Financial Statement Understanding

Curi Advisory’s financial consultant, Robert Peaseley, talks about three key financial statements to helping physicians understand and diagnose the financial health of their practice.

Every year, patients typically make a trip to their primary care provider for an annual checkup, or at least we hope this much. Typically, they have their labs drawn and vitals taken, and the physician and the patient talk about the medical changes from year to year.

Just as the physician cares about and understands the complexity of their patients, they should also care about and understand the complexity, and meaning, of their financial statements.

I won’t bore you with accounting 101, but there are a couple of financial statements that you should be aware of and know how to read to help diagnose the financial health of your practice.

• Income Statement: The income statement is a financial statement that shows the financial performance for a period such as a month, quarter, or year. This statement shows revenue earned, expenses paid, and the bottom line of your practice. When comparing the Income Statement of one period to another, you will be able to gain insight into the overall profitability of the practice. Example: if last year’s pharmaceutical expenses were four percent of revenue and this year it is seven percent, you should ask what happened and determine if corrective action is needed.

• Balance Sheet: The balance sheet is a very important financial document. It shows the financial strength of your practice at one moment in time. The balance sheet is made up of three sections, assets (things of value), liabilities (obligations to others), and equity (the owner’s interest in the company). Just like your patient’s blood pressure change one day to the next, the balance sheet can change. As deposits come in, bills are being paid, inventory changes, and equipment purchases happen, the different sections of the balance sheet fluctuate. As a physician, you want to make sure that you have the funds to cover any current liabilities/bills and that you are comfortable with the amount of debt that is reported on the books.

• Statement of Cash Flow: The statement of cash flow is a financial statement that shows the change in the cash balance, breaking it into different categories. This statement is always for a specified period, since it is looking at the change in the cash balance at two different dates. The different categories are operating, investing, and financing activity and will show the change in cash related to each. As a physician, understanding where your practice’s cash is going outside of operating expenses is important, especially if there is volatility in the cash balance.

These three financial statements are important for a physician to understand the financial health of your practice. You may be working with an accounting firm to prepare your financial statements, hiring an in-house accountant/CFO, or your practice administrator is also your accountant. It is important to make sure you are knowledgeable and aware of your practice’s financial health, just like you are with your patient’s physical health.

Curi Advisory is here to help, from supporting your partner physicians in understanding your financials all the way to serving as fractional CFO.

Have a Question about our Financial Consulting or other Practice Consulting solutions?

https://curi.com/contact-advisory/

The opinions and views expressed in blog posts on Curi’s site belong to and are solely those of the individual author, and do not necessarily reflect those of Curi Advisory or Curi Advisory’s parent or affiliated companies or their members, insureds, clients, customers, or partners. This post is for informational purposes only and it should not be construed or relied upon as medical advice.  If medical care is needed, please consult a qualified professional.

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