To get started with financials, keep it simple. Eventually, you'll want to have three common financial statements: a) income statement, b) statement of cash flow, and c) a balance sheet. Each of these financial statements serves an important role in helping you maximize profitability and practice value, but if you're not familiar with all of them yet, don't worry about it. Through our journey, we'll get there.
To begin, most practices have an accounting of expenses and income (otherwise known as revenue), which is the income statement or profit and loss statement. It serves as an accounting of income and expenses over a specific period of time and will provide a good starting point for understanding your financials. The income statement from last year is a good starting point for creating a budget for this year, because the best predictor of this year is last year. We'll discuss budgeting in more depth in the near future.
A key component of financial statements is the chart of accounts. The chart of accounts is a listing of 'accounts' or categories into which you allocate income, expenses, and other financial transactions that will appropriately allocate those financial entries into the proper slot in the financial statements. It is recommended that you eventually install a 'standard' chart of accounts that is built specifically for businesses of similar nature. For example, equine practices should use a chart of accounts such as that built by Dr. Marsha Heinke. Companion animal practices should use a chart of accounts designed and made available by such organizations as Veterinary Study Groups or American Animal Hospital Association. When you utilize these 'standard' charts of account, it allows you to compare your practice more closely with practices of similar kind. These comparisons, otherwise known as benchmarking, are very helpful in learning what parts of your practice need management attention to improve the results you desire from your business. We'll discuss financial statements in more detail each week as we move forward. Remember, keep it simple, as we'll expand our understanding and use of all of the financial statements as we move forward.
