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Finance management

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Finance management
Why do we discuss? Introduction and
Basic finance literacy
Accounting ,Cost Accounting and Cost
Some general tips on day to day matters
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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
Problems: doctors tend to be ignorant & careless about
finances, sitting ducks, frauds
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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
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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
Interdependence with other areas of management
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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
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Balance Sheet
A statement of assets, liabilities and capital on a
given date
Fixed: land, building, equipments etc
Current: Cash in hand or in bank, stocks,
Long term: Loans > 1 yr
Current/ short term: overdraft, taxes
Capital= Assets -Liabilities

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Some core issues
Cost Accounting
Break even point
Cost benefit analysis
Cost reductions and containment
Day to day activities
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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.
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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
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Planning & preparing budget
Well in advance
An opportunity to plan expansion or
improving services , hence involve staff and
all departments
Plans must be realistic

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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
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Types of budget
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 and wages, 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.
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An art of recording , classifying and summarizing
data in a significant manner and interpreting the
Data may be in form of money transactions and
events which are, in part at least , of a financial
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Types of accounting
1. Financial accounting: documentation of facts,
daily transactions
2. Cost accounting : expenditure for a particular
3. Management accounting : Analysis and
interpretation of financial information for
management purpose
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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,
d) Cost unit: a measurable detail of service rendered
e.g. linen, laboratory investigation
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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
Variable volume dependent, varies in proportion to
changes in level of activity e.g. medicines,
consumables, power cost
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3.Direct vs indirect
Direct : Clearly linked to a service
Indirect: can not be clearly linked to a
particular cost object e.g.
administration cost,security cost
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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
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Advantages of costing
5. Helps in entering into agreements with
TPA, corporate clients etc
6. Helps in identifying wastages
7. Helps in budgeting, planning
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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
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Difficulties in cost
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
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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

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Cost - benefit analysis
An economic technique and formalized way
of comparing the cost and benefit of
undertaking an activity / project
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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
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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
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5.Cost saving areas
a) Streamlining of services e.g. laboratory, OT, indoor
b) Purchases : planning, budgeting, bargaining, group
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
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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,
Stagnation without growth
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Personal investments
Required for future expansion and growth
Commitment to the financial needs of the
Retirement planning
Building wealth.
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Various investment avenues
1. Real Estate
2. Gold and Jewellery
3. Government
4. Company Deposits
5. Mutual Funds

6. Equity
8. Bank & company
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Some tips on day to day activities
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
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4. Handling cash
Staff handles lot of cash
Doctors are too busy to supervise
Easy temptation
Introduce checks and balances - ensure strict cash
Cash collection at counter (many advantages )
Minimize temptation for staff
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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
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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
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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
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