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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. Why should we discuss?. Profession vs. Business

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finance management2
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

why should we discuss
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

objectives
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

financial management definition
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 areas of management

Satish

basic finance literacy
Basic finance literacy
  • Income and expenditure statement
  • Cash flow: outgoing, incoming
  • Balance sheet: final accounting item (what the practice is worth)
  • Budgeting: a process of estimation of income and expenditure
  • Assets
  • Liabilities
  • Capital

Satish

balance sheet
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

some core issues
Some core issues
  • Budget
  • Accounting
  • Cost Accounting
  • Break even point
  • Cost benefit analysis
  • Cost reductions and containment
  • Day to day activities

Satish

budget
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

budget advantages
Budget: advantages

It is a tool for -

  • Quantitative expression of the planning
  • Evaluation of financial performance in accordance with plans
  • Controlling costs
  • Optimizing the use of resources
  • Directing the total efforts in to the most profitable channels

Satish

planning preparing budget
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

types of budget
Types of budget

Importance :Understanding of various types of budget can indirectly help us understand various methods of finance management

  • Project budget : probable expenditure and likely revenue for a specific project
  • Departmental budget

Satish

types of budget13
Types of budget
  • Operating revenue budget- related to volume of work anticipated
  • Operating expenditure budget: recurring expenditures for operation and maintenance of services e.g. salaries and wages, supplies, support utilities, maintenance
  • Capital budget ( non recurrent ): meant for growth ( new facilities), replacement of obsolete. Needs are many – prioritize
  • Cash budget : provision for anticipated cash expenditures , for planning the cash flow e.g. salaries, bills etc.

Satish

accounting
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

types of accounting
Types of accounting
  • Financial accounting: documentation of facts, daily transactions
  • Cost accounting : expenditure for a particular service
  • Management accounting : Analysis and interpretation of financial information for management purpose

Satish

nomenclature
Nomenclature
  • Costing: to find out money spent on a service
  • Cost center: an allied group of activities in a hospital eg laboratory, immunization, laundry service
  • Cost object: anything for which separate measurement of cost is desired e.g. rooms, OT, ICU, equipment
  • Cost unit: a measurable detail of service rendered e.g. linen, laboratory investigation

Satish

categories of expenditures
Categories of expenditures

Important in understanding dynamics of costing

  • Capital Vs Recurring
  • 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

3 direct vs indirect expenditures
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

objectives advantages of costing
Objectives & advantages of costing
  • To get clear picture of financial situation
  • Identifying profitable and non profitable segments and taking action accordingly
  • To decide pricing of services and discounts
  • To decide for out sourcing of services

Satish

advantages of costing
Advantages of costing
  • Helps in entering into agreements with TPA, corporate clients etc
  • Helps in identifying wastages
  • Helps in budgeting, planning

Satish

effective cost accounting
Effective cost accounting
  • Proper records
  • Proper segmentation of costs
  • Sound accounting practices,regularity
  • Record of utilization of equipments
  • Record and analysis of man power utilization

Satish

difficulties in cost accounting
Difficulties in cost accounting
  • Many inputs have to be considered e.g. labor, material, depreciation,
  • Every transaction has to carry a price tag
  • Variation in quality of service e.g. consultant to consultant, patient to patient

Satish

break even analysis
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

cost benefit analysis
Cost - benefit analysis
  • An economic technique and formalized way of comparing the cost and benefit of undertaking an activity / project

Satish

expenditure containment and cost cutting
Expenditure - containment and cost - cutting
  • Sound economic sense
  • It does not mean compromising quality
  • Promote awareness amongst staff
  • Practice cost monitoring: analyze actual expenditure against budget and standards , find reasons for variations, work on them
  • Cost management: establish systems with responsibility and accountability

Satish

4 strategies for expenditure control
4.Strategies for expenditure control
  • Decrease the cost of inputs relative to outputs: materials, man power
  • Increase output relative to input: scheduling of procedures, automation , remove bottle - neck in the flow of services

Satish

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

Satish

investments
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

personal investments
Personal investments
  • Required for future expansion and growth
  • Commitment to the financial needs of the family
  • Retirement planning
  • Building wealth.

Satish

various investment avenues
Real Estate

Gold and Jewellery

Government Securities

Company Deposits

Mutual Funds

Equity

ULIP

Bank & company FDs

Various investment avenues

Satish

some tips on day to day activities
Some tips on day to day activities

1.Accounting

  • Financial memory of practice
  • Matter of self discipline
  • Meticulous record of financial transactions - legal requirement e.g. Form 3c
  • Employ accountant - good documentation and reports generation

2. Computerization

3. Periodic meetings with CA

Satish

4 handling cash
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

slide33
Tips
  • Deposit cash in bank daily or twice weekly
  • Have 2 distinct streams of cash flow

Cash inflow  deposit daily

Cash outflow  by withdrawal

  • Make schedule for making payments
  • Documentation support for all payments
  • Filing system: cash memos, paid bills, pending bills
  • Get personally involved for big transactions

Satish

slide34
Tips
  • Reconcile bank statements
  • Do not allow anyone to take records home
  • To your staff, demonstrate your awareness about what is going on and that you are careful about money

Satish

14 handling search and seizure
14.Handling search and seizure
  • Keep your cool
  • Call your best friends as witnesses
  • Know your rights
  • Prevention is better than cure

Satish

slide36
Thanks

Satish