BEC DOMS a PPT on Finance Management 07

8/3/2019 BEC DOMS a PPT on Finance Management 07

1/36

Finance management


2/36

2Satish

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


3/36

3Satish

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


4/36

4Satish

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


5/36

5Satish

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


6/36

6Satish

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


7/36


8/36

8Satish

Some core issues

Budget

Accounting

Cost Accounting

Break even point

Cost benefit analysis

Cost reductions and containment

Day to day activities


9/36

9Satish

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.


10/36

10Satish

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


11/36

11Satish

Planning & preparing budget

Well in advance

An opportunity to plan expansion or improving

services , hence involve staff and all departments

Plans must be realistic


12/36

12Satish

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


13/36

13Satish

Types ofbudget

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 andwages, 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.


14/36

14Satish

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


15/36

15Satish

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


16/36

16Satish

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


17/36

17Satish

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 inlevel of activity e.g. medicines, consumables, power cost


18/36

18Satish

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


19/36

19Satish

Objectives & advantages of

costing1. 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


20/36

20Satish

Advantages of costing

5. Helps in entering into agreements with TPA,

corporate clients etc

6. Helps in identifying wastages

7. Helps in budgeting, planning


21/36

21Satish

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


22/36

22Satish

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


23/36

23Satish

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


24/36

24Satish

Cost - benefit analysis

An economic technique and formalized way of

comparing the cost and benefit of undertaking an

activity / project


25/36

25Satish

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


26/36

26Satish

4.Strategies for expenditure

controla) 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


27/36

27Satish

5.Cost saving areas

a) Streamlining of services e.g. laboratory, OT, indoor

b) Purchases : planning, budgeting, bargaining, group

purchasing

c) Preventive maintenance AMCs, back ups

d) Planning stage: quality manpower and machines, planned

recruitment, up gradation

e) Good accounting practices: automation, internal audit

f) Energy audit


28/36

28Satish

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


29/36

29Satish

Personal investments

Required for future expansion and growth

Commitment to the financial needs of the family

Retirement planning

Building wealth.


30/36

30Satish

Various investment avenues

1. Real Estate

2. Gold and Jewellery

3. Government Securities

4. Company Deposits

5. Mutual Funds

6. Equity

7. ULIP

8. Bank & company FDs


31/36

31Satish

Some tips on day today 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


32/36

32Satish

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


33/36

33Satish

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


34/36

34Satish

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


35/36

35Satish

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


36/36

36Satish

Thanks

Documents

BEC DOMS a PPT on Finance Management 07