Session 9 Financial Part 2 Flashcards
(143 cards)
1
Q
What is budgeting?
A
A process of planning expense and revenue and measuring these values against actual financial results.
2
Q
What does budgeting provide management with indications of?
A
How the operational plans are being executed.
3
Q
What is the formula to calculate percent of gross revenue?
A
Expense/gross revenue X 100.
4
Q
What are the key components needed to begin budgeting?
A
- Last three years Profit and Loss and Productivity Statements.
- All lease and loan documents.
- Fee schedule.
- List of operational changes expected in the next few years and their potential effects on revenue and or expenses
- List of major capital expenses expected in the next few years.
- Employee roster and recent years W-2s.
5
Q
Why is it advisable to involve team members in the budgeting process?
A
To avoid negative feelings associated with budget goals and job performance.
6
Q
What are the four stages of the traditional business cycle?
A
- Expansion.
- Prosperity.
- Contraction.
- Recession.
7
Q
What outside influences can affect the budget process?
A
- The economic cycle.
- Technology.
- Interest rates and access to credit.
8
Q
Fill in the blank: The economic cycle impacts consumer confidence, the labor market, and _______.
A
inflation.
9
Q
True or False: Technology can only increase the demand for veterinary services.
A
False.
10
Q
What is one potential effect of interest rates on a veterinary practice?
A
It can affect the ability for a practice to expand or invest.
11
Q
What is the economic cycle also known as?
A
business cycle
12
Q
What does the economic cycle represent?
A
predictable, long-term pattern changes in national income
13
Q
What are the six steps of budgeting?
A
- Determining the desired financial results
- Analysis of the financial statements
- Normalizing the revenue and expenses
- Budgeting revenue
- Budgeting expenses
- Combining budgeted revenue and expense and making adjustments
Each step is crucial for developing an effective budget.
14
Q
What is the first step in the budgeting process?
A
Determining the desired financial results
This involves specifying the goals the practice wants to achieve.
Typically by profit or earning percentage to gross revenue
15
Q
How is profit typically measured?
A
Profit is measured by revenue minus expenses.
This is a basic formula for determining financial success.
16
Q
What additional measure can specify earning percentage?
A
Divide profit by revenue.
This measures the amount of profit from each dollar of revenue received.
17
Q
What is a recommended goal for a start-up practice?
A
Use the 25th percentile of industry benchmarks.
This helps in establishing realistic financial targets.
18
Q
What should established practices use to predict realistic goals?
A
Revenue income statements from the last three years.
This assumes no dramatic operational changes have occurred.
19
Q
Why is it important to revise and refine goals?
A
Due to changes in market or practice.
Flexibility in goal setting is essential for adapting to new circumstances.
20
Q
What is required for an effective budget?
A
A thorough understanding of the practice’s financial resources.
This includes analyzing both revenue and expenses.
21
Q
How can revenue be analyzed?
A
By breaking down revenue by profit centers.
This helps in measuring historical trends.
22
Q
What are the four categories of expenses?
A
- Personnel Expenses
- Variable Expenses/Cost of Goods Sold
- Occupancy/Facility Expenses
- Fixed/Administrative Expenses
Organizing expenses simplifies the budgeting process.
23
Q
What is the first step in normalizing the revenue and expenses for budgeting?
A
Remove any one-time, non-recurring items from the financials used to create the budget.
This ensures that the budget reflects ongoing operational performance.
24
Q
What is the alternative method to normalize revenue and expenses for budgeting?
A
Use an average of the last three years to help normalize those nonrecurring expenses prior to using the data to create the budget.
This approach smooths out fluctuations in financial performance.
25
What is a key driver of revenue growth in budgeting revenue?
Patient volume.
## Footnote
Patient volume is influenced by various factors, including services offered and economic conditions.
26
List some factors that influence patient volume.
* Addition or discontinuation of services
* Addition or loss of a DVM
* Overall economic conditions and consumer spending trends
* Advertising and promotion projects
* Fee increase
* Demographics associated with the area such as population age, gender, and household income.
* determine constraints on the capacity of the practice by reviewing the scheduling pattern
## Footnote
Understanding these factors helps in accurately projecting revenue.
27
What should be reviewed to determine constraints on the capacity of the practice?
The scheduling pattern.
## Footnote
This helps identify how many appointments and procedures can be managed effectively.
28
What is the average time of a DVM appointment typically considered in budgeting?
The average time of a DVM appointment and the average time of a DVM procedure.
## Footnote
These times are crucial for calculating the number of appointments that can fit into a workday.
29
What is a potential risk of being the higher priced practice?
Increased client loss.
## Footnote
Pricing strategies must be carefully considered to retain clients.
30
What should be conducted when introducing a new service for revenue generation?
Market research to determine a reasonable amount of revenue that can be expected.
## Footnote
This is especially important when historical data is not available.
31
What is the recommendation when projecting revenue for new services?
Be conservative with this figure.
## Footnote
Conservative estimates help in managing expectations and financial planning.
32
Why is projecting revenue on a per cost center basis beneficial?
It allows for more accurate projection.
## Footnote
This method provides detailed insights into the performance of specific areas within the practice.
33
How to determine practice potential and capacity
-take average time of a Dvm appointment
-take average time of a DVM procedure
-average number of each that fit into an 8 to 10 hour workday
-Consider a five day work week and a 48 weeks a year
34
What is the first step in budgeting expenses?
Normalize figures
## Footnote
Normalizing figures helps to provide a stable basis for future budgeting.
35
What is a simple method for creating an expense budget?
Add the last three years average growth rate to the base expense figure
## Footnote
This method assumes the practice is established and expenses have been stable.
36
What conditions must be met for the simple budgeting method to work?
* The practice is established
* Expenses were stable over the last 3 years
* Practices will operate similarly in the following year
37
How should personnel wages be calculated in budgeting expenses?
Apply an estimated raise percentage to the previous year's figures
## Footnote
Consider any potential staffing adjustments for the coming year.
Add benefit package expense by applying the historical average added to the salary expense
38
How is the occupancy/facility expense projected?
Based on leasing/mortgage documents. Taxes and utilities can be the projected by applying the average increase in the Consumer Price Index to the previous year
## Footnote
Taxes and utilities fall under this category.
39
How should variable expenses or cost of goods sold be calculated?
Using the historical percentage of revenue
40
How do fixed/administrative expenses typically grow?
Consistently with the average growth percentage from the last three years
41
What is the formula for estimating future profits?
Subtract the budgeted expenses from projected revenue
42
What are some adjustments to increase profit?
* Increase revenue
* Lowering expenses
* Lowering targeted profits
43
What are ways to increase revenue?
* Increased working hours
* Adding services
* Improving collections
## Footnote
Consider the added expenses involved in these options.
44
What is one method to lower expenses?
Cut back on discretionary spending and choose less expensive supplies
45
True or False: Lowering targeted profits may be necessary if initial desired results are unrealistic.
True
46
If a practice is unable to use a simple method to create an expense budget what should I do?
Expenses will need to be projected and added to the base of your figures expense, budgeting procedures for the four distinct expense categories
47
What are the four distinct expense categories?
Personnel, wages, occupancy/facility, expense, variable expense/cost of good sold, fixed/administrative expenses
48
What should the completed budget be used as?
A guideline for daily operational and financial activities
## Footnote
This applies at the practice, departmental, and individual levels.
49
What should be done periodically with each unit's actual performance?
Compare against budgeted goals
50
What should be done if there is a large variance in performance?
Conduct a thorough analysis and create an action plan
51
List some reasons for a large variance in budgeting.
* Non-compliance with the budget
* Waste
* Unrealistic budget to begin with
52
What is generally agreed upon by industry experts regarding extending credit to clients?
Extending credit to clients is not recommended, especially with many third-party options available.
## Footnote
This consensus suggests that practices should be cautious about offering credit.
53
What are two reasons to consider extending credit to clients?
* Clients with long, dependable payment histories who experience emergencies
* It may increase compliance for high dollar treatments or surgeries
## Footnote
Goodwill with reliable clients can be valuable and represent an excellent credit risk.
54
What should a practice do if it decides not to extend credit to clients?
Clients should be made aware prior to performing services via signage or other written communication.
## Footnote
This ensures transparency and sets clear expectations.
55
What are the two 'sub-policies' that begin the creation of a Credit Policy?
* Client Credit Policy
* Charge Account Policy
## Footnote
These sub-policies help define the parameters of credit extension.
56
What does the Client Credit Policy establish?
The pre-qualifications necessary to open a charge account.
## Footnote
This policy outlines the criteria clients must meet to qualify for credit.
57
What does the Charge Account Policy establish?
* Credit limits
* Payment due dates
* Payment methods
* Invoicing procedures
## Footnote
These details are crucial for managing credit accounts effectively.
58
What should the Charge Account Policy detail regarding pre-qualification procedures?
-The pre-qualification procedures for a client of unknown standing
-the process for flagging a prequalified client in your practice management system
-Total invoice amount a client can charge without additional approval of management/ownership
-the percentage of a bill that must be paid at the time of patient discharge
-the procedure for managing aging accounts and collecting overdue accounts receivable
-the use of a charge account information form
59
What information should be included in the Charge Account Information Form?
The Charge Account Information Form should contain:
* Client information (name, address, employer, phone numbers)
* Amount of unpaid balance
* Credit service fees
* Total amount financed
* Terms of credit and payment details
* day of the month payment is due and penalty if payment not received on time
* Interest rate and timing
* Amount credited, agreed upon monthly payment, last payment due date
* Client signature in agreement of details
## Footnote
This form is crucial for documenting the credit agreement.
60
What is important to ensure when training employees on the credit policy?
Train employees to be confident and well versed in the credit policy
## Footnote
This helps ensure consistent application of the policy.
61
What should be communicated when scheduling a new client appointment?
Communicate a brief summary of payment options
## Footnote
This helps set expectations for clients regarding their financial responsibilities.
62
What is one important step for pre-qualifying clients?
Call the clients listed phone numbers to verify they are in service
## Footnote
If the lines are disconnected, consider offering only minimal or no credit.
63
What should be confirmed when contacting a client's employer during pre-qualification?
Verify employment and length of employment
## Footnote
This adds an additional layer of confidence in the client's creditworthiness.
64
What is a key aspect of enforcing credit policies?
Make sure staff members completely understand the policy
## Footnote
This ensures adherence to the policy as part of their duties.
65
True or False: Staff should be allowed to override properly made decisions regarding credit policies.
False
## Footnote
Consistency in policy enforcement is critical.
66
What should not be done regarding policy exceptions?
Do not make policy exceptions yourself
## Footnote
This maintains the integrity of the credit policy.
67
How often should the fee schedule be reviewed?
Minimally once a year
## Footnote
Regular review helps ensure that fees remain relevant and aligned with costs.
68
What should products have in relation to cost increases?
A mark-up that remains consistent
## Footnote
This ensures that client costs reflect practice cost increases.
69
What economic indicator should practices be aware of?
Consumer Price Index (CPI)
## Footnote
Awareness of CPI helps in adjusting prices according to the cost of living.
70
What is the minimum frequency for increasing prices?
Annually
## Footnote
This adjustment is necessary to reflect the cost of living.
71
Fill in the blank: The practice should increase prices annually to reflect the _______.
cost of living
72
What is the formula for calculating the cost of a service?
((Fixed costs/minute + Staff costs/minute) X (Length of procedure in staff minutes)(+ ((DVM costs/minute) X (length of procedure in DVM minutes)) + (direct costs X 2) + Profit = Cost of Service
73
How are fixed costs per minute determined?
From the P&L (administrative, facility, and Dvm one paid on salary) along with the number of billable minutes the hospital is open
74
How are staff costs per minute calculated?
All non-DVM staff costs divided by the billable minutes the practice is open, multiplied by the number of non-DVM staff members to complete the procedure along with the number of minutes, it takes to complete the task
75
What are the staff costs per minute if the P&L has staff costs at $17,000/month and the practice is open for 12,000 minutes?
$17,000/12,000 = $1.42
If more than one staff member participates in the procedure multiply $1.42 by that number
76
How are DVM costs per minute determined?
-Average wage costs per month per DVM from P&L
-divided by the number of billable minutes the practice is open
77
How do you estimate the DVM cost for a specific treatment?
Multiply the estimated minutes the DVM spent on the treatment by Dvm cost per minute
78
What is the purpose of reviewing the fee schedule?
To determine how much a service costs the practice
## Footnote
This is one of the first steps in fee setting analysis.
79
What is one of the first steps in fee setting analysis?
Reviewing the fee schedule
80
What are direct costs in fee analysis?
Supplies used to perform the treatment, pulled from inventory system or invoices.
81
How is profit determined in fee analysis calculation?
By management, ownership, and practice goals.
82
What is the formula for calculating the fee?
(Fixed costs/minute X Total Procedure time) + (Staff costs/minute X Length of procedure in staff minutes) + ((DVM costs/minute) X (length of procedure in DVM minutes)) + (direct costs X 2) + Profit = Fee
83
What should be considered when spot checking service costs?
Adjust as needed while avoiding sticker shock with a single large increase.
## Footnote
It's important to maintain client trust and satisfaction.
84
What is the pricing strategy for shopped versus non-shopped services?
Shopped services should be competitively priced and have less of a mark-up than non-shopped services.
85
How does the type of practice affect fee setting?
High-end versus lower-priced, higher volume practices and other market forces.
## Footnote
Different practices may have varying pricing strategies based on their market positioning.
Similar procedure should be priced at similar amounts as other practices unless there is a value component that differentiates them
86
What are examples of value components that can differentiate similar procedures?
* Location and appearance of practice
* Practice history within the community
* Staff training
* Client service
* Client relationships
* Competition
87
What should the end of day deposit report match?
What was taken in as payments for the day
## Footnote
Correct any errors prior to closing the end of the day.
88
What must be closed out at the end of the day?
The credit card batch
## Footnote
This is part of the daily banking procedures.
89
What is performed in the practice software at the end of the day?
The end of day closing and printing of daily reports for audit purposes
## Footnote
These reports are crucial for financial audits.
90
Who prepares the bank deposit for the next day?
The closing receptionist
## Footnote
This is a key responsibility in the daily banking process.
91
How should cash and checks be recorded on the deposit slip?
Separated by method of payment
## Footnote
This ensures clarity in the deposit process.
92
What must be listed separately on the deposit slip?
Each check
## Footnote
All checks must be stamped with 'for deposit only'.
93
What should be compared against the bank deposit slip?
Computer or manual ledgers of revenue collected for the day
## Footnote
This helps identify irregularities.
94
What are the monthly banking procedures focused on?
Reconciling bank statements
## Footnote
This includes checking discrepancies and ensuring accuracy.
95
What should be compared regarding the timing of deposits?
When monies were collected for deposit vs when the deposit was actually made
## Footnote
Timing discrepancies can indicate issues.
96
What discrepancies should be looked for on the bank statement?
Deposit amounts documented vs daily deposit reports
## Footnote
Important for maintaining accurate financial records.
97
What should the book balance of cash in the bank account match?
The bank's monthly statement
## Footnote
This helps ensure financial integrity.
98
What must be considered when matching the book balance?
* Checks issued that have not cleared
* Deposits that have not cleared
* Deposits that have not been recorded by the bank
* Any errors made by the practice or the bank
## Footnote
These factors can affect the reconciliation process.
99
Daily banking procedures include
-end of day deposit reports matching what was taken for payments for the day
-Close out the credit card batch
-perform end of day, closing and practice software and print reports
-prepared deposit slip for next day
-compare computer or manual ledgers of revenue collected against the deposit slip(next day)
100
What percentage of gross revenue is lost to embezzlement in small businesses annually?
More than 5%
## Footnote
This statistic highlights the significant financial impact of embezzlement on small businesses.
101
According to Marsha Heinke, what percentage of practices have been victims of fraud or embezzlement?
67.8%
## Footnote
This statistic indicates a high prevalence of fraud and embezzlement in practices.
102
List clues that may indicate embezzlement.
* Sudden unexplained wealth or extravagant purchases
* Constant conversations about money problems
* Receives calls at work from creditors
* frequently complains about bookkeeping errors made by others
* declines to take vacations or share responsibility
* known gambling tendencies
* under significant life, stress such as divorce, family, illness, etc.
103
True or False: Frequent complaints about bookkeeping errors made by others can be a clue for detecting embezzlement.
True
## Footnote
This behavior may indicate an attempt to deflect attention from one's own actions.
104
Fill in the blank: An employee who declines to take vacations or share responsibility may be exhibiting signs of _______.
[embezzlement]
105
What should you do first if you suspect embezzlement but have no proof?
Notify the owner/s and other leaders in the practice.
## Footnote
This step ensures that the appropriate parties are informed and can take action.
106
What is important to secure when investigating suspected embezzlement?
Important practice records
## Footnote
Securing records is crucial to prevent further loss of information.
107
What should you do with computer data during an embezzlement investigation?
Confirm working backup copies of computer data and store offsite
## Footnote
This helps ensure data integrity during the investigation.
108
Who should you inform about the suspected embezzlement?
* The bonding or insurance company
* The hospital accountant
* The attorney
## Footnote
Consulting these parties can provide resources and support during the investigation.
109
What action should be taken regarding money handling duties if embezzlement is suspected?
Reassign duties concerning money handling and financial record keeping.
## Footnote
This helps to mitigate further risks during the investigation.
110
What should you avoid doing when contacting the police about suspected embezzlement?
Make no accusations.
## Footnote
It's important to present facts without jumping to conclusions.
111
When embezzlement is confirmed, what is the recommended course of action?
Prosecute the employee.
## Footnote
Prosecution can deter future offenses by the individual and others.
112
What may prevent a convicted embezzler from stealing from a future employer?
A criminal record
## Footnote
This serves as a legal barrier against repeat offenses.
113
What is a chart of accounts?
A list of created numbered categories used to define each class of items for which money is spent or received.
114
How are finances arranged in a chart of accounts?
To create an organizational structure to the income, expense, and profits.
115
What advantage does AAHA's chart of accounts provide?
It correlates to the IRS tax forms which helps to simplify the year-end process.
116
What is the importance of having a standard chart of accounts?
Promotes consistency and accuracy in comparing financial data from year to year and with the vet industry as a whole.
117
Why are veterinary practice appraisers familiar with the standard veterinary chart of accounts?
They are familiar with expected benchmarks related to those accounts.
118
In which accounting program can the chart of accounts be easily created?
QuickBooks
119
What is essential for the reliability of financial reports in a chart of accounts?
Consistent coding of transactions, attention to detail regarding vendor names, posting dates, and amounts.
120
When should changes to the chart of accounts ideally be made?
At the beginning of a new year
Keep in mind consistency for historical comparisons.
121
True or False: Changes to the chart of accounts do not affect historical comparisons.
False
122
What is Imprest Petty Cash?
A cash fund maintained for small purchases
## Footnote
It allows for easy tracking of minor expenses.
123
How is the Imprest Petty Cash fund managed?
A fixed amount is reserved and replenished when depleted or at the end of a pre-determined period of time
## Footnote
This ensures that the fund remains at a consistent level.
124
What happens when the Imprest Petty Cash amount is depleted?
All cash receipts are added up and reconciled to the amount left in the fund
## Footnote
This process ensures accurate tracking of expenses.
125
What is done with receipts in the Imprest Petty Cash system?
Receipts are coded for the appropriate expense account and the fund is replenished
## Footnote
This helps in categorizing expenses accurately.
126
What should be done if receipts and cash left do not equal the beginning amount?
Research is needed to determine the discrepancy
## Footnote
This step is crucial for maintaining accurate financial records.
127
What is one benefit of using the Imprest Petty Cash system?
Improves internal controls by providing a system for tracking cash purchases
## Footnote
This is more effective than using the reception cash drawer.
128
What is the Client Credit Policy?
Establishes the pre-qualifications necessary to open a charge account, such as a minimum of 2 years of perfect payment history without a problem.
## Footnote
This policy is crucial for assessing a client's eligibility for credit.
129
What does the Charge Account Policy establish?
Establishes credit limits, payment due dates, payment methods, and invoicing procedures.
## Footnote
This policy helps manage the financial transactions and obligations between the client and the company.
130
Fill in the blank: The Client Credit Policy requires a minimum of _______ years of perfect payment history.
2
131
True or False: The Charge Account Policy includes pre-qualifications for opening a charge account.
False
132
What percent of gross revenue is said to be lost to embezzlement in small businesses annually
Greater than 5%
133
Expansion, prosperity, contraction, and recession are the four stages of
The business cycle
134
What are two ways of normalizing revenue and expenses when creating a budget?
Remove any non-recurring items from the previous year and combine the last three years as an average
135
Which metrics are important for considerations when creating a budget
Last three years, profit and loss and productivity statements
All lease and loan documents
Fee schedule
List of operational changes expected in the next few years and their potential effect on revenue and or expenses
List of major capital
136
In regards to creating a credit policy, what are the two sub policies that you should begin with?
Client's credit policy and charge account policy
137
What element should be included in the charge account policy for the practice?
Prequalification procedures for a client of unknown standing
The process for flagging a qualified client in your practice management system
Total invoice amount a client can charge without additional approval of management/ownership
138
List of procedures to use when considering ways of extending credit to clients includes creating ranges of available credit amounts based on the clients longevity with the practice
False
139
What is the consumer price index?
A list or index of prices used to measure the change in the cost of basic goods and services
140
The consumer price index can be instrumental in determining the cost-of-living increase for a variety of expenses associated with running a vet, practice, true or false
True
141
In relation to fee analysis, which elements should be included in the calculation
Staff cost per minute, DVM cost per minute and fixed cost per minute
142
It is recommended that practices do not prosecute confirmed cases of embezzlement unless the loss is determined to be greater than 2000 true or false
False
143
What NC may be a good resource for the practice in the event embezzlement is suspected
Your insurance carrier
