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.
Karl spends his time thinking about ways to help organizations with sound financial decisions.
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