Participant Guide—Module 1 Financial Management

However, the clinic also faces challenges such as expectations of excellent services, pressure to keep prices down, increasing competition, climbing labor costs, and government regulations. As the owner or partner of the clinic, it is essential to find a balance between providing quality healthcare and ensuring the business operates efficiently and makes a profit. Financial management is critical in achieving this balance. It involves analyzing and reviewing financial information to measure the current health of the practice and make decisions to operate the business and improve performance. Financial management is essential for planning future steps in the business, making better business decisions, understanding what is happening in the business, and knowing which services are making money and which are losing money. The users of financial information include the owner or partner of the clinic, who uses it to manage the business, as well as external users such as investors, tax authorities, and lenders. Financial information is generated by collecting facts and data, which are organized in a recordkeeping system. The accounting process involves recording business transactions, preparing financial statements, and using financial information to make business decisions. The accounting process includes recording business transactions in a journal, which is a daily record of each transaction in chronological order. Each journal entry shows the date of the transaction, a brief description, the amount of money involved, and the assets, liabilities, capital, or type of income or expense the transaction affects. The ledger is a book of accounts where each individual type of transaction is maintained separately. A trial balance is a worksheet that lists all of the general ledger accounts and their debit or credit balances, which helps identify errors in the books. Financial statements provide an understanding of what is going on financially in the business. They allow clinic owners to sort through the large amount of information a business generates and organize it in a meaningful way. Financial statements provide essential information that enables clinic owners to choose actions that will direct the business's activities successfully. The commonly used financial statements include the balance sheet, income statement, and cash flow projection. The balance sheet shows the assets, liabilities, and equity of the business at a specific point in time. The income statement shows the revenue and expenses of the business over a specific period of time. The cash flow projection shows the inflows and outflows of cash over a specific period of time. By examining these financial statements, clinic owners can evaluate their business in three ways: examining profitability, examining resource usage, and examining financial resource generation and utilization.