Financial Planning and Budgeting (exam 2 - finished editing)

what are the 2 types of organizations?

- not-for-profit

- for-profit

Not-for-profit organizations

Exempt from most forms of taxation at the federal, state, and local levels.

examples of not-for-profit organizations

churches and big hospital systems

How do not-for-profit organizations get their inflows (money)?

from donations, grants, contracts for service, and the sale of goods and services

where does most of the spending (outflows) go in not-for-profit organizations?

Most fund operations and capital improvements.

any money made NEEDS to fund the organization and go back into the community

what are examples of ways not-for-profit organizations can give back to the community?

through services, community events, grants for the uninsured

For-profit organizations

Provide goods and services with the goal of making money for shareholders and owners.

what is an example of a for-profit organization?

private outpatient clinics

Financial Management

The part of the management process that focuses on financial information that can be used to improve decision making.

information in financial management can help managers focus on:

- questions of survival

- effectiveness

- efficiency

Effectiveness

Measure goal appropriateness and goal achievement.

Efficiency

How well resources are utilized.

Which example best shows effectiveness rather than efficiency?

A. Using fewer staff hours to complete the same number of treatment sessions.

B. Reducing supply costs during therapy sessions.

C. Completing documentation in less time.

D. Setting appropriate client goals and successfully helping clients achieve those goals.

Setting appropriate client goals and successfully helping clients achieve those goals.

3 multiple choice options

Which of the following is the best example of efficiency in OT financial management?

A. Using staff time, supplies, and clinic space wisely to provide services

B. Helping a client fully achieve their treatment goals

C. Selecting meaningful goals that match the client's needs

D. Determining whether intervention goals are appropriate

Using staff time, supplies, and clinic space wisely to provide services

3 multiple choice options

Which of the following is an example of effectiveness in OT financial management?

A. Lowering staffing expenses

B. Decreasing the amount of time spent on each session

C. Choosing appropriate treatment goals and meeting desired client outcomes

D. Using clinic resources in the most cost-conscious way

Choosing appropriate treatment goals and meeting desired client outcomes

3 multiple choice options

Which situation is the best example of efficiency in an outpatient OT clinic?

A. An occupational therapist develops treatment goals that are appropriate for a patient recovering from a wrist injury.

B. An occupational therapist determines that the patient's treatment plan matches their desired outcomes.

C. A patient meets all of their outpatient therapy goals by the end of treatment.

D. An outpatient OT clinic schedules patients and staff so treatment rooms are used consistently and therapist downtime is minimized.

An outpatient OT clinic schedules patients and staff so treatment rooms are used consistently and therapist downtime is minimized.

3 multiple choice options

Fiscal Year

Accounting (Financial) period

t/f the fiscal year (FY) is the same for all organizations

false

what is the fiscal year of the federal government?

oct 1-sept 30

what is the fiscal year of most organizations?

july 1 - june 30

what are other possible fiscal years for an organization?

- april 1-march 30

- calendar year (rare)

Budget

Itemized summary; itemized fiscal plan.

Budget process

Understanding how much $ the program has and how it is spent (how to allocate funds)

how are the 3 key considerations in evaluating the budgeting process?

- how much youre spending

- how much is coming in (inflow)

- how youre going to use the money/revenue (outflow)

how are managers evaluated in the budgeting process?

- how well they meet goals for controlling costs

- generating revenues

- maximizing profits while staying within their budgets

the budget of an organization includes:

the revenue and expenses

what are the 2 types of budgets?

- operating budget

- capital budget

what are the 2 types of costs in operating budgets?

- indirect costs

- direct costs

Operating Budget

Blueprint that states how managers intend to use organizational resources to achieve organizational goals efficiently.

what examples of organization resources are typically accounted for in the operating budget?

staff salary, supplies, services

Capital Budget

Plans for the acquisition of high-value, long-term (> 1 year) assets.

how much do specific assets need to cost to be included in the capital budget?

usually $2500 and up per item

what are examples of high-value items that would be included in capital budgets?

equipment, remodeling, new building

Accrual expenses

Reflect the USE of a resource

accrual expenses show one year's share of the cost in the _____ budget each year it is used

operating

accrual expenses show the full cost on the _____ budget the year the capital asset is acquired

capital

Accrual Accounting

- Recognizes revenue when the goods or services have been delivered and the organization has earned the right to be paid.

- Expenses are recognized when a resource has been used in the operation of the organization.

why is accrual accounting important?

it helps the organization match the revenues that it has earned with the resources/services required to produce these revenues

An outpatient OT clinic provided lots of therapy visits in June but did not get paid for services until July. With accrual accounting:

- June shows the revenue from the services provided in June

- June shows the expenses from staff time, supplies, and space used in June

- it is easier to tell whether the clinic was actually profitable that month.

An outpatient OT clinic provided lots of therapy visits in June but did not get paid for services until July. If the clinic only looked at cash received in July:

- June might look like a bad month

- July might look unusually good

- That information would be misleading, because the work was actually done in June.

Why is accrual accounting considered better for profitability?

It shows whether the organization is making money based on the work it actually performed, not just based on when cash happened to move in or out.

Why is accrual accounting harder to manipulate?

It is more structured because you cannot make a month look better just by delaying payments or speeding up collections. The revenue and expenses have to be recorded when they are earned or used.

Accrual accounting = record it when it happens ______, not when ______.

in real time; cash moves

Revenue

A forecast of resource inflows into the organization (money and resources you THINK is coming in)

where does revenue come from/earned?

- sale of goods and services

- receipt of contributions and grants (support) such as copays

revenue can be in the form of:

total cash, non-cash, and income received before expenses are paid

Expenses

Resources that an organization uses up in carrying on its activities (the money youre paying to run the business)

surplus/profit

excess of revenues and support > expenses

deficit/loss

excess of expenses > revenues and support

Operating Costs

Expenses associated with the normal course of doing business.

Direct Cost

Costs directly assigned to an activity or service.

Indirect Costs

Costs of doing business, not necessarily associated with a specific function or service.

what is an example of a direct cost?

the salaries of the therapist/staff to provide services (highest direct cost)

what is an example of indirect costs?

supplies to provide services

Overhead Costs

Indirect recurring costs that are not linked to the services provided.

what are examples of overhead costs?

- building

- rent

- utilities (water, electricity, wifi)

Average Cost

The full cost of a cost object divided by the number of units of service provided.

Fixed Costs

Costs which remain (relatively) unchanged in total for some time period as the volume of services changes.

Variable Costs

Costs that vary directly with changes in the volume of service units.

what is an example of average cost?

the cost of 1 unit of service

what is an example of fixed costs?

the rent and utilities of overhead costs

what is an example of variable costs?

supplies

Revenue Management

Understand the components of payment systems and establish practices to capture essential elements.

what are important concepts to know to manage revenue?

- understand the components of payment systems

- establish practices to capture essential elements

- audit for accuracy of data

- knowledge of proper building procedures

- collect co-pay amounts

- reduce no shows and cancellations

what factors lead to successful financial management?

- utilization of services

- billing and coding processes

- documentation

- compliance

- professional responsibility

- revenue management

- cost control (controlling expenses)

- organizational leadership

Insurance

To protect from loss (fire, flood, theft insurance, public liability insurance)

what are examples of insurance that can be provided to employees?

- malpractice liability

- workers compensation

- health insurance

- disability insurance

Malpractice or Professional Liability

Claims from patients related to services received.

t/f malpractice or professional liability insurance can be included as part of the benefit package to employees

true

malpractice liability insurance is required for what kind of workers?

independent contractors

Worker's Compensation

Injuries on the job.

Health Insurance

Coverage for medical expenses.

Disability Insurance

Coverage for loss of income due to disability.

What is FTE (Full-Time Equivalent)?

A way to show how much staff time equals one full-time worker.

one full-time employee equals how many FTEs?

one half-time employee (part-time) equals how many FTEs?

1 FTE and 0.5 FTE

what are man-hours?

the total number of hours worked by employees

what is an exempt employee?

A salaried employee who usually does not receive overtime pay.

do exempt employees needs to clock in and out?

no

what is a visit?

one patient appointment or therapy session

what is a unit of service?

a smaller billable part of a visit, often based on time or type of treatment

what is expense per unit of service?

the cost of providing one service (one visit or one unit)

why is expense per unit of service important?

it helps managers understand cost efficiency and how much it costs to deliver care

If an outpatient OT clinic has two therapists who each work 20 hours a week, how many FTEs is this?

1 FTE

(1 FTE= 40 hrs/week --> 2080 hrs/year)

3 multiple choice options

If 3 staff members each work 8 hours in one day, how many man-hours is this?

24 man-hours

3 × 8 = 24 man-hours

This helps a clinic measure how much labor time was used.

3 multiple choice options

A patient comes for their OT appointment and the therapist does 4 timed treatments, how many visits is this and how units can the OT bill for?

1 visit and 4 units

3 multiple choice options

If an outpatient clinic spends $2,000 in one day and provides 40 visits, how much does it cost per visit?

$50

3 multiple choice options

If the clinic spends $2,000 and provides 100 units, how much does it cost per unit?

$20

3 multiple choice options

In an outpatient OT clinic, which example is a surplus (profit)?

A. The clinic earns $12,000 in revenue and has $15,000 in expenses

B. The clinic earns $20,000 in revenue and has $18,000 in expenses

C. The clinic earns $10,000 in revenue and has $10,000 in expenses

D. The clinic has no expenses for one month

The clinic earns $20,000 in revenue and has $18,000 in expenses

3 multiple choice options

In an outpatient OT clinic, which example is a deficit (loss)?

A. The clinic earns $9,000 and spends $11,000

B. The clinic earns $11,000 and spends $9,000

C. The clinic earns $10,000 and spends $10,000

D. The clinic bills insurance for treatment sessions

The clinic earns $9,000 and spends $11,000

3 multiple choice options

Which of the following is the best example of an operating cost in an outpatient OT clinic?

A. The clinic's regular payroll, rent, and supply costs for daily operations

B. The cost of building a brand-new clinic in another state

C. A patient's insurance copay

D. A community donation to the clinic

The clinic's regular payroll, rent, and supply costs for daily operations

3 multiple choice options

Which of the following is the best example of a direct cost?

A. The therapist's treatment time spent with a patient

B. The clinic's electricity bill for the whole building

C. The front desk receptionist's salary

D. The clinic's internet bill

The therapist's treatment time spent with a patient

3 multiple choice options

Which of the following is the best example of an indirect cost?

A. The theraband used during one patient's treatment session

B. The therapist's one-on-one treatment with a patient

C. The clinic's utility bill that supports the whole operation

D. The splint made for one patient

The clinic's utility bill that supports the whole operation

3 multiple choice options

Which item is the best example of an overhead cost in an outpatient OT clinic?

A. Rent for the clinic space

B. A custom splint made for one patient

C. Billing one treatment unit for therapeutic activity

D. A therapy band used for one session

Rent for the clinic space

3 multiple choice options

An outpatient OT clinic spends $6,000 in total and provides 120 visits in one month. What is the average cost per visit?

A. $20

B. $40

C. $50

D. $60

$50

3 multiple choice options

An outpatient OT clinic sees more patients this month, so it uses more tape, theraband, and splinting supplies. What kind of cost is this increase?

A. Fixed cost

B. Variable cost

C. Overhead cost

D. Surplus

Variable cost

3 multiple choice options

The clinic pays the same monthly rent whether it sees 50 patients or 90 patients. This is an example of:

A. Variable cost

B. Direct cost

C. Fixed cost

D. Deficit

fixed cost

3 multiple choice options

The clinic's receptionist salary supports the whole clinic but is not tied to one patient's treatment. This is best classified as:

A. Direct cost

B. Indirect cost

C. Variable cost

D. Revenue

indirect cost

3 multiple choice options