Staying on Top of Capital
The health care field can be a tricky business to
manager. It is important to have knowledgeable
management who are familiar with health care capital budgeting and
formulations. Health care cost has been
increasing over the years and it is important for management to stay on top of
their bookkeeping and finances to ensure a gain in capital and prevent any
reduction in cost. Capital budget is
used to forecast, and in some cases justify, the expenditures (and in some
cases the sources of financing) for capital expenditures. A good skill a financial manager should have
is budgeting. Budgeting is the
central document of the planning/control cycle.
It identifies revenues and resources that will be needed by an
organization to achieve its goals and objectives. The Budget is a quantitative expression of a
plan of action states in monetary terms and typically cover a period of 1 year (Cleverley, W.
O., Cleverly, J. O., & Song, P. H., 2012).
Capital budgeting is necessary and managers need to have a plan set in
place to ensure the business stays on course to receive revenue.
Capital Decision Making
There are a lot of a lot of factors
that can affect the decision making process in regards to capital. Every business strives to make the most out
of their business. They have a lot of
people and organizations depending on them.
Investors make huge investments in the health care industry. Based on the previous years and forecasting
from managers they expect to receive a huge return on the capital they
invest. This is why it is important for
decision makers to stay on top of capital.
Need to be aware of how the money is spent, how it is being made, what
expenses need to be paid out and what losses they experienced are to name a
few.
A good tool for management is to
have a control system which includes a budget for expected return on
investments. This allows management to
know exactly where the money is going in addition to providing a cap on how
much should be spent. Capital budgeting
is a major tool for healthcare managers.
It allows them to level out the cost of health care expenses. There are so many different components that
are involved in capital decision making.
Managers should include cost variance analysis in their decision making
process. Cost
Variance analysis can be of very importance in the health care field. Successful use of cost variance analysis
requires a sound system of standard setting, or budgeting, and a related system
of cost accounting. Managers should be
able to use the skills and tools they have to supply data essential for product
or service costing. They should also be
able to provide information for cost control activity.
Budgeting
Managers need to have a plan set in
place to ensure they are keeping up with all capital no matter how big or small
the contributions are to the company.
There are so many expenses that are involved in the health care
field. There are so many reasons why a
company inserts a budget plan in their business model. Budgeting is great tool that allows decision
makers to plan, track and control spending.
Managers need to be aware of the funds that they have available as well
as what they have within their limits.
Managers also need to ensure that they do not exceed whatever funds they
have available. Within their budgeting
plan managers should be able to justify the funds that they use and be able to
give a full explanation of future plans that require financing.
Budgeting is a plan that provides a
forecast of what the company plans on spending or incoming revenue that they
receive. It is usually in a list format
where figures are entered throughout the year based on the expenses and income
that was received and this information is used to compare against the initial
budget that was set up for the company.
Once the comparison is done the difference between the planned and
actual figures is called the variance.
There are so many different expenses that can be forecast in the
healthcare field. There is a budget set
aside for training, company supplies, construction funds, taxes, and staff
salaries are to name a few. In most
health care fields managers may have to do a quarterly review on their budget
to see how far off they are with the planned spending versus the actual
spending. In this type of scenario
managers are able to readjust or redirect the funds that they have going out.
In the health care field decision
makers may set up the budget in a hierarchy format. The budget planning is set up with high
levels budget with capital and operating budgets in mind. High level plans, spending items and revenues
are usually linked closely to the revenue and expense items that are in the
organization’s accounts while lower level plans are broken down in sub division
based off of the high level plans (Business Encyclopedia, 2016).
Budgets should include an innovated
side of the company. Managers want
employees who are creative and willing to take a smart business risk. The health care industry is a large industry
and decision makers have to find innovated ways to set their business apart
from others. There has to be a plan that
is devised that help managers identify any areas that may be problematic which
they can rectify in a timely manner to improve health care. In addition to their innovative plans they
also need to incorporate a cost analysis.
Their budget should be a result of areas that the decision maker was
able to identify areas where they cost can be reduce. Cost reduction leads to more flexibility in
the budget and also encourages more innovative ideas.
Capital budget
Operating budget covers all the
operating expenses. Operating expenses
include employee wages and overhead, office space, utilities costs, employee
travel, marketing communication, and insurance cost are to name a few. Capital budgets includes a forecast for
capital expenditures which also includes the acquisitions that are on the
company’s balance sheet as asset. In the
health care field there are a lot of decision that has to be made and when it
comes to trying to determine what is the best approach to make in capital
investments finance managers usually use a combination of financial criteria
which include net present value, internal rate of return, return on investment
and payback period. There should always
be strategic planning involved. Capital
planning is accomplished by budgeting or capital review. Successful capital budget planning involves
management having an understanding of the organization’s criteria for
prioritizing capital expenditures, timing of current capital planning and
spending, and current or expected capital spending ceiling (Business
Encyclopedia, 2016).
In business finance managers should
also have a cash budget. A cash budget
is used for planning and controlling near-term spending, normally including both incoming cash flows
and cash outflows (Business Encyclopedia, 2016). Cash budget is usually used for spending on
expenses that is needed for the company.
With good record keeping managers are able to identify where funding is
spent and used with the company.
Slowdown
There has been a slowdown in the medical
field over the past few years. People
are getting healthier by improving their lifestyle by eating healthier and
exercising more. People have been taking
preventative measures to stay healthy and seeking treatment at an earlier stage
to avoid future complications down the road.
The Congressional Budget Office, which provides nonpartisan
budget and policy analysis to Congress, is predicting that Medicare spending
will be $95 billion lower by 2019 than it had predicted four years ago
(Leonard, 2014). There has been a change
in the way medicine is practice which effects the spending and results in a
slowdown in the health care field.
People are given different options for health care providers as well as
prescription medicine. They no longer
have to result to higher price medicine they have the option of selecting a
generic brand as well as over the counter medicine when it applies. There has been a slowdown in the collection
for the medial field. People are using
other alternative methods where their health is concern.
With the
slowdown it also results to a decline in revenue. The health care field relies on treatment for
their patients and to produce the health and well-being of their clients. If clients are seeking less use of the
healthcare facilities this will result in a decline in revenue. Decision makers will have to review their
budget make cuts where needed and develop an innovated way to increase their
clientele. A flourish revenue is
important for business. This is needed
to ensure the flow of business and have funding to promote and create new
projects. When there is a decline in
revenue that can result to a big problem in business.
It is
important to have qualified and knowledgeable managers that are equipped to
handle the financed and budgeting within the business. Understanding the ins and outs of the flow of
capital in the company is also important.
There should be a strong business plan that include a strategic and financial
plan which should be in alignment with each other. Staying on top of the capital in the health
care field can be a hard job to manage but can result in a successful return on
the initial investment.
References
Cleverley, W. O., Cleverly, J. O.,
& Song, P. H. (2012) Essentials of health care finance
Bragg, S. (2013). What is cost
variance analysis?.
http://www.accountingtools.com/questions-and-answers/what-is-cost-variance-analysis.html
Business Encyclopedia. (2016). Budget, Budgeting Process, and Variance
Explained. https://www.business-case-analysis.com/budget.html
Larry Walther.
(2011, December 30). 24-- Capital Expenditure Decisions [Video File].
http://www.youtube.com/watch?v=FFEszveOdDc
http://www.youtube.com/watch?v=FFEszveOdDc
Leonard, K. (2014). What's
Behind the Slowdown in Health Care Costs.
http://www.usnews.com/news/articles/2014/09/26/whats-behind-the-slowdown-in-health-care-costs
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