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VHMA CVPM Additional > Session 8 Financial Part 1 > Flashcards

Session 8 Financial Part 1 Flashcards

1
Q

Chart of Accounts

A

Systematic listing of all account names and numbers used by a company.

Only things used in the normal course of business

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2
Q

Profit and loss statement

A

Aka income statement

Core financial report, which covers a specific period of time and reports revenue minus expenses to show net income during that period

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3
Q

Balance Sheet

A

Snapshot of financial condition of the practices assets, liabilities and owner equity at a specific point in time

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4
Q

Cash flow statement

A

Shows where the cash in the practice comes from

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5
Q

Net income

A

= profit

Determined when expenses are subtracted from income

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6
Q

Average net income of a practice in a year

A

10-12%

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7
Q

Intangible property

A

non-physical property that has values

Ex: goodwill, copyrights, noncompetes

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8
Q

Accounting equation

A

Assets = liability + owner equity

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9
Q

What does the balance Sheet provide?

A

Info for the accounting equation

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10
Q

Assets

A

Everything of value owned by the practice

Tangible or intangible

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11
Q

Current Assests

A

Items that will be consumed in a short period of time, typically a year

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12
Q

Fixed/Long term Assets

A

Extended longer than a year

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13
Q

Liabilities

A

Practice debt (money owed to lenders, vendors and more).

Can be short term or long term

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14
Q

Short term liabilities

A

Accounts payable

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15
Q

Long term liability

A

Mortgage

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16
Q

Equity equation

A

Assets - liability

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17
Q

Equity definition

A

Shows net worth of the practice.
(Sometimes equity is referred to as a net book value)

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18
Q

COGS

A

Cost of goods sold

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19
Q

COGS definition

A

Products used to produce a service to the client or products sold to the client

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20
Q

Tangible assets

A

Land
Equipment
Inventory
Lease hold improvement

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21
Q

Intangible assets

A

Computer software licenses
Copyrights
Noncompetes
Client/community goodwill

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22
Q

Current Asset example

A

Inventory

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23
Q

Examples of long term assets

A

Building
Land
Equipment
Copyrights
Goodwill

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24
Q

4 major areas of financial statements

A

Theories
Purpose
Practicality
Effect

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25
Q

Theories of financial statements

A

Accounting methodologies

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26
Q

Accounting methodologies

A

Cash based accounting
Accrual based accounting

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27
Q

Cash based accounting

A

Recognizes revenue when cash is received and expenses when they are paid.

Allows for clear vision of day to day operations

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28
Q

Why is it important to pay expenses in a timely manner when using cash based accounting?

A

To avoid overstating net income

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29
Q

Which accounting method do practices use most often?

A

Cash based

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30
Q

Accrual based accounting

A

Recognizes revenue when it is earned and expenses when they are incurred. When goods are received and services performed.

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31
Q

Is accrual or cash based accounting more accurate?

A

Accrual

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32
Q

Typically which type of practices use accrual based accounting

A

Corporates

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33
Q

Purpose of financial statements

A

Enable owners and managers to properly review what has happened in the period being measured

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34
Q

Who should be part of the monthly statement review?

A

Key employees and department heads

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35
Q

Segmented statements

A

Statements can be segmented by department

Ex: boarding, so it can be isolated as a stand alone profit center

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36
Q

Purpose of financial statements

A

Understand the past performance of the practice and use past performance as a basis for future trends

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37
Q

Understanding practicality

A

Financial statements reviews will identify trends and may recognize issues

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38
Q

day-to-day approach to financial statements

A

Necessary to running a practice

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39
Q

What is the effect of using financial statements

A

Enable the financial performance of the practice to be measured in historical and prospective terms

Ex: realizing higher than expected expenses warranting more investigation. Otherwise it would not be noticed and grow out of control.

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40
Q

Why is it insufficient to just accurately report financial performance?

A

You need to use the statements as a management tool to to make sound and thoughtful business decisions

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41
Q

Which is the most important financial statement?

A

P&L

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42
Q

Comparing line items of the p&L

A

Compared by presenting prior year and current year under review

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43
Q

Most accurate way to state expenses on p&l

A

State expenses as a % of revenue

% is more accurate than dollars

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44
Q

Fixed expenses

A

Set cost to hospital. Don’t fluctuate with how busy the practice is.

Ex. No matter how many clients you see in a month rent stays the same, doctors salaries stay the same

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45
Q

Variable expenses

A

Change with the amount of business produced by the practice

Ex:
COGS
DVM wages on production
Staff Payroll (could be argued either way)

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46
Q

Trouble shooting the P&L

A

When %s in a specific category are not what was expected or in alignment with historic figures, an investigation is in order

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47
Q

3 steps of analyzing unexpected figures in P&L

A
  1. Compare %s
  2. Ask Q’s of the %s
  3. Implement change
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48
Q

Example of unexpected numbers on a P&L and questions to ask

A

Historically utilities have consistently been 1.2% - 1.6% of gross and this month it is 5.4%.

Was an invoice paid late? (Doubling an expense in a given month?)

Did income drop significantly to create the % of gross increase?

Was the expense misclassified?

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49
Q

Importance of Comparing income and expense center on the P&L

A

If a center is not managed it cannot be improved.

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50
Q

Steps to evaluate the profitability of a service

A

Gross revenue per month (or year) of a specific service

Square footage used by the service

Fixed costs for the entire practice

Fixed costs per square foot for service

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51
Q

Example of evaluating profitability of a service

A
  1. Dental center produced $9989.45 and used 100sq feet of the practice
    - annual fixed cost/sqfoot = $190
    (From p&l fixed costs admin, DVM, facility, equipment)
    - total annual fixed costs = $19,000
    (100sq ft x $190)
  2. Fixed costs are $1583.33/month
    - annual cost divided by 12
  3. Variable costs are $525.39/mo
  4. Monthly net income for the center is $7880.73
    - 9989.45 - 1583.33 - 525.39 = 7880.73
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52
Q

The balance sheet

A

Summarizes assets, liabilities and equities of the practice at a specific time and offers no historical data

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53
Q

Who to ask for Balance sheet help

A

May require assistance of an accountant to complete

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54
Q

Real estate and the balance sheet

A

While real estate could be increasing in value - it is general not represented on the balance sheet.

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55
Q

Balance and checking account

A

Should not match the bottom line of the p&l

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56
Q

How soon after the month should reports be generated

A

Typically 5-10 days after the end of the month

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57
Q

How to ensure accuracy in statements

A

Independent audits
Or
Completing a similar review by using accountant’s compilation

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58
Q

Why is simplicity important

A

Ease of use and interpretation

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59
Q

Statements need to be

A

Timely
Accurate
Simplistic
Sufficiently Detailed
Analytical - worthy of analysis against previous year

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60
Q

Financial analysis perspectives

A

Safeguard assests
Pricing/fee structure
Cost evaluation
Procurement of capital (financing and/or investors)
Incremental performance
Accountability via Departmentalization
Profitability analysis
Return on capital analysis

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61
Q

Accountability via departmentalization

A

Profit centers that have their own statement of performance may offer additional insights into the profitability of the various centers

Ex: boarding, grooming, retail

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62
Q

Profitability analysis is used for

A

There is true profitability for measuring fiscal health and then the profitability number used for tax purposes.

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63
Q

What to consider in a profitability analysis

A

Depreciation of assets
Owners compensation
Rent to owner
Any owner discretionary expenses

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64
Q

Return on capital analysis

A

Income divided by total assests = return on capital %.

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65
Q

When is return on capital analysis measured?

A

Before interest, taxes, depreciation, and amortization.

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66
Q

KPI

A

Basic statistics used to measure performance, compare benchmarks, and identify and explain changes.

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67
Q

What do common KPIs include?

A

Total revenue and total transaction by month

Average transaction charge by month

New clients and lost clients by month

Revenue, transactions, and average transaction charge per DVM per month

Revenue by category (VXNS, lab, etc)

Accounts receivable by aging classification (30, 60, 90 days)

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68
Q

How do KPIs typically work?

A

Entered into a spreadsheet that compares the same period from the previous year

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69
Q

Percentage statement analysis

A

All expenses should be stayed as a % of revenue on the income statement and should be compared to benchmarks, prior periods and budget performance

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70
Q

Variance analysis

A

Identified the variance of a financial metric and may help explain why.

Ex: wage expenses that are significantly over budget will prompt an investigation

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71
Q

Ratios

A

Represent financial relationships between various metrics

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72
Q

Net profit margin equation

A

Practice profit ÷ practice revenue

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73
Q

Net profit margin definition

A

Measures simple profit of the practice.

74
Q

Gross profit margin equation

A

Gross profit ÷ revenue

75
Q

Gross profit margin definition

A

Measures how much profit is in a product or service

76
Q

Average transaction charge equation

A

Practice revenue ÷ practice transactions

77
Q

Revenue per full time DVM equation

A

Practice revenue ÷ full time DVMs

78
Q

Accounts receivable turn-over equation

A

Credit sales ÷ average accounts receivable

79
Q

Accounts receivable turn over

A

A higher number is better as it indicates the accounts receivable balance is converted to cash more often.

80
Q

Which financial statement is the most important for small businesses?

A

P&L

81
Q

Is staff payroll considered a fixed or variable expense

A

Variable when looking at it finances

82
Q

Payroll methods

A

Manual
Automated in-house processing
Third party

83
Q

Manual payroll

A

Involves totaling the amount of time worked, calculating gross wages, calculating and deducting all appropriate taxes, deferrals, and deductions, then writing the check.

84
Q

Who is always liable for payroll errors?

A

Employers

85
Q

Automated in house processing

A

Utilities a payroll specific software program such as quick pay to create a paycheck

86
Q

Which payroll method has the highest risk of errors?

A

Manual

87
Q

Benefits of automated in house processing

A

More efficient
Reliable calculations
Offer the option to schedule regular or reoccurring deductions
Automatically creates and maintains legible payroll records

88
Q

Third party payroll services

A

Offers convenience, expertise, savings

It is expected that these companies remain UTD worth the most current regulations and tax tables to lower errors

89
Q

Payroll period

A

Length of time covered by each payroll session.

90
Q

Types of payroll periods

A

Weekly
Biweekly
Semi-monthly
Shift-differential

91
Q

Weekly payroll

A

Issued 52 times a year

92
Q

Biweekly payroll

A

Issued 26 times a year

93
Q

Pro of biweekly payroll

A

Reduced cost due to decreased time invested in managing

94
Q

Cons of biweekly payroll

A

26 doesn’t divide evenly into 4 quarters of the year

2 quarters will have 6 pay periods
2 quarters will have 7

The timing is inconsistent from year to year making it hard to compare historic data for that specific expense

95
Q

Semi monthly payroll

A

Issued 24 times a year

Typically paid on the 1st and 15th of each month

96
Q

Shift differential

A

A wage premium used in 24 hours facilities to make less desirable shifts more rewarding.

Usually a dollar amount per hour in addition to employee usual wage

97
Q

Payroll deductions

A

Only applies to employees not independent contractors

98
Q

Federal payroll taxes

A

Employers are responsible for withholding federal income tax and forwarding to the IRS.

The amount of tax withheld is based on the amount of salary and allowances taken

99
Q

FICA

A

Federal insurance contribution act

100
Q

FICA is ….

A

A tax paid by both the employer and employee to fund Social Security and Medicare

101
Q

FUTA

A

Federal unemployment tax act

102
Q

What is FUTA?

A

A tax paid by employers only and only the first $7,000 of an employees earnings is taxed for FUTA

103
Q

State payroll taxes

A

Vary from state to state, but often include state income tax and unemployment tax

104
Q

Misc deductions

A

Can vary from state to state

Employee portion of medical
Balance employee owes to practice
Some states require school district tax, disability insurance tax, city income tax and more

105
Q

Requirements for wage and tax reporting

A

EIN
I-9s
W-4s
Income tax
File form 941 and 940
Distribute W-2s
File W-3s

106
Q

Form 941

A

Employers Quarterly Federal Tax return

107
Q

Form 940

A

Employers annual federal tax return

108
Q

W-2

A

Wage and tax statement

109
Q

W-3

A

Transmittal of Wage and tax statement

Send to IRS with W-2s

110
Q

W-4

A

Indicates employees requested holdings

111
Q

Payroll internal controls

A

Steps to protect your practice from payroll fraud

112
Q

Examples of payroll internal controlls

A

Maintain a written policy providing clarity on:
Definitions of full time and part time
When and how payroll is accrued and if it rolled over at the end of the year and if it is paid out at termination
Require management approval to any change made to payroll records/personnel info
Restrict access to payroll and personnel files to a need to know basis
Segregate duties for managing payroll and personnel data

113
Q

Personnel records should include

A

Date of hire
Pro paid vs used
Nonpaid time off vs used
Tradiness

114
Q

When using a payroll company

A

Internal records should be compared to the payroll companies to catch any discrepancies. Periodically review all payroll transactions.

115
Q

Time clock

A

Monitor to be sure employees are not clocking in for each other.

116
Q

Payroll advances

A

Track carefully and payback should be via payroll deductions

117
Q

Contractors payroll taxes

A

Contractors are responsible for their own payroll taxes and are paid a straight fee by the practice

118
Q

When to issue a 1099 form

A

At the EoY any contractor who received more than $600 in wages from the practice must be issued a 1099 form

119
Q

What is stated on the 1099 form

A

All monies paid to the contractor are on an untaxed basis

120
Q

When is the practice liable for 1099 taxes

A

If the contractor fails to lay their taxes and the practice did not issue a 1099 form at the EoY

121
Q

FICA is paid by who?

A

Both employer and employee

122
Q

Which payroll tax is paid by the employer and only on the first 7,000 of an employees earnings

A

FUTA

123
Q

SUTA

A

State unemployment tax act

124
Q

What is an EIN?

A

A business identification number assigned by the IRS to ID tax accounts of employers

125
Q

Accounts payable

A

Amounts owed to your suppliers that are payable in the future.

126
Q

Steps of accounts payable

A
  1. All employees who unpack a shipment should initial the packing slip/invoice confirming items in the shipment
  2. Prices should be compared to the current price in PMs for updating
  3. All packing slips/invoices should be compared to monthly statement and should reconcile exactly
  4. All reviewed info be passed to bookkeeper/manager paying bills
127
Q

How frequently should you monitor accounts payable?

A

Monthly to safeguard against spending more than receiving

128
Q

Early detection of accounts payable is critical for what?

A

Avoid financial damage to the practice

Some smaller younger practices spend more than they make some months

129
Q

What to do if financial hemorrhaging occurs

A

Decrease spending and increase revenue
Hold employees accountable for waste
Consider reevaluating fee structure
Review client charges to ensure none are misses
If a line of credit is needed for short term safety have plan pay back as soon as possible

130
Q

Accounts receivable (AR)

A

Monies owed to the practice for services rendered or products sold that have not been paid for at the time of service or product dispensing

People that owe you money

131
Q

What is an acceptable AR

A

Practices should keep AR no higher than 1.5% of gross revenue

132
Q

When should AR get the focus of the entire team to follow a practice policy that tightly manages AR?

A

When the AR is over 3%

133
Q

Compromise for charity case

A

Flex account sustained by client contributions and/fund raisers. Consult state laws and CPA and set up strict guidelines for staff to follow

134
Q

What is one compromise to enable the team to help an occasional charity case?

A

Institute a flex account that can be financially sustained by client contributions or fund raisers. The creation should be discussed with CPAs and state laws and strict guidelines for use should be in place

135
Q

NSF

A

Non sufficient funds

136
Q

3 choices for When a check bounces

A

Eat it
Attempt to collect as a practice
Send to collections

137
Q

How to avoid NSF checks

A

Use a check machine or verification service to verify funds in real time

138
Q

Most cost effective method for money transfers

A

Real time transfer

139
Q

Policy for NSF checks

A

Place a bounced check fee on client account to recoup some cost for lost time and money

140
Q

What will increase chances of collection of an NSF check?

A

Documenting drivers license number on the check

141
Q

Why does the drivers license number on checks help?

A

Stolen checks may require the number for prosecution

Part of the best practice to help prevent fraud

142
Q

2 basic ways of accepting payment to an account with outstanding balance

A

Manually
Computerized accounts receivable management

143
Q

Manual AR payment

A

Manage carefully to prevent internal embezzlement.

Riskier and involves many steps

144
Q

Computerized AR management

A

Eliminates errors and decreases employee embezzlement

All calculations, interest, and statement fees are automatically calculated and added to the clients account

145
Q

No charge policies

A

Managers are responsible for creating and enforcing credit policies

146
Q

Payment expected at time of service sign

A

Not adequate

147
Q

Estimates

A

Must be given to all clients whose pet will receive services

Needs a client signature for legal documentation of consent

148
Q

Deposits

A

Should be at least 50% of the expected total cost of service

149
Q

No-charge policy within the team

A

All team members need to understand and accept the policy

150
Q

Holding checks for delayed payment

A

Accepting a check dated with the date it was accepted but holding the check to deposit at a later date

151
Q

Why are holding checks for delayed payments not acceptable

A

Add to level of difficulty for reception in storing, tracking payment date and depositing in the correct date

No guarantee the funds will be available

Increases error

May cause client to leave practice and request to be reimbursed for returned check fees for practices negligence.

Accepting post- dated checks is illegal in many states

152
Q

When should AR accounts be paid?

A

Within 30 days

153
Q

When should clients be sent statements?

A

Immediately after services are performed as collection chances are higher when the service is still fresh in a clients mind

154
Q

How should clients with no payment in over 60 days be notified?

A

Handwritten note on statement with a brightly colored overdue sticker on the statement.

155
Q

Fair debt collection practices act

A

Dictates that the sticker cannot be placed on the outside envelope

156
Q

What to do if a client hasn’t paid in 90 days.

A

Notify that unless they pay they will be sent to collections

Have team members call the client to attempt to collect payment

Turn it over to collections

Flag client account to avoid rendering future services

157
Q

Other options for accounts past 90 days

A

Write off amount as bad debt

Small claims court, but can be costly

158
Q

Fair debt collection practices act regulates?

A

Regulates collection procedures of past due accounts

159
Q

Why was the fair debt collection practices act passed?

A

To protect the public from unethical collection procedures and mainly applies to collection agencies, but must be considered as the practice team attempts to collect debt

160
Q

What does the fair debt collection practices act state?

A

Debtors can’t be subject to harrasment, oppressive tactics, or abusive treatment

Clients may not be called at work if it inconvenient times (outside hours of 8am - 9p)

Prohibits collectors from making false statements (pretending to be lawyers)

Accounts details may only be discussed with clients themselves

161
Q

Collection over phone procedure

A

Use caller ID blocker
Counsel team not to take negative words personally
Introduce yourself
Keep conversation focused on account collection
Confirm who you are speaking with
Document

162
Q

Can you leave a voicemail when attempting to collect payment?

A

Yes, but only to introduce yourself and leave a call back number. No account specifics should be disclosed

163
Q

Should collection letter include a thank you at the end?

A

Yes

164
Q

Employee AR

A

All practices should have a written policy

165
Q

If an employee has an AR balance what is the max amount that should be allowed?

A

$100

166
Q

What should be the payment policy for employee AR

A

Monthly payments

167
Q

Can you deduct employee AR balance from paycheck?

A

Check state laws
Need permission
Must not allow the check to dip below minimum wage

168
Q

What info does a collection agency need?

A

Client full name, address and all phone numbers
Total balance on account
Client occupation if known
Clients work address if known
Clients driver license number
Copy of client info sheet and signature of client guaranteeing payment for services rendered

169
Q

What will collection agencies charge?

A

40-60% of balance being collected

170
Q

AR calculation

A
171
Q

AR calculations

A

AR turn over
Days in AR

Determine liquidity, solvency and profitability

172
Q

Average AR

A

Beginning AR + Ending AR ÷ 2

173
Q

AR turnover definition

A

How many times the AR balance is converted into cash

174
Q

AR turnover calc

A

Credit sales ÷ average AR

175
Q

Credit sales

A

Only credit sales not cash sales

Credit sales and average accounts should be from the same time period

176
Q

Do you want a higher or lower AR turnover

A

A higher value because it indicates the AR balance is turned to cash more often

177
Q

Days in AR equation

A

Number of days in period ÷ AR turnover

178
Q

Example of AR turnover

A

AR turnover for the year = 12

365÷12=30.42
AR turnover is every 30 days
MEANING: the practice would need 30 days of working capital to maintain the practice’s cash flow needs

179
Q

AR alternatives to extending credits

A

Pet insurance
Care credit
Held credit card payments
Wellness and preventative care packages

180
Q

Held credit card payments

A

Having a credit’s card number on file for a payment plan

181
Q

What does the AR turn over tell us

A

How many times AR is turned to cash
Ratio of how efficient the company is at collecting credit sales from customers

VHMA CVPM Additional (19 decks)

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