Financial Warning Signs

Determining our patients' health is something we can do quite quickly, in part, because we've learned how. The other part is that we put forth the effort to do so. Consider reviewing the financial statements of a company equivalent to performing an annual exam on a patient. You can get a distinct idea of how healthy the company by examining the reports. They are your EKG, CBC, CMP, and physical exam. Always look at the financial statements to understanding the company's current health, determine the prognosis, and develop a plan to fix the issues.

The first report I recommend looking at is the statement of cash flows. This report is incredibly powerful and will quickly show you what is happening to the cash of the company. Cash is the lifeblood of any company. Its flow will identify what's good and bad about the company. If you notice more cash is flowing out of the company than what is flowing into the company, the cash flow is negative, and that's bad. If the cash flow remains...

Continue Reading...

How to Determine the Value of Your Company

If you are looking to raise capital, borrow money, sell your business, or buy another business, you will need to determine the value of your company. The value of any business goes beyond the bottom line. To help you determine the value of a business, consider the following factors.

Revenue

First and foremost, the value of a company is determined by the financial success it experiences. Things to look at are the revenue or sales of the company and the net profit. However, if you want to see if the company is good at doing its core function, examine the EBITDA, Earnings Before Interest, Taxes, Depreciation, and Amortization. This number examines the cash that is generated by its core business function. The issue with looking at the bottom line, the net profit, is that it includes financing decisions the firm made and can falsely elevate a profit. EBITDA should grow over time as well. If you see it shrinking, figure out why. Is it a market condition, an internal operations issue, or...

Continue Reading...

How to Prevent Fraud in Your Medical Practice

You work hard for your practice. What steps are you taking to protect your business from someone stealing from you - especially someone who is on the inside? Fraud can cost a medical practice hundreds of thousands if not millions of dollars. According to the Association of Certified Fraud Examiners, the typical organization loses a median of 5% of revenues each year because of fraud. Globally, they estimate $3.7 trillion is lost each year due to fraud.

Small businesses suffer more due to fraud than larger businesses. Those with less than 100 employees are at greater risk. The biggest opportunity is in the small business back office with one or two employees. Preventing fraud is possible, but it requires two important things to be in place. First, you must be financially intelligent. Second, take the following steps to prevent fraud from occurring.

Ways to prevent/detect

Mandatory vacation. Require all employees to take a vacation, at least one full week, each year. It is...

Continue Reading...

How Sick Is Your Practice?

Imagine you have a patient in your exam room. They seem healthy enough. They don’t have any complaints and appear happy. Their body weight looks fine, and the cursory physical exam is normal. You think everything is hunky-dory. Then you are handed a couple of sheets of paper with the results of the laboratory blood work. Now, if you’re a medical student, you glance over the paperwork hoping the report has normal values listed to help guide you. Better yet, the report will flag anything abnormal.

The reports from this lab don’t do that. All you get is a number. What do you do? Do you shrug your shoulders and determine the patient is fine and send them on their way? Alternatively, do you hit the pause button, research and learn how to use the lab results, so you make the best decision for the patient?

A competent physician would take the time to learn how to interpret the lab values and incorporate the data with other findings. You want to solve the real problems...

Continue Reading...

Understanding Your Costs

One of the most significant disagreements I see amongst partners is the allocation of costs. They typically fight over who pays for how much of the expenses incurred by the practice. As I begin to work with them, I discover they all are not on the same page in understanding what a cost is. A cost is not simply a cost. There are many types of costs. If you want to track and control something such as a cost, you must first understand the nature of it.

What is a Cost?

The simplest definition of a cost is the value of money which is used up in the production of a good or service. It’s how much money you spend on creating your service. Costs may also be referred to as charges, expenditures, outlays, payments, and expenses.

There are two broad classifications of costs in business, fixed costs or variable costs. There are also direct and indirect costs. Usually what people fight over is the allocation of costs, and that involves the fixed and variable costs.

Fixed vs. Variable Costs

...
Continue Reading...

Understanding the Capital Structure of Your Practice

When making investment and financial decisions in your small business you will need a clear picture of the capital structure of your company. Capital is generally referred to as the source of cash for investment in the company. There are two sources of capital, selling ownership and borrowing money either as loans or selling debt such as bonds. Deciding which source and the balance between the two sources is an important decision.

Factors to Consider When Determining Your Capital Structure

Equity. Equity refers to the ownership of the company. Equity can and often equals control. When you raise capital by offering equity, you are selling an ownership stake in your company in exchange for capital, typically cash. Depending upon how you’ve structured the offering, the investor will keep certain rights and powers. They might want a seat at the board, be involved in the decision making of the company, and have a return they expect to earn. Selling equity can come with many...

Continue Reading...

A Guide to Financial Decision Making

As physician leaders, we make financial decisions all the time. These decisions aren’t necessarily hard, but they can be stressful and complicated at times. This stress and complexity can keep us from making the best decision possible. Here’s a guide to help you make better financial decisions.

An Algorithm to Follow in Financial Decision Making

The very first step in the algorithm is identifying your mission and purpose. What is your business all about? What is it that you do and why do you do it? Answering these questions will serve as a guide for the rest of your decision-making process. It will be your guiding light and help you stay focused on what’s really important. What are your core obligations? What are your duties as a firm and practice?

The next step is to ask, "What is the issue you’re facing?" Is it an opportunity to invest in growth? Or, is it an opportunity to remove an underperforming asset? Sometimes you’re presented with an...

Continue Reading...

Financial Intelligence - The Missing Part of Medical Education

I remember the first time I was handed the financial reports of my group practice. I asked myself, “What am I looking at?” I felt confused. I didn't know what all the line items were. I didn’t know what the numbers really meant. I acted like I knew what I was reading and let my pride get in the way of my performance.

Then a little voice inside my head said I needed to learn and master the knowledge. I wanted to be able to contribute and not only understand but affect the numbers on the page. I've always been someone who is continuously looking to improve myself. Never stop learning has been my motto. I also discovered understanding financial statements isn’t hard or complicated. It’s merely a different set of rules, concepts, and words to be learned.

I'm Not Alone, and Neither are You

I’ve spoken with many groups and physicians across this country. The most common thread I’ve seen in our conversations is a deficit in financial intelligence....

Continue Reading...

How healthy is your practice?

Physicians use various types of metrics to determine how healthy their patients are. We track and monitor diabetes with regular blood sugar checks and HbgA1Cs. Each time our patient comes into our clinic we record their weight, blood pressure and other vitals. In pediatrics, we use growth charts to track and monitor the child’s growth. In operating a financially healthy clinic, we should use similar metrics, and some of the easiest to use are financial ratios. There are many different types of ratios - productivity, liquidity, profitability, and financial strength. Each different type of ratio looks at a different aspect of your practice’s financial health. Here are a few of the ratios I use on a regular basis.

Working Capital

Working capital looks at your ability to pay your bills on time. If we subtract your current liabilities from your current assets, we find your working capital. The word current here means any asset that can be converted quickly into cash,...

Continue Reading...
Close

50% Complete

Sign up today

Sign up for my newsletter. You'll get a monthly email from me sharing valuable business knowledge you can use to have the business you desire.