What are Medical Practice Pro-Forma Financial Statements?
Staff Writers
Since a start-up medical practice has no historical financial information, simplified Pro Forma’s are estimated statements that are typically projected for 3 years. They demonstrate the best care, worst case and most likely financial scenarios of a new practice, clinic, healthcare entity, etc. Computerized spreadsheets are ideal for this task. Other relevant financial information may be included, as needed.
Net Income (Profit and Loss) Statement
By allocating a practice’s profit or loss into operating groups, banks or investors can isolate profitable revenue centers and isolate unprofitable costs drivers. In certain managed care contracts, an analysis to identify unit or per dollar revenues, gross profits and/or gross margins, is vital. Other non-cash expenses (i.e., depreciation, amortization and deferred taxes) are then deducted from revenues to determine overall net income. All is included in the income statement.
Cash Flow Statement
The Statement of Cash Flow (SCF) projects estimated cash flows by month, quarter and year, along with the anticipated timing of cash receipts and disbursements. The office’s bills and obligations are paid out of cash flow, not net income. It is very important for accrual based accounting practices; especially in terms of Medicare, Medicaid, MCOs, PPOs and HMOs producing insurance payment time delays and other aged accounting methodologies. Cash flow reflects the internal generation of fund available to supply operating capital.
Balance Sheet
The Balance Sheet (BS) forecasts the financial condition, assets and liabilities, of an office at a singular point in time. It projects the ability to meet financial obligation and the capacity to absorb financial setbacks without becoming insolvent.
Statement of Retained Earnings
This is a fourth new financial statement, but it is not usually a pro-forma statement since little cash is generated from a new medical practice.
Conclusion
An accountant typically creates the above statements for a start-up medical practice, and continues with the mature business entity. Be sure to engage one experienced in business matters, as well as medical specificity and healthcare acumen. A referral from the National CPA Advisory Association may be helpful.
And so, your thoughts and comments on this Medical Executive-Post are appreciated.
Related Information Sources:
Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759
Physician Financial Planning: http://www.jbpub.com/catalog/0763745790
Medical Risk Management: http://www.jbpub.com/catalog/9780763733421
Healthcare Organizations: www.HealthcareFinancials.com
Health Administration Terms: www.HealthDictionarySeries.com
Physician Advisors: www.CertifiedMedicalPlanner.com
Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Executive-Post – is available for seminar or speaking engagements. Contact: MarcinkoAdvisors@msn.com or Bio: www.stpub.com/pubs/authors/MARCINKO.htm
Subscribe Now: Did you like this Medical Executive-Post, or find it helpful, interesting and informative? Want to get the latest E-Ps delivered to your email box each morning? Just subscribe using the link below. You can unsubscribe at any time. Security is assured.
Link: http://feeds.feedburner.com/HealthcareFinancialsthePostForcxos
Filed under: Accounting
Income Statement Limitations
Once a practice is ongoing, and no longer in estimated pro-forma financial statement form, the most common limitation of the accountant rendered income statement – even with trained interpretation – is poor classification and categorization.
For tax purposes, many types of expenses can be grouped together and still render a correct net profit figure.
As an example, $500 in seminar tuition that is miss-classified as medical supplies expense still renders the correct bottom line but states-states expense in two very different categories. Budgeting and cash flow forecasts may be adversely affected.
It is common to see income statements that categorize expenses into illogical groups.
As another example, all forms of insurance expense may be grouped together. Yet auto insurance probably belongs with other auto expenses. Workman’s Compensation insurance is actually a payroll expense. Building liability insurance probably belongs with the other premise(s) figures.
Using a single insurance category essentially understates all these other expenses and there may not be time, interest or ability to re allocate the insurance expenses more logically.
So, be careful, especially when buying or selling a practice and relying on financial statements.
Joseph
The Accountant
I am developing a new hospital with physician ownership and am interested in finding a 3rd party source capable of developing a proforma based upon predictable case loads, payer-mix and volume including guidance in design or at least space guidance for this facility.
Please advise if services such as these are available.
Ward Schraeder
Ward,
Please supply as much additional information as you can about your inquiry.
For example, specialty hospital type [typically cardiac, orthopedic, urological, etc], location, CON status and time line for completion, etc.
Contact info with phone number is helpful, as well. You may email us privately.
Thanks.
Ann Miller; RN, MHA
[Executive-Director]
http://www.HealthcareFinancials.com
http://www.MedicalBusinessAdvisors.com
MarcinkoAdvisors@msn.com