Financial Basics for Non-Financial Managers Presented By: Amy Gil of the Jessup Group AmyG@Jessup-group.com May 13, 2015 Discussion Items Role of finance in organization Basic Accounting Concepts Accounting Cycle Financial Statement Analysis Frequently used ratios and indicators Questions Keepers of the Book s It s very important to have the right person in charge of your finances. They should have a financial background. Outside firms are also an option. This will save your organization time and money. 1
GAAP Generally Accepted Accounting Principles GAAP is a common set of account principles, standards and procedures that companies use to compile their financial statements. GAAP are a combination of authoritative standards (set by policy boards) and the commonly accepted ways of recording and reporting accounting information. Internal Controls Internal Controls help businesses achieve performance, operate efficiently and effectively, help ensure financial integrity and reliability of financial reporting. Internal Controls minimize opportunity for waste, fraud and mismanagement and also helps reduce legal liability and ensures compliance with laws and regulations. Internal Controls Continued Who is receiving, recording and depositing? Who is reviewing the bank statement is it being reconciled? Who are the check signers, how many are needed? Who is making Revenue Adjustments? Technology, Equipment and Supply controls? 2
Cash or Accrual Cash Basis Accounting Income is recorded when the business actually receives cash or a check. Expenses are recorded when the business actually pays for them. Accrual Basis Accounting Transactions are counted when the event occurs based on matching principle Cash may not actually be received or paid. Bookkeeping Systems Any organization, if it has any income or expenses at all, needs an accounting system that give it control over its finances. What is the total we received (Income)? What is the total of what we paid out (Expense)? Who do we owe (accounts payable)? Who owes us (accounts receivable)? What do we anticipate receiving and paying in the future (budgeting or forecasting)? Setting Up the Books All transactions need to be recorded in a systematic recordkeeping system. Five Categories Assets items owned Liabilities items owed Equity net difference of assets and liabilities Revenue earnings Expenses - costs 3
Chart Of Accounts Listing of all accounts in the General Ledger Define accounts to be used and assign number Accounts will change with the organizations needs. Assign numbers in a logical way NAHC Example (Handout) Transactions Journal entries detail a business s financial transactions Detail in the journal entry, but the Big Picture is in the general ledger. Always a debit (left) and a credit (right). Trial Balance A listing of the chart of accounts at end of period. Total debit and credit balances are compared and should equal. It is in the order of assets, liabilities, owner s equity, revenue and expenses. 4
Balance Sheet The balance sheet gives information about the cumulative financial strength of the business. It is split into three main sections: Assets Liabilities Equity Income Statement The income statement reflects the current period s activity. Monthly income statements often show the current month, year to date, and budgeted activity for comparison Accounting Cycle Source Documents Financial Statements Journal Entries Trial Balance Posting into Ledgers 5
Financial Statement Analysis Read and analyze financial statements on a regular basis. Compare actual results to budget. Process identifies weaknesses before they become crises. Helps to improve operations now and prepare for expansion or change. Common Financial Ratios Days of Cash Days in Accounts Receivable Current Ratio Profit Margin Cost per Unit Days of Cash This ratio indicates how long you could operate with cash available, given the average daily expenses. Total expenses for period Cash Balance / Days in period $20,000 cash / ($100,000 expense / 50 days) = 10 days of cash available 6
Days in Accounts Receivable This ratio tells you the average age of your outstanding accounts receivable. Net Sales Net Receivables/ Days in period $50,000 Net A/R / ($200,000 sales / 120 days)= 30 days of sales in accounts receivable Current Ratio This ratio indicates the agency s ability to pay it s current bills on time. Total Current Assets Total Current Liabilities $350,000 current assets / $175,000 current liabilities = 2:1 liquidity ratio Total Cost Per Unit Total Operating Expenses Total Number of Unit Per visit: $100,000 expenses / 600 Visits = $166.67 Per day: $100,000 expenses / 800 Days = $125.00 Per hour: $100,000 expenses / 5,100 Hours = $19.61 7
Direct Cost Per Discipline Visit The direct cost per discipline visit includes: salaries, benefits, and mileage. Total Direct Expenses Per Discipline Total Number of Discipline Visits Per SN: $ 5,000 expenses / 100 visits = $50.00 Per PT: $8,000 expenses / 120 visits = $66.67 Per HHA: $2,000 expenses / 100 Hours = $20.00 Cost Per Episode The total cost per episode by visits ordered in the plan of care. HHRG: $1,800 Plan of Care: 7 Skilled Nursing Visits 6 Physical Therapy Visits SN Cost per visit: $83.33 + 50.00= $133.33 7 visits x $133.33 = $933.31 PT Cost per visit: $83.33 + 6.67= $150.00 6 visits x $150.00 = $900.00 Total cost for agency visits = $1,833.31 Summary A basic understanding of accounting, the collection of data and what to do with it will help manager s solve many business challenges. 8
Thank You! 9