Assessment of the financial effectiveness of business is crucial for strategic planning. It is also important for understanding whether the business has the necessary funds to realize its mission and vision. This simple financial truth is also applicable in the field of medical business. The following paper will discuss the measures that could be implemented to evaluate the financial health of the medical office business.
First, evaluation of the financial health of the medical office business involves measuring revenue and expenses balance (Gapenski, 2013). Basically, the ultimate goal of business is to have positive revenue. Moreover, revenue should be big enough to meet the financial expectations of the business owner outlined in the business strategy. Together with this, a person performing the audit will need to consider the seasonal factors influencing the operations and inflation effects on revenue statement data distortion (Gapenski, 2013). At this point, the auditor may want to perform liquidation value analysis (Gapenski, 2013). Liquidation value analysis involves calculating the sum that can be obtained by selling the entire company and covering all its liabilities (Gapenski, 2013).
Next, the financial health of the medical office business can be measured by the availability of adequate resources for delivering services and performing financial operations (Gapenski, 2013). At that, the business owner should mind that it is important to have adequate capital resources for both the short-term and long-term goals.
Further, another variable important for evaluating the financial health of the medical office business is availability of free cash flow (Gapenski, 2013). Cash flow figures present an opportunity to identify if there are financial assets to pay for capital and operations. If there is insufficient cash flow, an institution will need to borrow the funds elsewhere (Gapenski, 2013). This is highly undesirable because such borrowing has extra costs (Gapenski, 2013).
In addition, the earning capacity of the medical office business needs to be evaluated (Gapenski, 2013). The main factors that influence the earning capacity are doctor productivity, active patient population, and referent network (Gapenski, 2013). If assessment of these factors provides positive results, a conclusion can be made that the earning capacity of the medical office is high.
A yet another variable meaningful for evaluation of the financial health of the medical office business is operating efficiency (Gapenski, 2013). Operating efficiency can be measured by the effectiveness of invested funds use for the office daily work organization including availability of the required equipment, pharmaceuticals, registry costs, informational technology costs, etc. (Gapenski, 2013).
Finally, to determine the financial health condition of the medical office, managerial performance in regulating financial statements needs to be assessed (Gapenski, 2013). During this assessment, the focus question is whether there is sufficient leverage and sufficient managerial performance therefore (Gapenski, 2013). In addition, evaluation of this variable will implicate measuring the firm’s current financial statement with the past indicators, performance of competitors, and the total industry situation (Gapenski, 2013).
In conclusion, it should be pointed out that evaluation of the financial health of the medical office business involves measuring revenue and expenses balance, availability of adequate resources for delivering services and performing financial operations, availability of free cash flow, earning capacity, operating efficiency, and managerial performance. Assessing each of these points will help to understand the medical practice’s strong and weak points and identify additional opportunities and threats.
Reference
Gapenski, L. C. (2013). Fundamentals of healthcare finance. Chicago, I.L.: Health Administration Press.