Question

ASSETS		2016	2017
Current Assets:
Cash and cash equivalents		$125,000	$200000
Short-term investments		$575	$600
Accounts receivable		$1500	$1700
Inventories		$135	$150
Total Current Assets		$127210	$202450
Investments:		$800	$850
Property & Equipment:
Medical equipment		$600	$650
Office equipment		$250	$800
Total		$850	$1450
Accumulated depreciation		($126)	($135)
Total Assets:		$128734	$204615
LIABILITIES & EQUITY
Current Liabilities:
Salaries		$175000	$225000
Benefits		$1750	$2500
Accrued expenses		$1100	$1200
Bad debt		$375	$1500
Total current liabilities		$178225	$230200
Long-Term Debt		$1500	$1500
Total Liabilities & Equity		$179725	$231700

You are the financial manager for a small outpatient clinic. Based upon the above balance sheet, you are responsible for creating a memo to the Board of Directors regarding the budget proposal for next fiscal year. Due to the passage of the Affordable Care Act, your organization was required to change insurance companies to meet the guidelines and expectations within the ACA. Salaries increased in FY 2017 due to hiring new personnel.   

Using the provided balance sheet, create a memo that identifies the three major areas of concern over the past year. For those three areas, provide a short summary of the current status, and recommend one possible solution for improvement or sustainability for the Board to consider when voting to approve next year’s budget.

Your memo should include three specific areas based upon the information found in the balance sheet. Within each area, write a short summary of the current status (75 words each), and provide one possible solution for improvement or sustainability.

Answer 1

Areas of concern:

Bad debts have increased over the last year, bad debts in 2016 are$375 and those in the year 2017 are $1500, this has increased by 300%. This could be due to the change in insurance companies.To reduce the amount denied by insurance companies, a well trained insurance processing team should be built up and a well devised checklist should be designed for each patient using the payment through insurance companies, this would reduce the insurance companies denying the payment.

Cash balance:

Cash balance has increased by $75,000 in 2017. Keeping cash balance idle is not a good investment decision. The cash requirements of the clinic should be properly forecasted using a proper budgeting system and the excess funds should be invested in a marketable securities, so that whenever, the requirement for excess cash arises, marketable securities could be readily converted to cash. For, this purpose an estimate of expenses, receipts and future investments or expansion plans in assets etc., should be ascertained and then idle funds are to be invested in short term or marketable investments.

Here, Increase in salaries:

Salaries have increased by $50,000. This should be properly analysed, like reasons for the increase:

• If new staff is appointed then whether there is actually a manpower requirement or just to accommodate the change in documentation and insurance processing of new insurers etc., needs to be analyzed.
• Whether the increase in staff is due to increase in work or increase in business etc., needs to be analyzed.
• It is to be analyzed whether the existing staff could be trained on the new changes in documentation and insurance processing etc.,
• It is to be ascertained whether the documentation requirement can be outsourced till the time the existing staff are trained etc.,