Financial management in medical practice

1. FINANCIAL MANAGEMENT IN MEDICAL
PRACTICE
DIPLOMA IN FAMILY MEDICINE
LECTURE.

2. OUTLINE
• Nature of Financial Management
• Book and Record Keeping
• Basic Records
• Common Terms in Book Keeping
• Double Entry
• Financial Statements
• Profit and Loss, Balance Sheet, Cash Flow.
• Financial Ratios

3. OBJECTIVE
The aim of this lecture is to familiarise participants
with basic concepts of Book Keeping/ Finacial
Management.
At the end of the lecture, participants should be
able to:
1. Understand the Nature and Importance of
Financial Management.
2. Know the Features of Financial Statements –
P&L, Balance Sheet, Cash Flow Statement,
Budget.
3. Understand the Use common of Accounting
Ratios

4. Nature of Financial Management
Definition
The art of ensuring the optimal utilization of
the financial resources of an organisation to
achieve her goals and objectives.

5. THE SCOPE
It encompasses the appropriate and systematic
management of the processes involved in the
generation, tracking (accounting) and
disbursement of the funds of an organisation.

6. IMPORTANCE
Money is the lifeblood of any organisation. It is the
means by which effective transactions of the
organisation take place. It is a measure of the
performance of the organisation.
Its presence or absence can determine the
success or failure of the organisation.
Effective Cash-Flow management (which is the
objective of financial management) is an
essential requirement for the sustainability of
any organisation.
It helps to maintain a profit focus, identify weak
performance and prescribe appropriate remedy.

7. Book and Record Keeping
• Book keeping is a way of recording the
money of the business in the day to
running of the business to produce a final
record called financial statement

8. • Cash receipts records
• Cash disbursement
• Sales records
• Purchase records
• Payroll records
• Equipment record
• Debtors record
• Inventory record
• Creditors record
Basic Records of Book Keeping

9. Book and Record Keeping
Double Entry
When an entrepreneur receives some value
and gives out same the receiving is what is
called credit (CR) and the giving is called
debit(DR).
When we post the giving and the receiving at
the same time it is called double entry book
keeping. For example when you buy a car for
your business, you immediately post two
entries for that transaction.
You post a credit entry into your Cash Account

10. Common Terms in Book
Keeping
• Assets: Things of value that belong to an
entrepreneur for running the business eg
building, equipment, cash etc.
• Liability: This the amount (in money) terms
owed by the business or entrepreneur.
• Capital or Equity: This is the money that
was or will be used in starting a business.
• Revenue: This the money that is made
when you sell goods or provide services to
customers.

11. Terms contd
• Expenses: Expenses are moneys spent to
make revenue, such as wages, rent etc.

12. Accounting Procedures
• This the process of recording the financial
activity/ transactions of the business
systematically so as to be able to classify
the transactions of the business. They are
rules for recording, classifying,
summarizing and reporting transactions
and interpreting report.
• A basic component of this involves the
processing of the book keeping records
into journals, ledgers, trial balances from

13. FINANCIAL STATEMENTS
These are Statements of the Summary of the
Financial Position of an Organisation at a given
point in time or a period under consideration.

14. PROFIT AND LOSS ACCOUNT (P&L)
This is the statement of the summary of the
financial transactions of an organisation over a
given period. It consists of the Income,
Expenditure (Operational) and the Surplus
(Profit) or deficit.
It is a measure of the profitability or otherwise of
the organisation.
The aim of good Financial Management is to
optimise revenue and minimise expenditure.

15. TECKING MEDICAL CENTRE
Profit / Loss Acct for the Month ended 30th June, 2009
Actual month Preceding Month Budget variance
N N N
Sales 1,069,871 1,377,240 430,129
Opening Stock
Drugs 349,900.38
F/L 13,983.72
Lab 1,119.1 375,075.2
Purchases
Drugs 148,180
F/L 40,030
Lab 3,420 191,630
Cost of gds avail 566,705.2
Closing Stock
Drugs 255,102.51
F/L 10,802.74
Lab 3,432 (269,337.25)
Mat. Consumed (297,367.95) (199,701.12) (67,367.95)
Gross Profit 772,503.05 1,177,538.88 497,496.95
Less Operational Expenses
Wages/sal 502,965
Trans/Trav 23,510
Sanitary 16,000
Repairs 25,480
Stationery 5,390
Utility/Elect 10,300
Telephone 57,490
Fuel/Diesel 55,600
Refresh 6,980
Lighting 2,050
Misc 11,190
Gift/Don 77,000
Domestic 12,000 805,955
Drawing ( 151,250)
Net profit (33,451.95) 375,928.88 406,548.05
Less Extra Ordinary Expenses
Hosp Proj 26,200
Hosp Dev 450
Hosp Equip------- 26,650
NET BALANCES (60,101.95) 360,528.88 199,898.05

16. BALANCE SHEET
This is the statement of the financial summary of
the Total Assets, Liability and Equity of an
organisation at a particular point in time.
It is called a Balance Sheet because it is a
balanced equation of: Assets = Liabilities+
Equity

17. Cash Flow Statement (CSF)
• This is a record of cash and equivalents
entering and leaving a company.
• The CFS allows investors to
understanding how a company’s
operations are running, where its money is
coming from and how it is being spent.
• The CFS is distinct from the income
statement and balance sheet because it
does not include the amount of future
incoming and outgoing cash.

18. THE BUDGET
• The budget is the statement of the
financial plans of an organisation over a
given period. It is a projection of all the
anticipated financial transactions (Income
and Expenditure) of the business in the
given period.
• It is crucial for effective financial
management of any organisation.
• It is also a vital tool for effective control of
the business.

19. ACCOUNTING RATIOS
These are ratios derived from the P&L and
Balance Sheet statements to reveal specific
information.
Common ratios in use include:
Return on Investment (ROI) – This is the ratio of
the profit over the capital invested in the
business.
Current Ratios- This the ratio of the Current
Assets over the Current liabilities of the
company.
Others – Return on Equity (ROE), EPS etc.

20. Management in Buy Decisions
• An important aspect of Financial management is
to provide information that will guide in taking
decisions to buy or not to buy particular items.
Some of the of the issues to be considered
include:
• Need Assessment – Client base/Practice
• Alternative Resources/competition.
• ROI/Pay Back Period
• Available Resources/Cost of Funds
• Cost-Benefit Analysis

21. Conclusion
• The purpose of this lecture is to help
participants understand the nature and
importance of Financial management in
running a business ( including medical)
and to familiarise the participants with
common terminologies in accounting.

22. Thank You