Profit and loss statements

What are the 3 main financial statements in a veterinary practice?

• Balance sheet

• Profit and loss statement (or income statement)

• Cash flow statement

What is a balance sheet? How would you create a balance sheet of “your” clinic?

• summary of the business at a specific point in time

• Balance sheet follows this equation:

  • Assets = liabilities + equity

What are assets?

Anything the practice owners that could be converted into cash (also called liquidation)

• positives on the balance sheet

What are current assets?

What are noncurrent assets?

Current assets

• can be converted into cash within a year

• Cash on hand, drugs, medical inventory, accounts receivable

Noncurrent assets

• Things that are “fixed”, not expected to be converted to cash within a year

• Real estate, medical, or office equipment

What are liabilities?

Liabilities are what a business owes, obligated to pay, and are an inverse of assets

What are current liabilities?

What are noncurrent (long term) liabilities?

Current liabilities

• wages payable, debt financing, rent payable, utility payable, accounts payable

Noncurrent liabilities

• long term portions of loans or deferred tax liabilities

What is equity?

What is left over when you subtract liabilities from assets.

• anything belonging to the business owners after any liabilities have been taken into account

• A company’s total net worth

Tell me again, what is the fundamental accounting equation equation for a balance sheet?

Asset(s)= liability + owner’s equity

Exam is going to be very basic math, so lets do an example from the slides!

Consider your house. It is an asset owned by you and financed partly by debt (your mortgage) and partly by your equity. Assume the house is worth $350,000 and you have a mortgage of $180,000. Your balance sheet for the house would be what?

Asset(s) $350,000 = liabilities ($180,000) + owner’s equity ($170,000)

Why would a balance sheet not balance?

• errors in calculation

• Omitted transactions

• Fraud or misrepresentation

• Incomplete transactions

• Software glitches

• Timing differences

What is a P&L statement?

Profit and loss statement

• also known as income statement

• Allows you to know what your business is doing and allows you to tweak the profitability of your practice

• Reports financial performance of a business over a defined period of time (yearly or quarterly)

Basically, helps you learn how much money you’ve made or lost over a quarter or year

What is the main formula for P&L

Net income = revenues - expenses

What are the main sections of a P&L statement?

1. Operating results

   • revenue

   • Cost of goods sold

   • General and administrative expenses

2. Returns of providers of financing (interest)

3. Returns to the government (taxes)

Take a look at the pictures provided in the PowerPoint of P&L statements. They’d be too shrunken if i put them in the flash card set

Some practice questions on analyzing a P&L, what do these percentages tell you?

• what if labor was 29%? 55%?

• What if the amount of food you sold dropped by half?

• What if you want a pay increase?

• What if pharmacy cost increase dramatically?

• labor at 29% = understaffed

• Labor at 55% = ideal cost of wages

• Food dropped by half = check for food expiration and asses selling cost

• If you want a pay increase = Look at your specific tab of P&L, assess how much you are profiting the clinic before considering if you should ask for a raise

• If pharmacy cost increases dramatically = someone isn’t charging for medication properly!