Maintaining and tracking expenses for your healthcare practice can be challenging, especially when you invest in a variety of expenses. This can be even more difficult if your practice doesn’t have an in-house accounting department or set record-keeping guidelines. That’s where healthcare financial statements are invaluable.
Healthcare financial statements allow doctors and dentists to track spending and adjust their budgets where needed to run their practices successfully.
In this blog, we’ll go over all you need to know about healthcare financial statements:
- The definition of and different types of healthcare financial statements
- How to best organize expenses and costs
- Why dental practice financial statements and medical practice financial statements are so important
[Related: The Healthcare Professional’s Guide to Compensation Formulas]
What Are Healthcare Financial Statements?
Put simply, healthcare financial statements are documents and reports that detail the revenue moving in and out of your practice and any assets you may have. We can break down these financial statements into three main subcategories: balance sheets, income statements and cash flow statements.
Balance Sheets
Balance sheets provide critical information on your healthcare practice’s taxes, stocks, assets and other retained earnings. They also provide information on your financial health year to year.
Assets may include the following:
- Physical property
- Cash and investments
- Receivables
- Intangibles
Liabilities may include the following:
- Government taxes owed
- Bank loans
- Payments owed to vendors
Balance sheets may also include information about shareholders’ equity. This is the amount of remaining money the practice’s owners would have if they sold all the practice’s assets and paid off all outstanding liabilities.
These statements can help show your practice’s liabilities and any changes, big or small, that have affected your bottom line in the past. This kind of snapshot is beneficial when you want to gauge your dental or medical practice’s overall economic well-being over a certain period.
Income Statements
Your practice should also monitor income statements, the second main type of healthcare financial statements. These outline how much revenue your dental or medical practice has generated over the year.
They can also detail all the costs and expenses that went into earning that revenue, such as building leases, office materials and supplies, vendor payments, electric bills and other utility payments. On income statements, the bottom line shows the total profit or loss for that period.
Cash Flow Statements
Cash flow statements track the movement of money coming into and leaving your practice. They typically categorize these dollars into operational, investment and financing activities. In essence, these documents illustrate the net increase or decrease in the cash your practice deals with and where that money goes.
[Related: Internal Control Checklist for Medical and Dental Practices]
Managing Practice Expenses and Costs
To manage your money using the aforementioned financial statements, it’s helpful to break down your costs into three simple categories. Here are the three common cost categories for medical and dental practices.
Fixed Expenses
Fixed expenses are all expected costs, including employee salaries, withheld taxes, delinquency accounts and insurance. These types of costs are typically the same and don’t vary too wildly per reporting period, which makes them easy to track on a spreadsheet.
Direct Expenses
Direct expenses cover tools and equipment that your practice must purchase for treatments. These expenses will most likely vary from time to time, which is why proper reporting is so necessary. Take inventory of all your direct expenses each month — down to the smallest cost — to keep your financial statements clear and organized.
Discretionary Expenses
Discretionary expenses involve voluntary items that your practice might be able to survive without. These types of expenses can include marketing costs, food costs, desk supplies, team event spending and more.
It’s wise to have a discretionary spending budget to avoid overspending, but you can adjust this budget annually according to your needs.
[Related: Bookkeeping Tips for Healthcare Practices]
Why Are Healthcare Financial Statements and Dental Practice Financial Statements So Important?
If your practice forgoes smart recordkeeping, you can quickly end up way in over your head. Dental and medical practice financial statements can help you visualize your daily, monthly and even yearly expenses. They are also extremely helpful in highlighting vulnerabilities or anything you might need to change to better your financial health.
Partner With Martin, Bircher, Thompson Today!
One of the main ways to make sure your practice follows the best methods when it comes to healthcare financial statements is to partner with a professional CPA. That’s where Martin, Bircher, Thompson, PC comes in. We provide prompt, proactive services and support to dental and medical practices to guide them toward success.
Check out our services for dentists and physicians, and see how we can help your practice thrive.
Are you interested in achieving your financial goals and building a profitable practice? Learn more about our firm, or contact us today to get started!
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