The 3 most important QuickBooks reports practice managers should review monthly

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QB Reports ImageEfficiently and effectively managing physician or dental office operations requires you to have accurate and timely information about the results of those operations. Here are three QuickBooks reports that can provide the information you need to make good decisions to control expenses and optimize operations.

Balance Sheet with Comparison to the Previous Year or Previous Period

The balance sheet represents a snapshot of the practice’s financial condition. It shows you what the practice owns (its assets) as well as what it owes (its liabilities) at a point in time, such as month-end or year-end. The difference between total assets and total liabilities represent the equity of the practice and is one measure of the financial value of the practice.  By regularly comparing your financial condition to the previous fiscal year or to the previous period, you have perspective and a clear and timely view of any changes in the financial condition of the practice.  Where is the best place to start in reviewing your practice’s financial condition?
Start with a review of the total current assets (cash and other assets, such as accounts receivable,  that will convert to cash within one year) and current liabilities (debts of the practice that must be paid within one year.)  Compute the current ratio of the practice – current assets/current liabilities.  This is an important indicator of the practice’s ability to meet near term responsibilities.  A current ratio of 2:1 is desirable – a current ratio of less than 2:1 can be a sign of financial stress.
In addition to monitoring the cash on hand and making sure it is level or increasing, be sure to move further down the balance sheet to the Equity section. The amount of shareholder equity—which is essentially your practice’s working capital—should be consistent from year to year. If you see that number declining, it might forewarn an upcoming cash crunch.
One of the largest current liabilities that most professional practices must plan for is the current year retirement plan contribution payable.  Retirement plan contributions may or may not be reflected in the liabilities section of your practice’s balance sheet, depending on the practice’s method of accounting. We recommend that practices accrue those retirement plan expenses throughout the year and set aside cash in a savings account to save up for that year-end retirement plan contribution.  Partial contributions could also be paid to the practice’s retirement plan during the year, to avoid putting all of the contributions into the financial markets at one time, after careful consultation with retirement plan and investment advisors.

Monthly and Year-to-Date Profit and Loss with Previous Year Comparisons

Also known as the income statement, the profit and loss report represents the results of your practice’s operations. In other words, what were your sources of income, and what expenses were associated with generating that income? How does current revenue compare to the previous year or previous period?  Review expenses line by line, but pay particular attention to the practice’s largest expenses – employee compensation, medical supplies and occupancy costs.  Drill down in expense categories to view detail for particular time periods.
If your practice’s revenue has changed dramatically in the past year, then more detailed analysis may be required.  Reviews of  revenue by provider and for each type of equipment can provide an even greater level of insight. For example, if revenue related to the utilization of a particular device is declining, it might indicate that providers are avoiding using that device for some reason, or that there has been a change in reimbursement. This more detailed analysis typically requires pulling information from multiple sources (QuickBooks, medical/dental billing software, etc.) into a separate worksheet. Your accountant can help you set up this revenue and expense allocation report.

Statement of Cash Flows

Just looking at your balance sheet and income statement every month can certainly highlight potential problems and opportunities to improve. But those two reports won’t tell you how you are using your cash. The statement of cash flows is precisely for this purpose. In the last month, did you use cash to reduce your liabilities or buy equipment? Or did you increase your cash on hand by incurring new liabilities, such as a working capital loan? A review of your statement of cash flows may lead you to more detailed analysis.
Unexpected fluctuations in cash can point to problems in billing and collections. If the level of cash is not where you want it to be, look at your receivables aging. Do you have too many receivables that are at more than 60 days? Are receivables concentrated with one large payer?  Has there been a reduction in provider productivity? Maybe a provider is struggling with EMR conversion and doesn’t have as much time to see patients. You might need to implement some cash flow management best practices.
Your accountant can help you create memorized reports in QuickBooks (or another accounting software) that enable you to make good practice management decisions. Contact  Stockman Kast Ryan+Co. for help with report set-up and interpretation to discover more about your practice’s financial health.
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