Posted on October 30, 2023

Balancing care quality with cost efficiency is the holy grail sought by all in the long-term care industry. Every facility admin needs to balance the budget without compromising service or quality, so understanding financial statements becomes critical.

The Three Pillars of Financial Statements

Here are the three key financial statements every healthcare executive should understand:

• Balance sheet: The balance sheet shows a facility's assets, liabilities, and equity at a specific point in time. Assets are what the facility owns, liabilities are what the facility owes, and equity is the difference between the two.
• Income statement: The income statement shows a facility's revenue and expenses over a period of time. Revenue is the money that the facility earns from providing care to residents, and expenses are the costs that the facility incurs to operate its business.
• Cash flow statement: The cash flow statement, AKA statement of cashflow, shows a facility's cash inflows and outflows over a period of time. Cash inflows are the money the facility receives from residents, insurance companies, and other sources, and cash outflows are the payments the facility makes to employees, suppliers, and other creditors.

Now that we know 'what' these statements are, let's discuss when they should be reviewed and how to read them.

Reading And Reviewing Financial Statements

While reviewing your financial statements monthly is ideal, some companies conduct reviews quarterly or annually, depending on size and complexity.

Here are some tips on how to read them:

• Balance sheet: Look for trends in the facility's assets, liabilities, and equity over time. Are assets increasing or decreasing? Are liabilities increasing or decreasing? Is equity increasing or decreasing?

Assets: The value of assets reveals the facility's resource base. It can include valuable equipment and property that may be underutilized.

Liabilities: The liability section outlines debts, including loans, accounts payable, and other financial obligations.

Equity: This shows the facility's net worth or value. Negative equity can indicate financial instability.

• Income statement: Analyze revenue and expenses in detail, comparing them to previous periods and budgeted expectations. Identify trends and areas where cost-cutting measures may be necessary.

Revenue: This section details all sources of income, allowing administrators to identify where the bulk of their funding is coming from.

Expenses: A breakdown of expenses helps identify areas where costs can be reduced, such as optimizing staffing levels or renegotiating supplier contracts.

Net Income: This figure shows whether the facility is operating at a profit or loss. A consistent loss can be unsustainable in the long term.

• Cash flow statement: Look at the facility's cash inflows and outflows by category. What are the facility's major sources of cash inflow? What are the facility's major uses of cash? Are cash inflows and outflows increasing or decreasing over time?

Operating Activities: This section represents the facility's core operations and is crucial for long-term care facilities as it highlights the sustainability of daily operations.

Investing Activities: This section shows asset investments, such as new equipment or facility improvements.

Financing Activities: Details how the facility raises capital or pays off debts.

While it may seem daunting initially, familiarity with these documents will help you extract vital data points like net profits/losses, debts owed, costs saved through efficiency measures, etc.

Connecting Healthcare Executives with CFOs

The relationship between admins and CFOs (Chief Financial Officers) is significant in controlling long-term care costs. As an admin whose daily operations leave fiscal footprints visible in financial statements, your actions directly influence these documents.

Frequent communication between CFOs and admins can facilitate a better understanding and lead to faster decision-making. Such communication promotes cross-departmental cooperation by helping the admin comprehend how their daily decisions impact the facility's financial situation. CFOs, on the other hand, gain real-time insights into the funds required for operational aspects.

Remember, as an admin, you are a vital link that connects care delivery with its financial foundations. I want you to know that understanding the language of finance will help you bridge this crucial connection between high-quality patient care and cost-effective administration.

In conclusion, having a good understanding of financial statements can help administrators become more responsible stewards of the resources available to long-term care facilities. Properly structuring this knowledge can help maintain or even improve the quality of care provided without compromising financial responsibilities. To budget effectively and provide quality care to residents, long-term care administrators should be aware of the current costs of long-term care supplies and the latest trends and developments. By understanding the three financial statements and working closely with the CFO, administrators can ensure the financial stability of their facilities.

Ready to take control of your long-term care facility's financial health? Contact SMK Medical today, and let us help you optimize your financial strategies. With our expert guidance and tailored solutions, you can perfectly balance quality care and cost efficiency. Don't hesitate to get in touch with us now to ensure your facility's financial stability and success. You want to avoid ending up on this list HERE.