Financial management can be a juggling act in health care.

Whether in aged care or operating a GP clinic, there is a minimum level of financial knowledge and understanding needed by the key decision makers. A key element in making a sound management decision is to understand how it will effect financial performance. In aged care this is most likely the Facility Manager and at a GP clinic I have seen this passed to the Practice Manager successfully.

In David Meckin’s 2007 book “Naked Finance – business finance pure and simple” he starts with the following comment which I think is highly appropriate for those in health care:

“The normal day to day demands are well within your management capabilities. It’s these financial issues that give you the headache. Nobody has ever explained how to balance revenue against costs, how to interpret financial reports, how to argue for new equipment and how to budget.”

The article to follow will focus primarily on aged care but there will be cross over points highly relatable to GP clinics and other health providers.

Providing the very best care, filling safe rosters, providing an awesome food service and keeping residents safe in a great and modern aged care facility, no matter whether you are a private operator or a multi-site not-for-profit, also requires a regular eye on financial performance. This can be difficult to balance but no business can survive without sound financial management.

In my experience in aged care it has been important to proactively ensure a Facility Manager has key financial knowledge to run their facility business. Recognising that many Facility Managers come from a clinical care background means it would be unrealistic to expect them to come to a business leadership role as a strong financial manager.

I can remember one great Facility Manager who I had known for years saying to me when I was visiting, “I have always meant to ask; when there are brackets around this month’s gross profit, does that mean I am making money or losing it?” Yikes I thought but from that day on I knew it was my responsibility, as Chief Financial Officer, to ensure all of our Facility Managers had the right financial management knowledge.

I asked myself, “Our Facility Managers run individually significant businesses. What are the most important skills they require to run a financially successful Aged Care business?” To follow would become the training session, “Mastering the 7 Skills of a Highly Effective Facilities Finance Manager.”

In brief, it is important to understand:

1. The levers that drive growth – Occupancy, bed mix, accommodation supplement, on-charging, cost management as a start.
2. How to clearly interpret a Profit and Loss statement – And importantly what goes in to each account and whether or not you are able to influence. For example property rates are harder to influence than office supply costs or advertising.
3. How to prepare a budget and knowing you own it - What gets planned gets done! – Understanding why we budget, when we budget, how we budget and how to compare to your competition is critical. As Benjamin Franklin said, “If you fail to plan you plan to fail.”
4. Gap analysis and proactive action – As a minimum understanding the gaps between monthly financial performance and budget and doing something about it. This includes vigilant observation of developing trends in important key performance indicators. For example, staff, medical supplies or food as a percentage of revenue. 
5. Effective and regular benchmarking - Benchmarking is checking or evaluating performance compared to others and especially those that do something better. This can be difficult for standalone operators meaning the many available external sources of information to compare with becomes all the more important to access.
6. Cash is king – Understanding that good cash management practices and processes is imperative. The objective of cash management is to minimise the time that elapses between paying cash to suppliers and receiving cash from residents. How is this achieved?
7. A Case for Capital Expenditure – Firstly, it is critical to clearly distinguish the difference between capital and operational expenditure. Secondly, it is critical to have a robust capital purchase/replacement plan in place. Capital expenditure tends to be expensive and if not planned can have a serious impact on cash flow.

There will be a number of other areas in financial management a Facility Manager may need to understand. This may be related to a specific operator or provision of a slightly different business model. In the nine years I have been in aged care, above are the 7 areas that seemed to come up regularly as the most applicable to understand. 

The understanding of these areas is important but it is also important ensuring each of the above 7 areas are actually performed regularly. Juggling financial management with the needs of the staff, residents, site operations and clinic care can be difficult to balance and over the years I have witnesses many great Facility Managers drop a ball or two and that can be very costly to a business.