On March 31, 2020, the Department of Treasury (the “Department”) issued guidance on implementing the Paycheck Protection Program (PPP).
Very simply, I encourage all readers to go the attached link: https://home.treasury.gov/policy-issues/top-priorities/cares-act/assistance-for-small-businesses Within that site are four links including:
Items of note:
We will continue to monitor the implementation of the CARES Act over the coming days, and we will issue clarifying statements. *** W. Karl Baker, CPA, spends his time thinking about ways to help organizations with sound financial decisions, including improving revenue cycle management, and access to capital. Find more information at www.BakerCFOadvisory.com and www.InfinityCommCapital.com. Karl can be reached at (781) 854-2248 or kbaker@infinitycommcapital.com.
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How’s your cash flow planning?
We can probably all agree that the right moment to start systemic cash flow planning is not in the middle of an economic crisis, as it would have been better to start prior. However, now I say, “No time like the present!” or “Better late than never!” or “Do today what you would prefer to do tomorrow!” You get the point. I’m so glad I’ve been able to help several clients improve their cash flow planning in “good times”. Sometimes that has involved simple planning for an operating checking account, and other times, it has involved a more comprehensive approach to cash flow planning including “P&L” forecasting. I’m offering some ideas here to help, as many business owners and/or executives have cash flow on their minds. The following is a high level overview of the process I would encourage business leaders to take: Evaluate “corporate will”: Implementing cash flow planning is essential in my opinion for effective management of a business. However, the results will almost certainly, eventually result in certain surprises and will necessitate a call to action. Without “corporate will” to respond to the data presented, frankly it is a waste of time. When I am called to assist a company navigate through some hard decisions, I start most conversations with this topic. The phrase, “Don’t ask questions you don’t want to know the answers to” will not be helpful here. Be prepared to make the necessary decisions. Understand financial position: You need to understand what your liquidity and financial position is at any moment in time. How much is our days’ cash on hand? How much does it vary from day to day, week to week, month to month, season to season? Are we headed into a low period of cash flow? What is our ability to weather a storm or recession? What is our working capital? Has our working capital been trending up or down? I’ve had to tell several clients in my career that their working capital is trending downward and they have only a few months before working capital declines so much that it will be difficult to avoid bankruptcy. What are other key financing positions to monitor such as debt or lines of credit? Understand trends: The nature of my work is such that I am usually building an understanding of a new client’s situation from the ground up. In these situations, I need to understand cash flow trends over the past months and years. This helps give an appreciation of an organization’s history, which will serve as a baseline for planning for the future. Implement good modeling: You can now begin to build your cash flow planning models. Decide the parameters. Do you need to do daily, weekly or monthly monitoring? Some of those decisions may change depending on the urgency of the situation, and it may change as situations arise. Catalogue upcoming cash flows: Using all historical and institutional knowledge, begin to quantify known cash flows. What are upcoming receipts going to be? What are upcoming disbursements? Examples likely include payroll, taxes, vendor payments, financing payments, such as debt payments, and other transactions, including capital expenditures, dividends and payments to owners. Pay attention to unusual non-recurring transactions and variances from the normal trends. Examples include those months where there are 3 pay periods instead of two, quarterly debt payments, annual vendor payments, reductions in expected cash receipts, etc. Analyze: Do the results make sense in relation to historical trends? Do they make sense in relation to known upcoming transactions? Respond: Prepare to make decisions based on the data. How are your reserves? Again, a good question to ask is, “What is your ability to weather a storm?” Will it be measured in days, weeks, months or years? Repeat and repeat: Finally, plan to maintain a systemic review of this planning. If you are starting this cash flow planning in the middle of a crisis, I hope and pray that you get through it. If so, you will likely see the benefits of implementing a discipline of cash flow planning post-storm. The planning will result in good data, questions, conversations, and decisions that will help your business grow. I know the process works in providing the data you need to run your business. I trust that this high-level summary is practical enough for you to kickstart a process that is meaningful for you. If you need help, I am happy to have a conversation with you. *** W. Karl Baker, CPA, spends his time thinking about ways to help organizations with sound financial decisions, including improving revenue cycle management, and access to capital. Find more information at www.BakerCFOadvisory.com and www.InfinityCommCapital.com. We are all being impacted in one way or another by the current COVID-19 (coronavirus) pandemic running around the world. If you are running a business and you find that the impact is more than the business can handle with its own resources, you should know about the resources available.
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act) was signed into law by President Trump on Friday, March 27, 2020. This act was an effort to provide assistance to individuals, businesses, and health care providers in response to the outfall of the health pandemic and its economic consequences. The actual text of H.R. 748 can be found at the following link: https://www.congress.gov/bill/116th-congress/house-bill/748/text?q=%7B%22search%22%3A%5B%22hr748%22%5D%7D&r=1&s=2 There are many important provisions of the CARES Act, addressing matters such as unemployment, health care, and other matters. The purpose of this article is to summarize capital issues available to businesses as made available by the CARES Act, as well as by the Small Business Administration (the “SBA”). It is important to understand that once any legislation is signed it takes time for regulations and procedures to be developed by the agencies charged with implementing the legislation. Therefore, some information will evolve as time passes in the next few days. There are two main avenues to access needed capital. Businesses can only receive loans from one program, unless a business has received disaster funding unrelated to the coronavirus disaster. These programs are summarized as follows: Economic Injury Disaster Loan Program and other relief directly by the SBA: $10 billion has been allocated to fund this program. Eligible business types will include small businesses, non-profits and other types of businesses. Businesses apply for this program directly with the SBA, with loans available up to $2 million. Terms will be attractive with low rates, 2.75% and 3.75% for non-profits and for-profits, respectively, and repayment terms up to 30 years. This program will only be available to businesses operating in declared disaster areas. The SBA requirement that personal guarantees is waived for loans up to $200,000. Business collateral may still apply. Eligible businesses need to have been in business on January 31, 2020, but the requirement that they be in business for one year prior to the disaster has been waived. The “credit elsewhere” test, which requires the borrower to assert inability to obtain financing from other sources, is also waived. The CARES Act allows the SBA to evaluate a borrower’s ability to repay based solely on the credit score and not require a tax return to be submitted. Upon applying the SBA is authorized to advance $10,000 within three days of receipt of the application. The advance may be used to provide paid sick leave to employees unable to work due to the direct effect of the COVID–19, maintain payroll to retain employees during business disruptions or substantial slowdowns, meet increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chains, make rent or mortgage payments, and repay obligations that cannot be met due to revenue losses. A business will not be required to repay the advance even if subsequent denied an EIDL. SBA 7(a) Paycheck Protection Program Loan (“PPP” and “PPPL”): Loan: $349 billion has been allocated to fund this program. Businesses will apply for this program through current SBA lenders. The SBA may streamline this process and bring other lenders into the process. Eligible business types will include small businesses and 501(c)(3) nonprofits, with not more than 500 employees. Other types and sizes may also be included. Additionally, sole-proprietors, independent contractors, and other self-employed individuals may be eligible for loans. The business must be operational with paid staff or independent contractors as of February 15, 2020. There is a prescribed formula for determining the eligible loan amount. The loan maximum will be calculated as the average eligible monthly payroll costs, based on prior 12 months, excluding compensation above $100,000 in wages, multiplied by 2.5 months, plus the balance of any SBA loan closed between January 31 2020, and when this loan will be made, if applicable. The maximum loan will be $10 million. Allowable uses of the loan include eligible payroll support (eligible employee salaries, excluding compensation above $100,000 in wages, but including paid sick or medical leave, insurance premiums), interest paid on a mortgage (excludes any prepayment of or payment of principal) or rent, and utility payments. Loan terms will include 4% and repayments terms of 10-years. There will be no prepayment penalty, which makes an exception to other SBA 7(a) loans. The PPP allows for deferment of SBA 7(a) loan payments for six to 12 months. Making another exception to SBA 7(a) loans, there will be no collateral attached to the loan, including a waiver of the borrower’s personal guarantee and personal assets. The “credit elsewhere” provision is also waived. The normal fee collected by the SBA is also waived. The PPP increases the government guarantee of 7(a) loans from 75% to 100% for a PPPL. The PPP increases the maximum loan for an SBA Express Loan from $350,000 to $1 million through December 31, 2020, after which point the Express Loan will have a maximum of $350,000. The PPP ensures that the processing and disbursement of covered loans prioritizes small business concerns and entities in underserved and rural markets, including veterans and members of the military community, and small businesses owned and controlled by socially and economically disadvantaged individuals. Eligible borrowers will be required to make a good faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19; they will use the funds to retain workers and maintain payroll, lease, and utility payments; and they are not receiving duplicative funds for the same uses from another SBA program. Loan Forgiveness: The borrower is eligible for loan forgiveness equal to the amount spent by the borrower during an 8-week period after the origination date of the loan on eligible payroll costs, excluding compensation above $100,000 in individual wages, interest payments on any mortgage incurred prior to February 15, 2020 (excludes principal and prepayments), payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020. Amounts forgiven may not exceed the principal amount of the loan. Borrowers will verify these payments through documentation required by lenders. The borrower will need to apply for the loan forgiveness with the lender after the 8-week period, with required supporting documentation, and the lender is required to process and decide upon the loan forgiveness within 60 days. The lender will be reimbursed by the SBA for the forgiven loan and accrued interest within 90 days of the loan forgiveness application being approved. The amount forgiven will be reduced proportionally by any reduction in employees retained compared to the prior year and reduced by the reduction in pay of any employee beyond 25 percent of their prior year compensation. To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period. Canceled indebtedness resulting from this section will not be included in the borrower’s taxable income. Other questions: The law was passed on March 27, 2020. It will take a few days for the legislation to be fully assimilated and for rules and procedures to be developed, distributed and implemented. With that in mind there are questions that will be assessed: Should we apply for a EIDL or a PPPL? An assessment should be made based on your anticipated needs. The PPPL will be limited to a business’ average payroll for 2.5 months but could be at least partially forgiven. A business could qualify for more funding with an EIDL, which has very favorable terms but will not be forgiven. What will be needed? The following is a list of items likely to be required to complete the processing of an application for either the EIDL or PPPL, but banks will be making these determinations:
When can we begin applying? There are basics that you can begin collecting. There are advantages to getting into the queue with lenders. There are already thousands of preliminary applications submitted. When will loans begin to be processed and evaluated? This is unknown, but will likely not be before several days to two weeks. If a business applies for the EIDL, the SBA is required to advance $10,000 within three days. How long will it take to process a loan and when should we expect funding? This is also unknown, but it’s expected to be significantly streamlined. Are there obvious advantages to applying at multiple banks? There are unlikely to be advantages for applying at multiple banks. Normally SBA lenders compete for credit applications, based on their own lending criteria, yet staying within SBA guidelines. However, with the PPP the lenders are all applying the same creditworthiness assessment. It is possible that judgment will be applied by one bank differently than another bank. However, it will be important to get into the queue with the chosen bank. If a business finds that their existing bank is unable to help them on a timely basis, it may be a good idea to work with a loan broker, as they have relationships with numerous lenders and can assess wait times before submitting applications. What if we have laid off employees? Will we need to retroactively restore wages? No. If a business has cut wage or staff, the business will need to restore wages and/or staff within 30 days of the CARES Act. We will continue to monitor the implementation of the CARES Act over the coming days, and we will issue clarifying statements. *** W. Karl Baker, CPA, spends his time thinking about ways to help organizations with sound financial decisions, including improving revenue cycle management, and access to capital. Find more information at www.BakerCFOadvisory.com and www.InfinityCommCapital.com. Karl can be reached at (781) 854-2248 or karl@bakercfoadvisory.com. Continuing my series offering best practices and tips to address the many challenges executives at health centers face, this month I am addressing the topic of key performance indicators.
I hear it all the time. How do we compare to “the benchmarks”, Karl? How do we know if our results are “right”? I think it’s important to let “industry” benchmarks inform an assessment of your organization, but I do not think that industry data on a stand-alone basis is the only guiding light to follow. Metrics mean something different for everybody. Everybody has different goals, values, positioning initiatives, and they are all in different places within a business’s life cycle. With that in mind, I encourage organizations to assess what are your goals? Is hitting a certain benchmark the endgame? Why are you striving for a certain benchmark? Is it for a financing? Hitting that goal will be a litmus test for hitting another benchmark? Will achieving a certain benchmark allow you to invest in a new program? Those are the questions to be asking. Are you achieving those goals? For example, I have worked with organizations that had a low amount of cash compared to industry benchmarks. However there’s always a reason though, and it is not necessarily bad. Perhaps the organization is in a period of new program development, and the new program is not fully “cash flowing” yet. Monitor and respond! My advice to companies that are asking about benchmarks is to ask company leadership to engage in a process to help them gain some perspective around benchmarks:
I want to clarify, though, that I do think metrics in the proper context are important. With the proper perspective, metrics do tell a story. The following lists a few metrics that are indicators of operating effectiveness and liquidity:
The following lists a few metrics commonly monitored as indicators of capital usage, and financing “readiness”:
Of course never forget loan covenants! Loan document covenants have very specific definitions, reporting requirements, etc.. Rigorous monitoring is a must! If you would like to understand any of these metrics, please reach out, and I would be happy to have a conversation about how these metrics are calculated and/or how they may add insights into your organization. *** W. Karl Baker, CPA, spends his time thinking about ways to help organizations with sound financial decisions, including improving revenue cycle management, and access to capital. Find more information at www.BakerCFOadvisory.com and www.InfinityCommCapital.com. 11/9/2019 1 Comment Take a Survey!Take a survey by clicking on the link below to provide feedback about articles and webinars to help me serve you better:
survey.constantcontact.com/survey/a07egpxh5ksk2rrb33z/start Continuing my series offering best practices and tips to address the many challenges executives at health centers face, this month I am addressing the topic of the chart of accounts and accounting for grants.
This topic seems basic and a bit granular, but when you understand the premise, “What gets measured, gets managed”, these are important topics. I set out to do a series of topics on themes that I routinely see. I continually encounter scenarios where analysis is limited due to poor use of data often due to poorly designed chart of accounts structure. If data isn’t accumulated in a way to help measure your organization’s finances, then it will be challenging to use the data to make good decisions. I think many executives try to understand their organization’s financial reporting and conclude it’s all gibberish simply due to a poorly designed chart of accounts. I summarize the chart of accounts data shortfalls as follows:
These shortfalls contribute to poor data analysis, and limit management personnel’s ability to understand where problems are - activity by service line (revenues, costs, and margins), not capturing all costs for grants, etc. With that in mind, I offer the following basic setup recommendations:
It may be impractical for many companies to discard a chart of accounts and set up a new “company” but there may be egregious situations that warrant the change. Without that change, companies should consider how to set up their reporting to align as closely as possible with the above recommendations. This can be done by utilizing your accounting software custom reporting features, using a grouping approach. Ultimately, the important premise is to align your reporting with the way you think about your operations, for example reporting revenues that aligns with service activity data. Next month, we’ll discuss some operational reporting matters such as utilizing key performance indicators to manage the enterprise. *** W. Karl Baker, CPA, spends his time thinking about ways to help organizations with sound financial decisions, including improving revenue cycle management. Find more information at www.BakerCFOadvisory.com and www.SolvereAdvisory.com. Continuing my series offering best practices and tips to address the many challenges executives at health centers face, this month I am addressing the topic of revenue cycle, particularly evaluating the accounting for your revenues.
In my travels and discussions with health care executives throughout the years, some of the top questions I am asked include: Are we billing for everything? Are we accurately completing claims? Are we collecting what we bill? Are we collecting what we are supposed to collect? Are our rates appropriate? Why does cash collections seem to be lower than our revenues? Are our revenues as posted in our financial statements accurate? Health care executives struggle to understand the correlation between their financial reporting, cash flow, and their general sense of the business. Does this sound familiar? If you are reading this, my guess is that you have had similar questions. You probably need to assess your revenue cycle if you are uncertain about the answers to these questions. There are of course many factors. In order to answer the questions above, you need to address:
The concentration of this article is the actual accounting for revenues. Just as important as producing timely financial data is producing accurate data. Accurate revenue recognition in a health center is very important, contains significant estimates, and can have a material impact on the organization’s financial results. The accounting estimate for contractual adjustments is likely the most significant estimate within your financial statements and is prone to error. Get this calculation wrong and the health center’s financial statement results could be materially misstated. Accounting for your health center’s revenues is made complicated by the number of moving parts - multiple service lines, dozens and dozens of insurance contracts, all with different requirements, coupled with tight resources to tackle this complicated area. I recommend aligning the accounting with your business, meaning your financial statements should present revenues first by level of service and then by payor source. This allows for appropriate analysis compared to visit and encounter activity. That may seem obvious but many health centers have not set up their chart of accounts this way. Many health centers are simply accounting for revenues by payor source. I have even seen revenues presented in total, not by service line, which makes it difficult to assess lines of business. Another concept that may seem obvious is that revenues should be recorded on an accrual basis, as opposed to cash basis. I write that advice because some health centers are presenting financial statements on a cash basis. The problem with this approach is that if the health center has a bad collections month, revenues will appear to be inappropriately decreased. A bad collections month is a problem for sure, but collections is a financing issue, not revenue. It may be a leading indicator of other issues as addressed above. Of course the key to accurate revenue recognition is properly converting gross revenues to net revenues. Ideally the health center should input fees into the electronic health record and billing system (EHR) so that expected collection rates can be easily assessed and also expected reserves can be calculated. Additionally, the accounting department should integrate the EHR system and the accounting software, but many health centers have not made that investment. Revenues should be recorded based on gross charges, and a separate calculation of contractual adjustments should be performed. This approach allows charges to be more easily reconciled to visits as a first test of accuracy. It is important to understand and properly apply accurate discount percentages against revenues and accounts receivable. If the accounting system does not have the tools to perform this calculation using the EHR system, and instead calculates reserves manually, the approach is prone to material error and needs to be monitored closely. Best practices are to check the allowance percentages by service line and major payor two to four times per year. It is important to compare cash collections to understand the correlation between collections and revenues. I find that many health centers are challenged with this very important area of financial reporting, oftentimes relying on the year end audit process to “clean up” revenue recognition. A good monthly systemic approach will minimize year end work but more importantly the health center’s monthly financial reporting will be accurate and management can use the data to make informed decisions. It can be disastrous to make decisions based on materially overstated revenues because the money simply will not be there. The good news is that a proper assessment can identify the path to improved information. I would welcome the opportunity to have a conversation about these matters with you. Last month I started a series offering various best practices and tips to address the many challenges
executives at health centers face. This month, I’m going to write about a topic that is a major challenge to many executives: how to improve the accuracy of monthly financial statements, and do it in a timely basis. Numerous clients over the years have told me they either never receive monthly financial statements, relying on year end audits, or they take two to three months to receive them and even then, the accuracy is questionable or the usefulness is limited per the executives I’m speaking to. I’ll start by saying that your organization should be generating accurate financial statements prepared in accordance with generally accepted accounting principles (GAAP) on a monthly basis. I have had some organizational senior leaders tell me that their financial leadership tell them it’s not possible to prepare financial statements monthly. Not true, and that’s a red flag. There are many schools of thought as to timeliness, but not too many different views as to whether it’s possible to generate GAAP-basis financials on a monthly basis. It’s possible. Some organizations are able to generate their financial statements within 5-10 days after month end and some take longer. Some take MUCH! longer. My rule of thumb would be that in no circumstances should it take longer than 30 days after each month end to generate monthly financial statements. If you’re reading this and you are thinking, “We’re not getting financial statements out the door before 60 days. What is the disconnect?” Very simply, it’s leadership overseeing bad processes. Often times it is due to the perception that all the work done at year end in order to close the books for a year end close and for the independent audit needs to be done monthly, and therefore the conclusion is that it takes too long. However, I would flip that around. As a practical approach, it is important to perform an accurate monthly close process in order to generate the financial statements, and with a good monthly process, the effort needed to perform the annual close is much less of an undertaking. The quicker an organization needs its financial statements the more likely they will need to either have a robust and accurate purchase order system or a strong system of recording estimated accruals. If 25-30 days is an acceptable time frame, then the accounting department needs to choose a final day to “cut off” each of the major accounting cycles: revenues and disbursements/payables. The primary reason for the stated delay provided by accounting departments is receiving invoices with dates of service related to the prior month. A typical approach would be the following schedule if we use the 25 th as an example:
Some companies use cash basis for recording payroll, which is an inaccurate approach. Those 2-3 months per year where there are “3 payrolls” cause results to dip. Since most payroll is paid in arrears, accruing payroll based on dates of the payroll period will fix these spikes in payroll expense. How do companies generate financial statements with a quicker time frame than the above, for example 8 to 10 days? Most companies do not receive enough of their invoices from their vendors within a day or two of month end in order to post accurate accruals. One approach is to use a purchase order (PO) system that records accounts payable transactions and expenses based on their internal PO system. This allows them to record expenses without waiting for invoicing. If they do not have a PO system, they are simply using an estimated accrual system. They have studied trends and identified major expenses to accrue and use an estimation process. This is quite an effective approach. Once past a learning curve, it allows the team to issue materially accurate financial statements within a few days of month end. There may be a need to keep the books open longer for year end in order to rely on hard data for the year end close but it is an effective approach throughout the year. In the next article, we will continue discussing the month end close by discussing tips for accurate revenue recognition, which also impacts A/R. What lessons are you taking away from these thoughts? I hope at the very least it is that a professional approach to monthly financial statement production can help executives have the information they need to run their health center effectively. Additionally, a second set of eyes can be immensely valuable. Executives need information to run their health care organization. I talk to CEO’s all the time about their challenges, and I have put the broad challenges into the following categories simply to apply some framework:
I consistently get the following feedback: I don’t have the financial leadership support I need; I need information; the board needs to be educated about the complexities of our organization; I am not even comfortable that the monthly information is accurate; cash flow seems to be low; we frankly have no idea if the billing department is doing a good job; any financial surprises in the near future may cause some pretty big problems for us, but we don’t really know; the results from the annual audit don’t correlate with monthly data I receive and I have no idea why; we think we’re fine, and then the audit comes along and the results are remarkably worse; we receive offers to sign capitation contracts, and yet we don’t know how to evaluate them; and many, many more comments like that. I think it’s possible for you to know what you don’t know. Over the next several months, I’m going to offer a series of articles to give some tips, feedback and pointers on several of the challenges you are facing. I’ll address topics such as board governance and education, strategic planning, financial reporting best practices, business office best practices, technology, billing and collections, financial management, contracting, evaluating lines of business, and cash management. This month, I’m going to start with a topic that is a major challenge to many Chief Executive Officers (CEO’s): board oversight and education. This is a common challenge that I frequently encounter with organizations. Board members are typically voluntary members, recruited to the health care center for various skill sets they may have. As a general rule, the board of directors is responsible for overseeing the planning and direction of the health center, oversight of legal and ethical compliance matters, and ensuring resources and plans are in place to have an effective operation. This latter component is especially accomplished by hiring the CEO to carry out the management of the organization. CEO’s want their volunteer board members to better understand the business but time is tight during board meetings, and the business is complicated. So how to make the complicated simple in a short time is a big challenge. Certain members of the board may participate in certain subcommittees such as finance/audit, compliance, etc. Members of these committees will likely dive deeper into understanding keys to success. I’ve found board members first need to understand the various components of the reporting package: the statement of financial position (balance sheet) and statement of activities & change in net assets (income statement & change in retained earnings), and statement of cash flows, along with the important metrics and line items to pay attention too. This being a broad article, I’ll not go into the details but I do find that I often need to explain in basic terms the basics of each statement, what they mean, differences between accounts receivable (A/R) and revenues, etc. After a financial statement 101 training, the issues that cause the most complexity usually involve liquidity and working capital, revenues and their connectivity to visit and encounter activity, along with collections. I’ll talk in a future article about managing revenue and A/R valuations, but board members need to understand the key drivers of success. As an aside, I’m often asked about industry benchmarking, which I do think is important, and is why I’m in process of rolling out some benchmarks for health care providers, but I also always emphasize that benchmarks need to be studied in context. It’s important for health centers to develop their own target metrics that will help them measure results compared to their goals. For example, I’ve seen certain health centers target certain metrics such as “days cash on hand” or “days sales in accounts receivable” in accordance with their strategic objectives, even when their targets varied from industry benchmarks. Certain key drivers include knowing the health center’s cash position (days cash on hand), working capital, how long it takes for average claims to be paid, revenues by service line (in “total” and “per visit”) as well as visits/encounters by service line. I usually also advise reporting on monthly cash collections, as this will give you some correlation to revenues and A/R. Other important matters that make a difference in month to month results include number of days the organization was open for the reporting period. Number of clinic days can make a 5-10% swing in activity and revenues in any given month. Additionally, I think it is imperative for organizations to understand their margins by department and/or service line. Correlating with cash flow and financial results, it is important for boards to be educated on issues such as staffing, productivity, compliance matters. Of course, if the health center has incurred debt, it is imperative for the board to understand how the paydown of debt is impacting cash flows, along with the health center’s standing relative to any financial covenants in place. When presenting to boards and committees, it will be important to assess the most effective way to convey these matters. I’ve found that charts and graphs help board members visualize the story being conveyed in the metrics. Members of the finance committee may want to see more details, and they may actually want to see “the numbers”. I could go on and on about topics to cover in board meetings. Running a health center is a complicate venture. It takes time but as the title of the article suggests, it is imperative for board members to “learn” what they likely did not know when they first joined the board. I’m currently the president of a non-profit organization in my community. I’ve been on the board for over 10 years. I’ve personally spent time learning the keys to success for that organization by listening to many, many presentations and soaking it in one meeting at a time. I’ve worked with many clients over the years, and I am convinced the more the board of directors is given the right information, the better management and the board are able to work together to steer the health center in the right direction. 6/15/2019 0 Comments Lessons for a new CFOIf you spend any time receiving daily alerts for job wanted postings, you likely know there are numerous companies looking for new finance leadership. Lots of opportunity out there.
So I wanted to give a few tips for a younger person that may be looking for a promotion to their first Chief Financial Officer (“CFO”) role, or perhaps you have landed that job and could use a few tips, especially for accounting professionals that are transitioning to the CFO role. Every company handles various tasks differently, and “pushes” down responsibility in different ways depending on the size of the company, available resources, management style, etc. Therefore, the following is a list of a few things to think about, keeping in mind there are no “bright” lines:
CFO’s can fail because they stay in the weeds, either due to style or necessity due to limited resources. I believe in a very under-appreciated best practice that a second set of eyes can provide enormous benefit. It is difficult to analyze a given set of facts if you have to compile the facts first. For example, if a CFO has to compile a financial statement from scratch or has to trace numbers from financial reports to the underlying supporting documentation as a first review because the review has not been performed by a controller, then it is very difficult to perform a higher level “smell test” of the financial statements, which is key for ensuring accuracy and to begin to draw conclusions from the data. The CFO role is a key role; it is very exciting and very challenging. I encourage any new CFO to embrace the role and develop the habit of continuous lifelong learning. |
AuthorKarl spends his time thinking about ways to help organizations with sound financial decisions. Archives
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