2. 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 matters2
Satish
3. 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
4. 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
5. 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 5
6. 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
7. 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
8. Some core issues
• Budget
• Accounting
• Cost Accounting
• Break even point
• Cost benefit analysis
• Cost reductions and containment
• Day to day activities
Satish 8
9. 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
10. Budget: advantages
It is a tool for -
b) Quantitative expression of the planning
c) Evaluation of financial performance in
accordance with plans
d) Controlling costs
e) Optimizing the use of resources
f) Directing the total efforts in to the most
profitable channels
Satish 10
11. 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
12. Types of budget
Importance :Understanding of various types of
budget can indirectly help us understand various
methods of finance management
2. Project budget : probable expenditure and likely
revenue for a specific project
3. Departmental budget
Satish 12
13. Types of budget
1. Operating revenue budget- related to volume of
work anticipated
2. Operating expenditure budget: recurring
expenditures for operation and maintenance of
services e.g. salaries and wages, supplies, support
utilities, maintenance
3. Capital budget ( non recurrent ): meant for
growth ( new facilities), replacement of obsolete.
Needs are many – prioritize
4. Cash budget : provision for anticipated cash
expenditures , for planning the cash flow e.g.
salaries, bills etc.
Satish 13
14. 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
15. 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
16. 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
17. Categories of expenditures
Important in understanding dynamics of costing
2. Capital Vs Recurring
3. 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
18. 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
19. 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
20. Advantages of costing
1. Helps in entering into agreements with
TPA, corporate clients etc
2. Helps in identifying wastages
3. Helps in budgeting, planning
Satish 20
21. 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
22. 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
23. 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
24. Cost - benefit analysis
• An economic technique and formalized way
of comparing the cost and benefit of
undertaking an activity / project
Satish 24
25. Expenditure - containment
and cost - cutting
• Sound economic sense
• It does not mean compromising quality
3. Promote awareness amongst staff
4. Practice cost monitoring: analyze actual expenditure
against budget and standards , find reasons for
variations, work on them
5. Cost management: establish systems with
responsibility and accountability
Satish 25
26. 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
27. 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
28. 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
29. Personal investments
• Required for future expansion and growth
• Commitment to the financial needs of the
family
• Retirement planning
• Building wealth.
Satish 29
30. Various investment avenues
1. Real Estate 1. Equity
2. Gold and Jewellery
2. ULIP
3. Government
3. Bank & company
Securities
FDs
4. Company Deposits
5. Mutual Funds
Satish 30
31. Some tips on day to day activities
1.Accounting
b) Financial memory of practice
c) Matter of self discipline
d) Meticulous record of financial transactions
- legal requirement e.g. Form 3c
e) Employ accountant - good documentation
and reports generation
2. Computerization
3. Periodic meetings with CA
Satish 31
32. 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
33. Tips
1. Deposit cash in bank daily or twice weekly
2. 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 33
34. Tips
1. Reconcile bank statements
2. Do not allow anyone to take records home
3. To your staff, demonstrate your awareness
about what is going on and that you are careful
about money
Satish 34
35. 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
