Career and Life Planning Guidebook for Medical Residents

Understanding The Other Side of Medicine other expenses are considered indirect expenses. Indirect expenses are allocated to each partner in a predetermined manner. They are either divided equally across all partners, or allocated based in proportion to revenues, office usage, or some other basis. A healthcare accountant can help determine the best allocation method for expenses. Monitoring Fiscal Health Financial statements provide key insights into the financial health of the organizations. Here are a few ways to use the balance sheet and income statement to assess performance. 1. How easily can you pay your bills? Compare the amount of cash and other liquid assets on the balance sheet to the amount of current liabilities. This compares the resources you have on hand to what you will need soon. If your current assets are less than the current liabilities, the organization may have trouble paying its bills. 2. How quickly are you collecting payments? Com- pare the accounts receivable balance to monthly revenue. If the accounts receivable balance is equal to monthly revenue, then it takes 30 days on average to be reimbursed. If accounts receivable is much larger than this, you may have a problem collecting. 3. What is your profit margin? Compare expenses and net income as a percentage of total revenue. This will give you a feel for which expenses are most important to monitor. Improving Financial Performance There are two main ways to utilize financial state- ments to improve performance. One is to track your clinic’s trends over time. You should want to see clinic expenses (as a percentage of revenues) declining over time. A good manager will hold the line on expenses while growing revenue. You can also compare balance sheet items changing over time. If your cash, accounts receivable, and accounts payable balances fluctuate wildly, it may indicate a problem with the finances of the organization. A second way to approach financial statements is by comparing your performance to other similar clinics. Many healthcare accounting specialists have access to industry data on expense ratios and other financial performance standards. Also, industry groups will often publish benchmark financial data that can help you determine whether your clinic’s performance is in line with others in your area. Financial statements are a foreign language to most physicians. However, like any foreign language, with a little time and practice, you can become fluent and unlock insights to a whole new world. I encourage you to begin that journey. Financial statements provide key insights into the financial health of the organizations. 127 WWW.PHYSICIANCAREERPLANNING.COM