Financial Management Of The Vet Team

Question 1

A clear understanding of the four major areas

Answer 1

1) the theories
2) the purpose
3) the practically
4) the effect of financial reporting

Question 2

What is a summary of the chart of accounts?

Answer 2

A detailed list of all accounts regularly used in the normal course of business, including balance sheets and profit and loss statements.

Includes accounts like cash, accounts payable, revenue, salaries, and rent, with some unique to the veterinary industry.

Question 3

What does a profit and loss (P&L) statement detail?

Answer 3

Revenue minus expenses to show the net income during that period.

Also known as an income statement, covering a specific period of time (usually no less than one month).

Question 4

What is a balance sheet?

Answer 4

A statement of the financial condition of the practice listing its assets, liabilities, and owner’s equity at a specific point in time.

It does not encompass any predetermined number of months or years.

Question 5

What does a cash flow statement report?

Answer 5

Sources of the practice’s incoming cash and the uses of that cash.

Sources include net income and increases in debt; uses include debt reduction and purchases of capital equipment and supplies.

Question 6

Define ‘assets’ in the context of a veterinary practice.

Answer 6

Everything of value owned by the company or corporation.

Current assets are consumed within a year, while fixed or long-term assets have value extending longer than one year.

Question 7

True or False: A balance sheet covers a predetermined number of months or years.

Answer 7

False

Question 8

Fill in the blank: The P&L statement is also known as an _______.

Answer 8

income statement

Question 9

What are current assets?

Answer 9

Items that will be consumed within a short period of time, often one year.

Question 10

What are fixed or long-term assets?

Answer 10

Assets that have value extending longer than one year.

Question 11

List examples of sources of cash in a cash flow statement.

Answer 11

• Net income
• Increases in debt

Question 12

List examples of uses of cash in a cash flow statement.

Answer 12

• Debt reduction
• Purchases of capital equipment
• Supplies
• Normal overhead expenses

Question 13

What are liabilities?

Answer 13

The practice’s debts; money owed to lenders or other parties.

Liabilities can include both short-term debts, like accounts payable, and long-term debts, such as a mortgage.

Question 14

What does equity represent in a business context?

Answer 14

Assets minus liabilities; it reflects the net worth of the business.

Equity is sometimes referred to as *net book value.

Question 15

Fill in the blank: Liabilities include _______ and long-term debts.

Answer 15

short-term debts

Question 16

True or False: Equity is the same as total assets.

Answer 16

False

Question 17

What are short-term debts?

Answer 17

Debts that are due within a year, such as accounts payable.

Question 18

What are long-term debts?

Answer 18

Debts that are due over a period longer than one year, such as a mortgage.

Question 19

Fill in the blank: The formula for equity is _______ minus liabilities.

Answer 19

assets

Question 20

Accurate financial statements may be the most useful tools for:

Answer 20

Determining current performance, forecasting future performance, and making important management decisions.

Question 21

Gross Profit =

Answer 21

Income from vet services and sales - COGS

Question 22

Net Profit =

Answer 22

Gross profit - additonal operating expenses

Question 23

What are the characteristics of good financial reports?

Answer 23

Timeliness, Accuracy, Simplicity, Sufficient detail, Analytical relevance

These characteristics ensure that financial reports are effective for management decisions.

Question 24

What does timeliness in financial reporting refer to?

Answer 24

Financial statements should reflect recent historical results and be turned around quickly at the conclusion of the reporting period.

Timeliness is crucial for making informed management decisions.

Question 25

Why is accuracy important in financial reporting?

Answer 25

Reliable and accurate data are essential for decision making. ## Footnote Accuracy can be ensured through an independent audit or an accountant's compilation.

Question 26

What is an independent audit?

Answer 26

A review that sanctions financial statements based on generally accepted accounting principles. ## Footnote Most small businesses may not procure an independent audit due to expense.

Question 27

What is an accountant's compilation?

Answer 27

A review performed by an accountant that provides assurance that financial statements comply with prescribed standards. ## Footnote It is not an independent opinion but offers some level of reliability.

Question 28

What does simplicity in financial reporting entail?

Answer 28

Reports should provide information that is easy to interpret without intricate accounting details. ## Footnote This is especially important for veterinary practices.

Question 29

What is meant by sufficient detail in financial reporting?

Answer 29

Reports should include enough detail to enhance accuracy and decision making, without being overly complex. ## Footnote This allows even nonaccountant veterinary owners to understand the financial performance.

Question 30

What types of backup information can provide additional detail in financial reporting?

Answer 30

General ledger, subsidiary ledger reports, accounts receivable subledger, fixed asset subledger. ## Footnote These reports can offer deeper insights into financial performance.

Question 31

What is analytical relevance?

Answer 31

The information provided should be worthy of analysis, usually from a comparative standpoint. ## Footnote This includes comparisons with the prior year or against industry benchmarks and budgets.

Question 32

How often should basic financial statements be completed?

Answer 32

Preferably monthly, but at least quarterly. ## Footnote Regular reporting helps owners and managers see operational results in a timely manner.

Question 33

Within how many business days should financial performance for the prior month be reviewed?

Answer 33

Within five to ten business days of the end of the month. ## Footnote Timely reviews enable better assessment of financial performance.

Question 34

Is an independent accountant's compilation required monthly?

Answer 34

No, it may be done either quarterly or yearly. ## Footnote This provides flexibility in financial oversight.

Question 35

What can financial statements help the practice owner or manager assess?

Answer 35

Trends concisely, providing objective pictures of performance for the review period. ## Footnote This is essential for informed decision-making in the practice.

Question 36

What has increased in complexity within many businesses, including veterinary practices?

Answer 36

The level of complexity in operations and financial management. ## Footnote This necessitates highly proficient business specialists.

Question 37

What types of specialists are needed in veterinary practices due to increased complexity?

Answer 37

Highly proficient and competent business specialists, such as CPAs and managers. ## Footnote Their expertise is crucial for effective financial analysis and management.

Question 38

What is the first key principle of financial analysis for veterinary practice owners?

Answer 38

Safeguarding assets

Question 39

What does the pricing/fee structure in a veterinary practice relate to?

Answer 39

The quantity of one good or service given in return for another

Question 40

What is essential in the cost evaluation process?

Answer 40

Calculating the cost of activities, products, or sales

Question 41

What does procurement of capital involve?

Answer 41

Obtaining resources from owners and creditors, and repaying borrowed amounts

Question 42

What is incremental performance in a veterinary practice?

Answer 42

Performance measurement broken down by departments or profit centers

Question 43

True or False: Accountability via departmentalization is related to measuring performance across various units in a practice.

Answer 43

True

Question 44

What are examples of profit centers in a veterinary practice?

Answer 44

* Boarding * Grooming * Retail sales

Question 45

What is the purpose of profitability analysis?

Answer 45

To consider net income within the organization and/or department

Question 46

What adjustments should be considered when examining the true profitability of a practice?

Answer 46

* Depreciation of assets * Owner compensation * Discretionary expenses * Rent

Question 47

What does return on capital analysis consider?

Answer 47

Income before distributions to capital suppliers as a rate

Question 48

Fill in the blank: Return on capital percentage is derived by dividing income by _______.

Answer 48

average total assets

Question 49

What does EBITDA stand for?

Answer 49

Earnings Before Interest, Taxes, Depreciation, and Amortization

Question 50

What type of reporting is more common in larger veterinary practices?

Answer 50

Departmental reporting

Question 51

What software can be used for basic departmental reporting in small veterinary practices?

Answer 51

QuickBooksTM

Question 52

What is percentage statement analysis?

Answer 52

A method of presenting the income statement as a ratio of expenses to total revenue ## Footnote It involves stating all expense categories as a percentage of revenue and comparing these percentages with prior periods, industry benchmarks, budgeted performance, and other metrics.

Question 53

What is another term for percentage statement analysis?

Answer 53

Common sizing or right sizing ## Footnote This term refers to the process of analyzing financial statements using percentages.

Question 54

What do ratios in financial analysis represent?

Answer 54

The determination of financial statement entry relationships ## Footnote Ratios are used to assess profitability, solvency, and liquidity by comparing various financial items.

Question 55

What do ratios provide insight into?

Answer 55

Financial performance ## Footnote They summarize the performance of a practice and are explored in greater detail in Chapter 5.

Question 56

What is variance analysis?

Answer 56

A method of reviewing financial statements in relation to prior periods or budgeted amounts ## Footnote It helps determine where variances in financial accounts occur and why.

Question 57

What does variance analysis explicitly outline?

Answer 57

Variances between line items ## Footnote This analysis brings significant variances to the forefront for further investigation.

Question 58

Why is variance analysis important for veterinary practice owners?

Answer 58

It helps identify significant discrepancies, such as unexpected increases in salary expense ## Footnote This allows management to decide how to address financial issues.

Question 59

What are KPIs in financial management?

Answer 59

Key Performance Indicators ## Footnote They are metrics used to evaluate the success of an organization in achieving key business objectives.

Question 60

What are the three key areas of financial analysis mentioned in addition to KPIs?

Answer 60

* Percentage statement analysis * Ratios * Variance analysis ## Footnote These areas are essential for a comprehensive understanding of financial performance.

Question 61

What are the components of the revenue cycle?

Answer 61

1) Appointment Scheduling 2) Check-in 3) Client Compliance 4) Charge Capture 5) Patient and Insurance Billing 6) Client Credits and Refunds 7) Staff Investment

Question 62

What are the 4 steps to ensure revenue maximization?

Answer 62

1) Analyze the Practice's Revenue Cycle 2) Document Financial Policies and Procedures 3) Review the Financial Tools 4) Review the Practice's Current Fee Schedule

Question 63

What are the two major ways to review expenses in a practice?

Answer 63

Overall category of expense and whether the expense is direct or indirect

Question 63

List the four major classifications of basic expenses.

Answer 63

* Fixed expenses * Variable expenses * Semivariable expenses * Semifixed expenses

Question 63

Define fixed expenses.

Answer 63

Expenses that remain stable/unchanged, regardless of volume

Question 63

Define semivariable expenses.

Answer 63

Expenses that vary within ranges of volume

Question 63

Define semifixed expenses.

Answer 63

Expenses that remain stable or unchanged within a particular range of volume, then increase incrementally

Question 63

Define variable expenses.

Answer 63

Expenses that will change and be directly influenced by volume

Question 63

Why are fixed costs easier to manage?

Answer 63

They do not change and should remain the same throughout the course of the year

Question 63

Give examples of fixed expenses.

Answer 63

* Rent * Professional liability insurance * Depreciation on furniture and equipment * Personnel costs

Question 63

Which types of expenses can be divided between fixed and variable?

Answer 63

Semivariable and semifixed expenses

Question 64

What are the major classifications of expenses in a veterinary practice?

Answer 64

* Compensation and benefits * General and administrative * Facility * Cost of goods sold (supplies, laboratory, etc.) * Veterinarian compensation and benefits ## Footnote These classifications help in managing costs and presenting financial statements effectively.

Question 65

What is the purpose of classifying overhead in a veterinary practice?

Answer 65

To achieve greater control of the costs and improve the presentation of financial statements. ## Footnote Understanding these classifications aids in strategic financial planning.

Question 66

How can a practice choose to separate veterinarian compensation?

Answer 66

By splitting owner compensation and nonowner veterinarian compensation. ## Footnote This allows the practice to analyze overhead excluding veterinarian compensation and benefits.

Question 67

What can be included in the compensation and benefits section?

Answer 67

Owner compensation, nonowner veterinarian compensation, benefits, salaries, bonuses. ## Footnote This classification provides detailed insight into the financial aspects of employment costs.

Question 68

Fill in the blank: The cost of goods sold includes _______.

Answer 68

[supplies, laboratory, etc.] ## Footnote These are essential costs directly related to providing veterinary services.

Question 69

True or False: Interest expenses are included in the compensation and benefits section.

Answer 69

False ## Footnote Interest expenses are represented as their own section in financial statements.

Question 70

What can the final amount of veterinarian compensation be used for?

Answer 70

It may be distributed as compensation or retained in the business as equity. ## Footnote This decision impacts the financial strategy and future investments of the practice.

Question 71

What is a subclassification of expenses within the total veterinarian salary and benefits section?

Answer 71

Nonowner veterinarians. ## Footnote This classification helps in understanding the distribution of compensation among different categories of veterinarians.