2. Combine the last 3 years as an average

67
Q

Which metrics are important considerations when creating a budget?

A
  • 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
Q

Client Credit Policy

A

establishes pre-qualification necessary for a client to open a charge account

69
Q

Charge Account Policy

A

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

70
Q

In regards to creating a credit policy, what are the 2 sub policies you should begin with?

A

Client credit

Charge Account

71
Q

What elements should be included in the charge account policy for the practice?

A

the process for flagging a pre-qualified client in the system
total invoice amount a client can charge without additional approval

72
Q

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.

A

False

  • good, paying client (not sliding scale based on length of time as a client
73
Q

Calculating Cost of a Service

A

(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
Q

Fixed Costs/minute

A

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
Q

Staff Costs per minute

A 
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
Q

Direct Costs

A

cost of supplies used x 2

77
Q

Profit

A

Determined by management ie. 20%

78
Q

What is the COnsumer Price Index?

A

A list or index of prices used to measure the change in the cost of basic goods and services.

79
Q

The CPI can be instrumental in determining the cost of living increase for a variety of expenses associated with running a practice.

A

True

80
Q

In relation to fee analysis, which of the following elements should be included in the calculation?

A

staff cost/min
DVM cost / min
FC /min

81
Q

What % of gross is lost per year due to employee embezzlement?

A

> 5%

67.8% of practices have embezzlement

82
Q

It is recommended that practices do not prosecute confirmed cases of embezzlement unless it’s over $2,000.

A

False

* always prosecute

83
Q

What entity may be a good resource for the practice in the event embezzlement is suspected?

A

Your insurance carrier

84
Q

Imprest Petty Cash

A

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
Q

BESP (Break Even Sales Price)

A

FC + VC

86
Q

BESP (Break Even Sales Price) including profit

A

SP = FC + VC + P

87
Q

Theory Y

A

employees can be self directed

88
Q

Theory X

A

people prefer to be directed

CVPM 2021 (7 decks)

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