Getting a Grip on the Numbers
Did bad accounting records really result in the fall of the Mayan Empire? I once heard the story of how the Mayan Empire had a meticulous accounting system that kept track of crops, land, forest, people and all other resources. Their accounting system allowed the sophisticated empire to flourish. The story also described how the Mayan accountants were destroyed by an invasion, resulting in the downfall of the empire. Truth or fiction, I can’t be sure. However, I do know that getting a grip on your organization’s numbers now can help your empire flourish, as long as you’re not conquered by invading armies.
If you want to understand the significance of numbers, then just pick up the newspaper. Have you heard the term “fiscal cliff”? What does it mean? Wikipedia says it means “the sharp decline in the budget deficit that could occur…” The point is that someone calculated a budget that alerted the people, which started the frenzy. Does your business have a fiscal cliff? Do you know what it is? Most importantly, do you have a handle on “The Numbers?”
We are in a world surrounded by statistics and data that can be overwhelming. How does a person sift through the data and make decisions for his or her business? To get started, small business owners need to have a fundamental understanding of “The Numbers.” This statement is also true for professional service providers (e.g. physicians, lawyers) in multi-provider practices.
Staying On Top
If you are a physician in a practice, then ask for specific information. The following tips could help you understand your practice without requiring much of your time:
Look at your monthly billing reports. Check to see if the number of encounters looks reasonable. Do this task at least monthly; weekly is best. Remember, as time lapses, the reports become more difficult to analyze.
Become familiar with billing codes/current procedural terminology (CPT) in your area of specialty for your practice. As you know, under-coding leads to less collections and over-coding can result in the shutdown of a practice. Don’t rely on someone doing data input to catch everything, and keep in mind that documentation is key. Glancing at your billings can result in increased collections and is time well spent.
Finally, review your accounts receivable. Pay close attention to your old accounts receivable. The older the receivable, the less likely you’ll collect. You may have a billing department, but it never hurts to review your own receivables. Take notes and correspond with your billing team.
Accounting Overview for Dummies
It is easy to assume that all businesses have the time and resources to understand “numbers.” I do realize that entrepreneurs have a keen business sense that makes them successful, but they may not have time for “numbers.” If you aren’t a numbers person or rely on others to provide them, then use your time wisely and consider the suggestions below. Also, don’t be afraid to ask questions.
- Look at the balance sheet, as well as the income statement. Most owners concentrate on the income statement. However, the balance sheet can hide some serious issues that have a major impact on the business. If the balance sheet isn’t correct, then neither is the income statement.
- Use budgets. Compare your income statement against the budget. You will learn more about your budgeting ability and how you are performing against your own benchmark. No fiscal cliff for you. Identify anomalies. When looking at the income statement, pay attention to unusual accounts or expenses that seem to get larger and larger for no reason.
- Pay attention to cash and debt. If you use your budgets to forecast your cash flow, then you will have a better understanding of your cash needs. This knowledge in turn helps you manage your debt.
- If you have accounts receivable, then look at the aging reports. Don’t let your accounts receivable go unattended and become uncollectible. Be proactive!
- The same is true for accounts payable: don’t let your payables become unmanageable. You could lose the ability to do business with your vendors.
These are just a few simple ideas that can help you manage your business. While it is always advisable to have outside professionals, NO ONE individual knows the details like you do. Your business is your empire; don’t let the numbers allow you to be overthrown.