Finance management

Finance management
• Why do we discuss? Introduction and
Objectives
• Basic finance literacy
• Budgeting
• Accounting ,Cost Accounting and Cost
Containment
• Investments
• Some general tips on day to day matters
Satish 2
 Why should we discuss?
• Profession vs. Business
• Every medical practice, small or big, is a business
• Huge investments – expected returns
• An entrepreneur- by default
• Profit - a dirty word?
• Survival and growth
• Self employed - look after your own finances and control
them
• Problems: doctors tend to be ignorant & careless about
finances, sitting ducks, frauds
Satish 3
 Objectives
• To create awareness

• To stimulate to further learning

• To develop a vision

• To develop an ability to plan and control with

clinical precision

• To equip our selves to ask right questions to CA

• To develop a healthy practice with patients as

beneficiaries
Satish 4
Financial management – definition
• It is the art and science of managing money

• The most essential requirement of any organized

business or activity

• The process of procuring and judicious use of

resources with a view to maximize the value of the

firm

• Interdependence with other

Satish
areas of management 5
 Basic finance literacy
1. Income and expenditure statement
2. Cash flow: outgoing, incoming
3. Balance sheet: final accounting item (what
the practice is worth)
4. Budgeting: a process of estimation of
income and expenditure
5. Assets
6. Liabilities
7. Capital
Satish 6
 Balance Sheet
A statement of assets, liabilities and capital on a
given date
Assets:
• Fixed: land, building, equipments etc
• Current: Cash in hand or in bank, stocks,
debtors
Liabilities
• Long term: Loans > 1 yr
• Current/ short term: overdraft, taxes
Capital= Assets -Liabilities
Satish 7
 Some core issues
• Budget

• Accounting

• Cost Accounting

• Break even point

• Cost benefit analysis

• Cost reductions and containment

• Day to day activities

Satish 8
 Budget
• An important instrument of the financial management

used as aid in planning, programming and control

• A budget may be defined as a financial and quantitative

statement, prepared and approved prior to defined

period of time, of the policy to be pursued during that

period for the purpose of achieving the given objective.

Satish 9
 Budget: advantages
It is a tool for -

a) Quantitative expression of the planning

b) Evaluation of financial performance in

accordance with plans

c) Controlling costs

d) Optimizing the use of resources

e) Directing the total efforts in to the most

profitable channels
Satish 10
 Planning & preparing budget
• Well in advance

• An opportunity to plan expansion or

improving services , hence involve staff and

all departments

• Plans must be realistic

Satish 11
 Types of budget
Importance :Understanding of various types of

budget can indirectly help us understand various

methods of finance management

1. Project budget : probable expenditure and likely

revenue for a specific project

2. Departmental budget
Satish 12
 Types of budget
3. Operating revenue budget- related to volume of
work anticipated
4. Operating expenditure budget: recurring
expenditures for operation and maintenance of
services e.g. salaries and wages, supplies, support
utilities, maintenance
5. Capital budget ( non recurrent ): meant for
growth ( new facilities), replacement of obsolete.
Needs are many – prioritize
6. Cash budget : provision for anticipated cash
expenditures , for planning the cash flow e.g.
salaries, bills etc.
Satish 13
 Accounting

• An art of recording , classifying and summarizing

data in a significant manner and interpreting the

results

• Data may be in form of money transactions and

events which are, in part at least , of a financial

character
Satish 14
 Types of accounting
1. Financial accounting: documentation of facts,
daily transactions

2. Cost accounting : expenditure for a particular

service

3. Management accounting : Analysis and

interpretation of financial information for
management purpose
Satish 15
 Nomenclature
a) Costing: to find out money spent on a service

b) Cost center: an allied group of activities in a hospital

eg laboratory, immunization, laundry service

c) Cost object: anything for which separate

measurement of cost is desired e.g. rooms, OT, ICU,
equipment

d) Cost unit: a measurable detail of service rendered

e.g. linen, laboratory investigation
Satish 16
 Categories of expenditures
Important in understanding dynamics of costing

1. Capital Vs Recurring

2. Fixed Vs Variable

Fixed : Remains unchanged despite changes in related

level or volume of activity e.g. salary of permanent
staff

Variable – volume dependent, varies in proportion to

changes in level of activity e.g. medicines,
consumables, power cost
Satish 17
 3.Direct vs indirect
expenditures

• Direct : Clearly linked to a service

• Indirect: can not be clearly linked to a

particular cost object e.g.

administration cost,security cost

Satish 18
 Objectives & advantages
of costing
1. To get clear picture of financial situation

2. Identifying profitable and non profitable segments

and taking action accordingly

3. To decide pricing of services and discounts

4. To decide for out sourcing of services

Satish 19
 Advantages of costing
5. Helps in entering into agreements with

TPA, corporate clients etc

6. Helps in identifying wastages

7. Helps in budgeting, planning

Satish 20
Effective cost accounting
1. Proper records

2. Proper segmentation of costs

3. Sound accounting practices,regularity

4. Record of utilization of equipments

5. Record and analysis of man power

utilization
Satish 21
 Difficulties in cost
accounting
1. Many inputs have to be considered e.g. labor,

material, depreciation,

2. Every transaction has to carry a price tag

3. Variation in quality of service e.g. consultant to

consultant, patient to patient

Satish 22
 Break - even analysis
• Volume of activity at which total income just

equals total variable and fixed costs

• Lower break even point is more desirable e.g. bed

occupancy 60% Vs 80%

• Advantages: Equipment selection and purchase

decision, formulating price policy

Satish 23
 Cost - benefit analysis
• An economic technique and formalized way

of comparing the cost and benefit of

undertaking an activity / project

Satish 24
 Expenditure - containment
and cost - cutting
• Sound economic sense
• It does not mean compromising quality
1. Promote awareness amongst staff
2. Practice cost monitoring: analyze actual expenditure
against budget and standards , find reasons for
variations, work on them
3. Cost management: establish systems with
responsibility and accountability
Satish 25
 4.Strategies for
expenditure control
a) Decrease the cost of inputs relative to outputs:

materials, man power

b) Increase output relative to input: scheduling of

procedures, automation , remove bottle - neck in

the flow of services

Satish 26
 5.Cost saving areas
a) Streamlining of services e.g. laboratory, OT, indoor
b) Purchases : planning, budgeting, bargaining, group
purchasing
c) Preventive maintenance AMC’s, back ups
d) Planning stage: quality manpower and machines,
planned recruitment, up gradation
e) Good accounting practices: automation, internal audit
f) Energy audit

Satish 27
 Investments
• We work hard to make money, but learn to

make your money work for you

• Daily wage earners

• Save, invest, build wealth, spend, give it away

• Invest some percentage in improving services,

facilities

• Stagnation without growth

Satish 28
 Personal investments
• Required for future expansion and growth

• Commitment to the financial needs of the

family

• Retirement planning

• Building wealth.

Satish 29
Various investment avenues
1. Real Estate 6. Equity
2. Gold and Jewellery
7. ULIP
3. Government
8. Bank & company
Securities
FDs
4. Company Deposits

5. Mutual Funds
Satish 30
Some tips on day to day activities
1.Accounting
a) Financial memory of practice
b) Matter of self discipline
c) Meticulous record of financial transactions -
legal requirement e.g. Form 3c
d) Employ accountant - good documentation and
reports generation
2. Computerization
3. Periodic meetings with CA
Satish 31
 4. Handling cash
• Staff handles lot of cash

• Doctors are too busy to supervise

• Easy temptation

• Introduce checks and balances - ensure strict cash

control

• Cash collection at counter (many advantages )

• Minimize temptation for staff

Satish 32
 Tips
5. Deposit cash in bank daily or twice weekly

6. Have 2 distinct streams of cash flow

Cash inflow  deposit daily

Cash outflow  by withdrawal

7. Make schedule for making payments

8. Documentation support for all payments

9. Filing system: cash memos, paid bills, pending bills

10. Get personally involved for big transactions

Satish 33
 Tips

11. Reconcile bank statements

12. Do not allow anyone to take records home

13. To your staff, demonstrate your awareness

about what is going on and that you are careful

about money
Satish 34
14.Handling search and seizure

a) Keep your cool

b) Call your best friends as witnesses

c) Know your rights

d) Prevention is better than cure

Satish 35
Thanks

Satish 36