...Healthcare Billing and Management Association
Billing
The Journal of the...
INSIDE...
September/October 2008
Financial Statement
Standardization
HOW TO TAKE ADVANTAGE OF THIS VALUABLE
MANAGEMENT TOOL By Ted Stack
W
hen asked to help put some
thoughts together on the “standardization” of financial statements in the medical
billing industry, I was encouraged to see that
an issue which I have been concerned about
for years has become an important topic for
the HBMA membership. The goal of
discussing the concept of “standardization”
in financial statement preparation and presentation is not to have all companies report
“all” their financial statements the same, but
rather to build an understanding of the differ-
are many variations of presenting financial
statements. However, I believe that standardizing your financial statements into a
more consistent, information-driven format
will provide a valuable tool that allows you
to better manage your business.
Starting with Basics
It is always dangerous to assume a certain
base knowledge and understanding when
talking about a very technical topic. Instead
of diving right into the discussion, I thought
Standardizing your financial statements into
a more consistent, information-driven format will
provide a valuable tool that allows you to
better manage your business.
ences in certain presentations and begin to
gain awareness of the benefits of each.
My intent herein is to share with you my
experience and opinions on how to develop
and present the most informative financial
statements for a medical billing company.
Additionally, I have tried to explain my logic
and reasoning for formulating those opinions.
The good news and bad news is that the
industry has many different types of
companies that have very different reporting
and operating requirements; hence there
it might be helpful to provide a quick review
of the basic terms and concepts that will
guide the financial statement discussion.
GAAP or OCBOA? I understand that most
of you have heard the term GAAP or
“Generally Accepted Accounting Principles”
but, I’m not sure you have heard of the term
OCBOA or “Other Comprehensive Basis of
Accounting.” However, you may be familiar
with the terms “tax basis” and “cash basis”
reporting which are (continued on page 11)
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FINANCIALS
(Financial Statement Standarization continued from page 1)
the two most common forms of OCBOA.
As the name implies GAAP is for the standard form of
accounting and OCBOA is – well just plain other methods.
Although we do not have the exact statistic, I think it is
accurate to say that the majority of HBMA member companies
are using some basis of accounting other than GAAP. The
simple concept behind all the rules that govern GAAP is the
consistent matching of both revenue and expenses. The
reason for the different “basis of accounting” is simple: the
government has different rules on calculating income for tax
purposes and most small companies traditionally have been
more focused on tax planning strategies rather than
complying with GAAP financial statement requirements.
For purposes of our discussion we will be reviewing a GAAP
presentation of information, but will point out the differences between the cash or tax basis with GAAP.
What Is a Financial Statement? This seems like a very obvious
question; however, I can tell you from experience that if I
asked five different companies for their “financial statements,”
I would receive five totally different sets of documents.
For purposes of this discussion, the core set of financial statements will include; 1) the income statement, 2) the balance
sheet, and 3) the statement of cash flows. We will spend the
majority of the discussion on the income statement; however,
both the balance sheet and cash flow statements present
important details about a company that we will briefly touch on.
Here are some quick definitions:
Income statement: Presents the revenue and expenses for
the company over a given period of time (usually one year).
The income statement is also referred to as a profit and loss
statement (P&L), statement of operations, or earnings
statement. Every company has some form of income
statement.
Balance sheet: Presents the assets and liabilities & equity of
a company at a given point in time. The balance sheet information varies greatly depending on the basis of accounting
used. A true GAAP-based balance sheet is rich with information about the financial condition of a company.
Cash flow statement: A cash flow statement is intended to
show the sources and uses of cash which reconciles to the cash
balance on the balance sheet. The sources and uses are typically separated into operating activities, financing activities,
and investment activities. If a company utilizes the cash or tax
basis of accounting, it will not have a cash flow statement as
the income statement technically serves that purpose.
Supplemental Information: Audited financial statements
include detailed notes explaining various aspects of the
accounting treatment used in preparing the financial statements. Likewise, the Securities Exchange Commission (SEC)
requires the management of public companies to make
certain disclosures about their businesses. These disclosures
are called Management’s Discussion and Analysis or MDA
disclosures. I encourage most companies to include “supplemental information” as a management tool. This supplemental information can be in the form of notes or statistics.
Statement Structure
Now that we have a basic understanding of the terminology we
can turn our attention to the structure and format of each of
the statements. As stated above, I am a strong believer in the
adoption of GAAP (often referred to as “accrual accounting”)
as the best method to present your financial statements. Even
though GAAP provides a set of standards, there is some flexibility in the interpretation of certain accounting principles. The
following will address the major interpretations issues in each
section of the financial statements.
The Income Statement
There has been a lot of focus in recent years in the medical
billing industry on developing and tracking operating statistics
on a cost and revenue “per unit” basis. There is often debate
over the right “unit” measurement, but generally speaking
the unit ends up being a function of the cost per claim or
encounter (for example a “visit” in ED or a ”case” in anesthesia). It always surprises me that an owner or manager can
often quote these statistics, but when you look at the
company’s income statement, the revenue and costs are just
thrown together in an illogical way. Yes it may surprise you
to learn that presenting your expenses in alphabetical order
is in fact an illogical presentation!
Let’s start with the discussion with both the classification
and recognition of revenue. Five years ago this would have
been a very quick discussion as most medical billing companies
had just one source of revenue. Today it is not unusual to
see multiple sources of revenue. I am a big proponent of
tracking your sources of revenue in as much detail as possible.
A simple rule to follow is that if you bill it separately, track it
separately. You will need
(continued on page 12)
HBMA BILLING • SEPTEMBER/OCTOBER 2008
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FINANCIALS
(Financial Statement Standarization continued from page 11)
this information to make decisions on pricing and ultimate
profitability of your various product lines. Below are the most
common revenue break-outs we see in the industry.
Exhibit 1. Sample Billing Company Income Statement
For the 12 months ended December 31, 200X
Revenue Terms and Definitions
CATEGORY
• Billing Services
All billing-related services covered under the contractual
arrangement.
• Coding Services
All fixed-fee coding services for billing clients and coding
only clients
• Practice Management Services
All fixed-fee services for practice support or practice
management functions. Could include credentialing,
provider enrollments, accounting, human resources,
payroll etc.
• Consulting Services
Fee for service revenue for one-time projects. Typically
consulting services are for non-billing and or practice
management clients.
• Technology Services
Revenue from the sale of information technology support
or software if you charge separately for the practice
management or EMR software or if you are providing
network or IT support services.
• Postage & Expense Reimbursement
If you get reimbursed for postage expenses, capture the
revenue here (do not net the revenue with the expense
in the expense category).
• Channel Partner Sales
If you receive revenue from a channel partner for selling
a third party product (coding software, clinical software,
document imaging etc…) record the revenue here.
Revenue Recognition
One of the most widely debated accounting issues for medical
billing companies in recent years has been choosing the right
methodology to use in recognizing revenue. If your company
is a cash-basis company, you recognize revenue when you
receive payment from your clients. Most companies, however,
track their accounts receivable with their customers and utilize
a modified cash basis of accounting and will recognize revenue
when an invoice is sent.
Year-End
200X
% of
revenue
Revenue . . . . . . . . . . . . . . . . . . . . . . (000’s)
Billing services. . . . . . . . . . . . . . . . . . $XXX . . . . %
Coding services. . . . . . . . . . . . . . . . . X . . . . . . . %
Practice management services. . . . . . X . . . . . . . %
Consulting services . . . . . . . . . . . . . . X . . . . . . . %
Technology services . . . . . . . . . . . . . X . . . . . . . %
Postage & expense reimbursement . . . X . . . . . . . %
Channel partner sales . . . . . . . . . . . . X . . . . . . . %
Total Revenue . . . . . . . . . . . . . . . . . $XXX . . . . 100%
As noted above, GAAP accounting works under the
matching concept, matching revenue in the same period as
the expenses incurred to generate that revenue. Since the
majority of companies in the medical billing industry charge
a fee based on the percentage of cash collected, a potential
timing difference arises between when work is performed
and when revenue is recorded.
Many have argued that a significant portion of the work in
the medical billing industry is performed in getting a claim
submitted to an insurance company, and therefore a portion
of the revenue should be recognized in the period where
this work is performed. In our firm’s experience, when utilizing
GAAP, the majority of the national CPA firms will not allow
this so-called work in process to be recorded as revenue until
the client receives the cash that creates the obligation of the
client to pay for the billing services.
However, some of the CPA firms do allow a balance sheet
accounting for work in process which provides the reader of
the statements with information on the potential or backlogged revenue the company is expecting to collect. We
have provided an example of that accounting in our discussion
of the balance sheet.
Expenses
There are many ways to think about and present expenses
on an income statement. As mentioned above, the industry
has become very active in trying to benchmark revenue and
costs on a unit-of-measure basis. If you think about cost per
unit, you begin to draw some parallels with a manufacturing
(continued on page 13)
HBMA BILLING • SEPTEMBER/OCTOBER 2008
12
FINANCIALS
(Do the Right Thing! continued from page 12)
Exhibit 2. Sample Billing Company Income Statement
For the 12 months ended December 31, 200X
CATEGORY
Year-End
200X
% of
revenue
Revenue . . . . . . . . . . . . . . . . . . . . . . (000’s)
Billing services. . . . . . . . . . . . . . . . . . $XXX . . . . %
Coding services. . . . . . . . . . . . . . . . . X . . . . . . . %
Practice management services. . . . . . X . . . . . . . %
Consulting services . . . . . . . . . . . . . . X . . . . . . . %
Technology services . . . . . . . . . . . . . X . . . . . . . %
Postage & expense reimbursement . . . X . . . . . . . %
Channel partner sales . . . . . . . . . . . . X . . . . . . . %
Total Revenue . . . . . . . . . . . . . . . . . $XXX . . . . 100%
Cost of Services Provided
Salaries . . . . . . . . . . . . . . . . . . . . . . . ($XX) . . . . %
Benefits . . . . . . . . . . . . . . . . . . . . . . (X) . . . . . . %
Contract labor . . . . . . . . . . . . . . . . . (X) . . . . . . %
Processing fees . . . . . . . . . . . . . . . . . (X) . . . . . . %
Documentation management . . . . . (X) . . . . . . %
Telecommunications . . . . . . . . . . . . . (X) . . . . . . %
Supplies . . . . . . . . . . . . . . . . . . . . . . (X) . . . . . . %
Software . . . . . . . . . . . . . . . . . . . . . (X) . . . . . . %
Hardware . . . . . . . . . . . . . . . . . . . . . (X) . . . . . . %
Postage, delivery and printing . . . . . (X) . . . . . . %
Total cost of services provided. . . . . . ($XX) . . . . %
function/department to be used for operating statistics.
A key point to remember is that it is more important to
be consistent in your classification of direct costs than to
worry about which costs should be included. Measuring the
change in your direct costs overtime will provide key insights
to trends in the business. Exhibit 2 below provides a suggested
presentation of the direct expenses, including the detail line
items that roll into the broader income statement categories.
As you will see in the Exhibit, revenue less direct expenses
results in the gross-profit calculation. The gross profit is the
indicator of the profit generated from providing the service.
Unfortunately I do not hear a lot of talk or discussion about
most medical billing companies gross profit. Understanding
the gross profit in detail will provide you with a much better
understanding of your efficiency in delivering your services.
Exhibit 2a. Sample Billing Company
Detailed Direct Expenses
For the 12 months ended December 31, 200X
CATEGORY
Gross Profit . . . . . . . . . . . . . . . . . . . $XX . . . . . %
concern where the focus is on the cost of producing the
product or the “cost of goods sold.” I like this parallel as it
focuses on the direct costs that go into producing the product.
A medical billing company could have several products (see
revenue categories above), so expenses should be captured,
where possible, in the respective product categories.
Cost of Services Provided (Direct Costs)
One of the most valuable features of the income statement
should be the measurement of the direct costs of producing
the product. Defining the “direct costs” can often be a challenge to many companies. My recommendation is not to
over think this exercise. Anywhere from 45% to 70% of your
costs will be from labor directly involved with the billing
process. It is important to capture your labor cost by job
Salaries
Salaries
Benefits
Employee benefits
Profit sharing contribution
Payroll Taxes
Processing Fees
Electronic Claims filing
Statement processing
Software
Purchases / leases
User License fees
Maintenance contracts
Hardware
Computer expense
Technical support
Maintenance contracts
Postage, Delivery and printing
Postage
Printing
Delivery / Courier
(continued on page 14)
HBMA BILLING • SEPTEMBER/OCTOBER 2008
13
FINANCIALS
(Do the Right Thing continued from page 13)
Selling, General and Administrative (SG&A) Expenses
(Indirect Expenses)
There are many different types of expenses that a medical
billing company incurs that are not directly related to
producing the services provided. These expenses are often
referred to as indirect or SG&A expenses. The indirect
expenses are a great indicator of the investments being made
in the infrastructure of the company. Indirect expenses tend
to be less variable than the direct expenses, i.e., as the
company grows the indirect expenses most likely do not
grow proportionally.
Below, Exhibit 3 shows a typical SG&A sub-section within
the income statement and Exhibit 3a shows several key
expense categories that I like to see isolated in the SG&A
area, as well as the summary categories and the detail line item
areas that roll up into those categories.
Exhibit 3. Sample Billing Company Income Statement –
Selling, General and Administration
For the 12 months ended December 31, 200X
CATEGORY
Year-End
200X
% of
revenue
Selling, General and Administrative
Salaries . . . . . . . . . . . . . . . . . . . . . . . $XX . . . . . %
Benefits . . . . . . . . . . . . . . . . . . . . . . . $XX . . . . . %
Sales and Marketing expense . . . . . . $XX . . . . . %
Rent / Facility expense . . . . . . . . . . . X . . . . . . . %
Communication . . . . . . . . . . . . . . . . X . . . . . . . %
Travel . . . . . . . . . . . . . . . . . . . . . . . . X . . . . . . . %
Bad Debt . . . . . . . . . . . . . . . . . . . . . X . . . . . . . %
Depreciation . . . . . . . . . . . . . . . . . . X . . . . . . . %
Insurance . . . . . . . . . . . . . . . . . . . . . X . . . . . . . %
Professional Fees . . . . . . . . . . . . . . . . X . . . . . . . %
Professional Development . . . . . . . . X . . . . . . . %
Office expenses . . . . . . . . . . . . . . . . X . . . . . . . %
Interest Expense . . . . . . . . . . . . . . . . X . . . . . . . %
Miscellaneous expenses . . . . . . . . . . X . . . . . . . %
Total Selling, General &
Administrative . . . . . . . . . . . . . . . . $XX . . . . . %
Exhibit 3a. Sample Billing Company Detailed Selling,
General and Administration expenses
For the 12 months ended December 31, 200X
CATEGORY
CATEGORY
SALES & MARKETING EXPENSES
• Salaries
• Employee benefits
• Advertising
• Marketing
INSURANCE
• Automobile
• Life Insurance
• Disability Insurance
• Commercial
• Errors & Omissions
RENT / FACILITY EXPENSE
• Rent
• Utilities
• Cleaning Services
• Repairs and maintenance
COMMUNICATION
• Telephone
• Cellular
• Data lines
• ISP expense
TRAVEL
• Travel
• Entertainment
• Meals
DEPRECIATION
• Depreciation
• Amortization
PROFESSIONAL FEES
• Legal expense
• Accounting
PROFESSIONAL
DEVELOPMENT
• Continuing Education
• Licenses, Fees &
permits
• Dues & Subscriptions
• Seminars and
Conventions
OFFICE EXPENSES
• Payroll Service Fees
• Contributions, Gifts
• Office supplies
• Bank fees
• Recruitment
• Records storage
• Waste disposal
Operating Income & Net Income
The operating income is the contribution margin less the
SG&A expenses. Most financial analysis is done at the contribution margin or operating income level. Operating income
is normally expressed in dollar terms and as a percent of
revenue. There are certain expenses that are generally not
included in operating income. Generally, interest
expense/income and taxes are deducted from the operating
income to arrive at net income.
(continued on page 15)
HBMA BILLING • SEPTEMBER/OCTOBER 2008
14
FINANCIALS
(Financial Statement Standarization continued from page 14)
Exhibit 4 illustrates the complete income statement. Expenses
are best expressed in dollar form and as a percentage of
revenue. Showing previous months or same month in the
previous year are also common presentations.
Professional Development . . . . . . . . X
Office expenses . . . . . . . . . . . . . . . . X
Interest Expense . . . . . . . . . . . . . . . . X
Miscellaneous expenses . . . . . . . . . . X
.......%
.......%
.......%
.......%
Exhibit 4. Sample Billing Company Income Statement
For the 12 months ended December 31, 200X
Total Selling, General &
Administrative . . . . . . . . . . . . . . . . $XX . . . . . %
Year-End % of
revenue
200X
Operating Income (loss) . . . . . . . . . $XX . . . . . %
CATEGORY
Revenue . . . . . . . . . . . . . . . . . . . . . . (000’s)
Billing services . . . . . . . . . . . . . . . . . $XXX . . . . %
Coding services . . . . . . . . . . . . . . . . X . . . . . . . %
Practice management services . . . . . X . . . . . . . %
Consulting services . . . . . . . . . . . . . . X . . . . . . . %
Technology services . . . . . . . . . . . . . X . . . . . . . %
Postage & Expense Reimbursement . X . . . . . . . %
Channel Partner Sales . . . . . . . . . . . . X . . . . . . . %
Interest Expense . . . . . . . . . . . . . . . . X . . . . . . . %
Interest & Other Income . . . . . . . . . X . . . . . . . %
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . X . . . . . . . %
Net Income (loss) . . . . . . . . . . . . . . . $X . . . . . . %
The Balance Sheet
Total Revenue . . . . . . . . . . . . . . . . . $XXX . . . . 100%
Cost of Services Provided
Salaries . . . . . . . . . . . . . . . . . . . . . . . ($XX) . . . . %
Benefits . . . . . . . . . . . . . . . . . . . . . . (X) . . . . . . %
Contract Labor . . . . . . . . . . . . . . . . . (X) . . . . . . %
Processing Fees . . . . . . . . . . . . . . . . . (X) . . . . . . %
Documentation Management . . . . . (X) . . . . . . %
Telecommunications . . . . . . . . . . . . . (X) . . . . . . %
Supplies . . . . . . . . . . . . . . . . . . . . . . (X) . . . . . . %
Software . . . . . . . . . . . . . . . . . . . . . (X) . . . . . . %
Hardware . . . . . . . . . . . . . . . . . . . . . (X) . . . . . . %
Postage, Delivery and Printing . . . . . (X) . . . . . . %
The balance sheet can provide great insight into the financial
condition of the company. As stated above, if the company
is utilizing the cash or tax basis of accounting, the balance
sheet becomes a very simple document because there are
no receivables, pre-paid assets, payables, or accrued expenses.
Exhibit 5 below illustrates a basic cash-based balance sheet.
Exhibit 5. Sample Billing Company Cash Based
Balance sheet
December 31, 200X
200X
Assets
• Cash & equivalents . . . . . . . . . . . . . . . . $XX
• Fixed Assets . . . . . . . . . . . . . . . . . . . . . $XX
Total Assets . . . . . . . . . . . . . . . . . . . . . . $XX
Total cost of services provided . . . . ($XX) . . . . %
Gross Profit . . . . . . . . . . . . . . . . . . . $XX . . . . . %
Selling, General and Administrative
Salaries . . . . . . . . . . . . . . . . . . . . . . . $XX . . . . . %
Benefits . . . . . . . . . . . . . . . . . . . . . . . $XX . . . . . %
Sales & Marketing expense . . . . . . . . $XX . . . . . %
Rent / Facility expense . . . . . . . . . . . X . . . . . . . %
Communication . . . . . . . . . . . . . . . . X . . . . . . . %
Travel . . . . . . . . . . . . . . . . . . . . . . . . X . . . . . . . %
Bad Debt . . . . . . . . . . . . . . . . . . . . . X . . . . . . . %
Depreciation . . . . . . . . . . . . . . . . . . X . . . . . . . %
Insurance . . . . . . . . . . . . . . . . . . . . . X . . . . . . . %
Professional Fees . . . . . . . . . . . . . . . . X . . . . . . . %
Equity
• Retained Earnings . . . . . . . . . . . . . . . . . XX
• Net Income . . . . . . . . . . . . . . . . . . . . . . XX
Total Liabilities & Equity . . . . . . . . . . . . $XX
On the other hand, if the company follows GAAP, the balance
sheet will provide a much better insight into the true assets
and liabilities of the company. Generally speaking, the GAAPbased balance sheet of a medical billing company is very
similar to other industries. The one significant difference is if
the company elects to make a balance sheet accounting
entry for work in process
(continued on page 16)
HBMA BILLING • SEPTEMBER/OCTOBER 2008
15
FINANCIALS
(Financial Statement Standarization continued from page 15)
or “unbilled receivables.” The most typical methodology for
calculating work in process is as follows:
Monthly Charges Submitted x Historical Gross Collection
% x Company Fee Rate x Reserve %
I like this disclosure as it has no impact on the income statement
because both an unbilled receivable asset account and an
unbilled liability account are created. It shows the revenue
opportunity that the company will have in the upcoming
months. Additionally, we have seen several companies which
have successfully had lenders include a portion of the unbilled
receivable asset in their borrowing base.
Exhibit 6 illustrates a comprehensive GAAP based balance
sheet.
Exhibit 6. Sample Billing Company
GAAP based Balance sheet
December 31, 200X
Total other assets . . . . . . . . . . . . . . . . . . . . . . . $XX
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $XX
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200X
Current Liabilities
Current portion of LTD. . . . . . . . . . . . . . . . . . . . $XX
Line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . XX
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . XX
Accounts payable - other . . . . . . . . . . . . . . . . . . . XX
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . XX
401(k) payable . . . . . . . . . . . . . . . . . . . . . . . . . . XX
Customer deposits payable . . . . . . . . . . . . . . . . . XX
Federal income tax. Payable . . . . . . . . . . . . . . . . . XX
State income tax. Payable . . . . . . . . . . . . . . . . . . XX
Deferred income taxes - current . . . . . . . . . . . . . . XX
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . XX
Total Current Liabilities . . . . . . . . . . . . . . . . . . $XX
Assets
200X
Current Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash & equivalents . . . . . . . . . . . . . . . . . . . . . . $XX
Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . XX
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . XX
Unbilled Receivables . . . . . . . . . . . . . . . . . . . . . . XX
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . XX
Total Current Assets . . . . . . . . . . . . . . . . . . . . . $XX
Furniture Fixtures . . . . . . . . . . . . . . . . . . . . . . . $XX
Office equipment . . . . . . . . . . . . . . . . . . . . . . . . . XX
Computer hardware. . . . . . . . . . . . . . . . . . . . . . . XX
Computer software . . . . . . . . . . . . . . . . . . . . . . . XX
Leasehold improvements . . . . . . . . . . . . . . . . . . . XX
Automobiles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . XX
Telephone equipment . . . . . . . . . . . . . . . . . . . . . XX
Accumulated depreciation . . . . . . . . . . . . . . . . . (XX)
Net furniture, Fixtures & Improvements . . . . . $XX
Other Assets
Security deposits . . . . . . . . . . . . . . . . . . . . . . . . $XX
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . XX
Stockholder loan (net) . . . . . . . . . . . . . . . . . . . . . XX
Computer software, net . . . . . . . . . . . . . . . . . . . . XX
Long-term liabilities
Notes payable (less current portion). . . . . . . . . . $XX
Deferred income taxes long-term . . . . . . . . . . $XX
Equity
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . $XX
Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . (XX)
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . XX
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XX
Total Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . $XX
Total Liabilities & Equity. . . . . . . . . . . . . . . . . . $XX
The Cash Flow Statement
The cash flow statement reports the cash which has been
generated and used during the time interval specified in its
heading. The period of time that the statement covers is
chosen by the company. For example, the heading may state
“For the Three Months Ended December 31, 2006” or “The
Fiscal Year Ended September 30, 2006.” The cash flow
statement should organize and report the cash generated
and used in the following categories:
(continued on page 17)
HBMA BILLING • SEPTEMBER/OCTOBER 2008
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FINANCIALS
(Financial Statement Standarization continued from page 16)
1. Operating activities
Converts the items reported on the income statement
from the accrual basis of accounting to cash.
2. Investing activities
Reports the purchase and sale of long-term investments
and property, plant and equipment.
3. Financing activities
Reports the issuance and repurchase of the company’s
own bonds and stock and the payment of dividends.
4. Supplemental information
Reports the exchange of significant items that did not
involve cash and reports the amount of income taxes
paid and interest paid.
Exhibit 7 illustrates a sample statement of cash flows.
Exhibit 7. Sample Billing Company
Statement of Cash Flows
For the 12 months ended December 31, 200X
CATEGORY
Year-End 200X
Operating Activities
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . $XXX
Adjustments to reconcile Net Income to net cash
provided by Activities:
Financing Activities
Proceeds - issuance of Long term Debt . . . . . . . . . . X
Net borrowings on Line of Credit . . . . . . . . . . . . . . X
Principal payments on long term debt . . . . . . . . . . (X)
Net cash provided (used) by financing act.. . . . . . X
Net Cash increase for period . . . . . . . . . . . . . . . . . . X
Cash @ beginning of period . . . . . . . . . . . . . . . . . . . X
Cash @ end of the period . . . . . . . . . . . . . . . . . . . . . X
IN SUMMARY
Regardless of the accounting basis your company is currently
operating under, I encourage you to invest the time and
resources to make your financial statements more valuable
management tools. Standardizing detailed income and expense
categories into a presentation format that reflects key operating metrics will create a valuable roadmap that will allow
you to navigate performance enhancements to your business.
I also recommend that you create a monthly or at least quarterly reporting package that includes a full set of financial statements along with the supplemental financial information.
As your company grows and has bank financing or other
outside financing needs, you will most likely need to adopt
GAAP based financial statements. Speak with your accounting
and tax advisors about your specific situation.
Depreciation / Amortization . . . . . . . . . . . . . . . . . . $X
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . X
(Inc) decrease in accts rec. . . . . . . . . . . . . . . . . . . . . X
(Inc) decrease in other receivables . . . . . . . . . . . . . . X
(Inc) decrease in prepaid expenses . . . . . . . . . . . . . . X
(Inc) decrease in other assets . . . . . . . . . . . . . . . . . . X
Ted Stack is the managing director of Falcon Capital Partners,
LLC, a healthcare focused investment banking firm that specializes
in M&A transactions in the medical billing and practice
management markets. He can be reached by email at
[email protected].
Increase (decrease) in accounts pay. . . . . . . . . . . . . . X
Increase (decrease) in accrued liability . . . . . . . . . . . X
Increase (decrease) in income taxes pay . . . . . . . . . . X
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . $XX
Net cash provided by Operating activities . . . . . . $XX
Investing Activities
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . X
Cash payments for purchase of equip. . . . . . . . . . . . X
Net cash provided (used) by investing act. . . . . $XX
DON’T FORGET THE
DOCUMENT LIBRARY!
Click on Document Library under Members
Only on the HBMA website, HBMA.org.
Post a document for other members to use,
search for a document to help your business.
Another Benefit of HBMA Membership!
HBMA BILLING • SEPTEMBER/OCTOBER 2008
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