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VHMA CVPM Additional > Session 9 Finances Part 2 > Flashcards

Session 9 Finances Part 2 Flashcards

1
Q

Budgeting

A

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.

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2
Q

Gross revenue equation

A

Expense ÷ gross revenue × 100

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3
Q

How many people should be involved in budgeting?

A

A good amount of staff

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4
Q

How to carry out a budget

A

Allow as many team members as possible to participate in the process.

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5
Q

Benefit of including many team members in budgeting process

A

Helps avoid negative feelings potentially associated with conversations about budget gaps and job performance

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6
Q

What you need to begin a budget

A

Last 3 years P&L and Productivity statements

All lease and loan docs

Fee schedule

Lost if operational changes expected in the next few years and their potential effect on revenue/expenses

List of major capital investments expected in next few years

Employee roster and recent years W-2s

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7
Q

Economic cycle is AKA

A

Business cycle

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8
Q

What is the economic cycle?

A

Predictable long term pattern changes in national income.

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9
Q

What does the economic cycle have an impact on?

A

Consumer confidence

Labor market

Inflation

Therefore practice revenue

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10
Q

Traditional business cycles undergo 4 stages

A
  1. Expansion
  2. Prosperity
  3. Contraction
  4. Recession
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11
Q

Phases of the business cycle involve ____ on a global out look

A

Changing employment rates, industrial productivity and interest rates

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12
Q

Technology in the business cycle

A

Can often increase the demand for vet services

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13
Q

Interest rates and access to credit

A

Can affect the ability for a practice to expand or invest

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14
Q

Expansion

A

Revenue should increase

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15
Q

Contacting

A

Revenue should decrease

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16
Q

Outside influences on the budget process

A

Four stages of the business cycle

Technology

Interest rates and access to credit

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17
Q

The six steps of budgeting

A
  1. Determined desired financial result
  2. Analyze financial statements
  3. Normalize revenue and expenses
  4. Budget revenue
  5. Budget expenses
  6. Combine budgeted revenue and expenses and make adjustments
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18
Q

Budgets are

A

Informed guessing

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19
Q

Determining the desired financial results is

A

Specifying the goal that the practice wants to achieve

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20
Q

Specify the goal of the practice is measured by? And can specify?

A

Typically measured by profit (revenue - expenses)

Can specify earning percentage to gross revenue that measures the amount of profit that can be made from each dollar of revenue received (profit ÷ revenue)

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21
Q

Goals for an established practice. Goals are based on ____

A

If you know how you did the last 3 years you can know how you are going to trend this year

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22
Q

Goals for a start-up practice

A

Recommended to use the 25th percentile of industry benchmarks.

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23
Q

To Determine the desired financial result

A

Specify desired goal

Revise and refine as circumstances change

Be prepared to keep refining prn due to changes in market or practice

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24
Q

When Analyzing the financial statement you should ….

A

Break revenue down by profit centers

Simply expenses into 4 categories

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25
Q

4 categories of expenses for analysis

A
  1. Personnel
  2. Variable / COGS
  3. Occupancy/ Facility
  4. Fixed/Administrative
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26
Q

Normalizing the revenue and expenses means

A

Remove any one time non-recurring items

OR

Use an average of the last 3 years to help normalize the nonrecurring expenses prior to using the data in budgeting

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27
Q

Why normalize?

A

Budgets are typically created using the most recent years financial statement which can include big nonrecurring changes (i.e. new equipment)

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28
Q

Budgeting revenue is

A

Projecting the revenue the practice will generate in the following year

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29
Q

Budgeting revenue is tied to

A

Budgeting expenses.

If you want to have more revenue from vaccines and sell more vaccines you will also need to buy more and budget for that.

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30
Q

Revenue budgeting is harder than

A

Expense budgeting

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31
Q

Why is revenue budgeting thought of as harder than expense budgeting

A

All the factors you have to consider

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32
Q

A key driver to revenue growth is

A

Practice volume

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33
Q

Influences of practice volume

A
  • Addition/removal of services
  • loss of DVM
  • economic conditions
  • advertising and promotions
  • fee increases
  • demographics associated with area
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34
Q

What determines the constraints on the volume capacity of a practice?

A

Average DVM appts time
Average DVM procedure time
Average number of each that fit into 8-10hr day

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35
Q

When determining practice capacity and potential projections you need to consider

A

5 day work week with 48 weeks per year

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36
Q

Example calculations for revenue goal

A

15 min appts
1hr procedure

2 procedures a day and 24 appts a day

5 day work week 48 work weeks a year

48(wks) × 5 (d/wk) × 24 (appt/d) =5,760 appts per year

5,760 × average transaction fee = good place to start for revenue budget

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37
Q

Parts of revenue budgeting

A

Patient volume

Fee schedule

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38
Q

Fee schedules consider high v low and how to introduce new service

A

Higher prices means potentially less clients

Be conservative when introducing a new service for revenue growth without historical data - market research is done in real time to determine the amount of expected revenue.

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39
Q

To get more accurate revenue projections you need to

A

Project revenue on a per cost center basis

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40
Q

Budgeting expenses begins with

A

Normalizing figures

41
Q

Simplest method of creating an expense report is to

A

Add the last 3 years average growth rate to the base expense figure

42
Q

The simple method of creating an expense report only works if

A

The practice is established

Expenses were stable over the last 3 years

The practice will continue to operate similarly in the following year

43
Q

If practices meet the simple budgeting expense criteria then

A

Expenses will need to be projected and added to the base year figures.

44
Q

4 distinct expense categories

A

Personnel wages

Occupancy/facility

Variable expenses/ COGS

Fixed / Administrative

45
Q

Personnel wages are calculated by

A

Applying an estimated raise percentage to the previous year’s figures considering any potential staffing adjustments to the coming year

Add benefits package expense by applying the historical average added to the salary expense

46
Q

Occupancy/Facility expenses is calculated by

A

Leasing/mortgage docs.

Taxes and utilities are projected by applying the average increase in the Consumer Price Index to the previous year

47
Q

Variable/COGS cost is calculated by using

A

Using historical percentage of revenue

48
Q

Fixed/Administrative expenses

A

Typically grow consistently with the average growth percentage from the last 3 years

49
Q

Consumer Price Index

A

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

AKA cost of living index

50
Q

Combining budgeted revenue, expenses and making adjustments is done by

A

Subtracting the budgeted expenses from projected revenue to derive an estimate for future profits

51
Q

Adjustments to increase profit

A
  1. Increase revenue
  2. Lower expenses
  3. Lower targeted profits
52
Q

How to increase revenue

A

Increase working hours

Add services

Improve collections

(Realize added expenses in the above options too)

53
Q

Lowering targeted profits means

A

The initial desired result may have been unrealistic and it may be necessary to lower the profit target to a more attainable level

54
Q

Before making adjustments

A

Compare projected profits with profit goals from step 1 (choosing a goal)

If the projections are lower you can look at making the adjustments

55
Q

The completed budget should be a guideline for

A

Daily operational and financial activities from a global perspective, as well departmentally and individually

56
Q

Once you have a budget how often do you need to compare actual performance against it?

A

Periodically to look for variance and once found create plans to resolve.

57
Q

Reasons for a large variance in budgets

A

Non compliance
Waste
Unrealistic to begin with

58
Q

Expansion, prosperity, contraction and recession are the four stages of

A

The business cycle

59
Q

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

A

Remove any nonrecurring items

Combine the last 3 years as an average

60
Q

Which metrics are important considerations when creating a budget?

A

Last 3 years P&L and Productivity Statements

Fee schedule

List of operational changes expected in the next few years and their potential impact

All lease and loan docs

List of major capital

61
Q

Most industry experts agree extending credit is

A

Bad

62
Q

Extending credit is AKA

A

A payment plan

63
Q

When do you consider extending credit to a client?

A

Clients with long dependable payment histories that may have just gone through an emergency or significant acute balance for tx

When trying to increase compliance for high dollar tx or sx

64
Q

If no extended credit policy is allowed how should clients be made aware?

A

Prior to performing SX/tx via signage and written communication

65
Q

2 sub-policies for credit policies

A

Client credit policy

Charge account policy

66
Q

Client credit policy

A

Established the pre-qualification needed to open a charge account (payment plan)

Ex. Established 2 years of perfect credit with the practice and not an asshole

67
Q

Charge account policy

A

Establishes credit limits, payment due dates and invoicing procedures

68
Q

6 details needed in the charge account policy

A
  1. Pre-qualification procedures for clients of unknown standing
  2. Process for flagging pre-qualified client accounts
  3. Total invoice amount a pre qualified client can charge (not pay at check-out) without approval of management
  4. % of the bill that must be paid at check out
  5. Procedure for managing aging accounts and collecting overdue monies (AR)
  6. Use of Charge Account Forms
69
Q

Charge Account form AKA

A

Payment plan form

70
Q

8 details needed on charge account forms

A
  1. Client info (name, address, employer, phone #s)
  2. Amount of unpaid balance
  3. Credit service fee
  4. Total amount financed
  5. Terms of credit (days payment is due, any penalties for late/missed)
  6. Interest rate and timing
  7. Amount credited, agreed upon monthly payment, last payment due date
  8. Client signature in agreement
71
Q

Important factors of credit policies

A

Train staff to be confident and well versed in the credit policy

Post written guidelines regarding payment

Communicate a brief summary of payment options when scheduling a new client

72
Q

2 simple pre-qualification procedures to consider

A
  1. Call the clients listed phone numbers to make sure they are in service and not disconnected
  2. Call the employer to verify employment and length of employment
73
Q

3 key credit enforcement policies

A
  1. Make sure staff completely understands and adheres to it
  2. Don’t override properly made staff decisions
  3. Don’t make exceptions
74
Q

What are the 2 sub policies of a credit policy

A

Client credit policy

Charge Account policy

75
Q

A list of procedure 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. T/F

A

Flase

76
Q

How often should you review the fee schedule

A

Minimally once a year

77
Q

CPI

A

Consumer Price Index

78
Q

Consumer Price Index (CPI)

A

Practice should be aware and increase prices annually to reflect the cost of living

79
Q

One of the first steps in fee setting and analysis

A

Determining how much a service costs the practice

80
Q

Calculating cost of a service equation

A

((Fixed costs per min + staff costs per min) × (length of procedure in min)) + ((DVM costs per min) × (length of procedure in DVM min)) + (direct costs × 2) + profit = cost of service

81
Q

Fixed costs per minute

A

Determined from income statement

Admin, facility, DVM (on salary), and number of billable minutes the hospital is open.

82
Q

Example of fixed costs per minute calculation

A
83
Q

Staff costs per minute

A

Non DVM staff costs ÷ billable minutes × # of non DVM staff needed × minutes of the procedure

Monthly staff costs ÷ minutes per mo = A

A × amount of staff needed for the procedure = B (total staff costs per minute)

84
Q

Staff costs per doctor

A

Same calculation as staff costs

85
Q

Direct costs equation

A

Cost of supplies used to preform tx × 2 (to cover hidden inventory fees)

86
Q

Profit in equation

A

Determined by management as a desired percentage

87
Q

Considerations for fee schedules

A

Competitive markups for “shopped” services (OVH, NTR, VXNs)

Location

Staff training

client services

Competition

88
Q

The consumer Price Index can be instrumental in determining the cost of living increase for a variety of expenses associated with running a practice T/F

A

True

89
Q

Elements included in the fee analysis calculation

A

Staff costs per minute
Veterinary cost per minute
Fixed cost per minute

90
Q

Employee Embezzlement

A

More than 5% of gross revenue is lost to embezzlement in small businesses annually.

67.8% of practices have been victims of fraud or embezzlement

91
Q

Embezzlement clues

A

Sudden unexplained or extravagant purchases

Constant convo about money probs

Receives calls from creditors

Complains about bookkeeping errors made by others

Declines to take vacations or share responsibility

Known gambling tendencies

Under significant life stress

92
Q

What is the amount of loss needed before prosecuting for known and proven embezzlement ?

A

No monetary loss is too small

93
Q

What entity is a good resources
for the practice in the event of embezzlement?

A

Insurance carrier

94
Q

Chart of Accounts

A

A list of created numbered categories used to define each class of items for which money is spent or received.

95
Q

Backbone of any accounting system

A

Chart of Accounts

96
Q

Importance and benefits of chart of Accounts

A

Promoted consistency and accuracy, allowing data to be compared from year to year with the industry as a whole

Easily created in most accounting software programs

97
Q

Imprest petty cash

A

A cash fund maintained for small practices

98
Q

Factors of imprest petty cash

A

A fixed amount is reserved and replenished prn

All receipts are counted and reconciled to amount left in the fund

Receipts are coded for the proper expense account and the fund is replenished

Improves internal controls by providing a system for tracking cash purchases instead of using the reception cash drawer

VHMA CVPM Additional (19 decks)

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