Resources

August 2024
By Medinex Specialist Centre Team

Financial management is the planning, organizing, directing and controlling of your clinic’s financial activities such as cash flow, procurement and use of funds.  In general, it involves applying management principles to financial resources to effectively manage your money and achieve your clinic goals.

While every industry will rely heavily on efficient financial management, it is especially critical to take a proactive approach in healthcare settings. The importance of financial management in clinics is clear: doctors need an expert to handle the business and financial aspects of running a clinic. A good financial team will oversee the clinic’s accounting, staff, revenue, operations, and information technology – all while improving patient care and lowering the cost of medical services. Here is the low-down on the gist of financial management.

What Is Financial Management for Clinics?

Your clinic’s finance is a critical and integral part of its existence as it is difficult for any organisation to be sustainable without properly managing its finances.  Your finance team decides if a particular venture is viable and how much revenue is required to sustain your medical practice.  As many such decisions are important, it is essential that you have a team of experienced financial experts to assist you in them.

Some of the top financial challenges faced by clinics include the lack of cash flow management, lack of capital, insufficient knowledge pertaining to tax compliance and burdensome legal paperwork.  To remain financially viable amidst these challenges, you must strategize and address these issues by being aware of key cost drivers and identify potential solutions to achieve financial savings.

The Benefits of Financial Management

The benefits of good financial management in the healthcare sector extend beyond just financial matters toward various benefits for doctors and their patients:

Proper Cash Flow Management

Cash flow is the most reliable indication of financial health as it measures the amount of money coming in and going out of your clinic.  A finance team manages your accounts receivable balance to quickly increase your cash flow and implement proper cash flow management processes like quarterly cash flow statements.

In adopting solid billing practices, bills can be promptly and accurately submitted to government entities and insurance companies, accompanied with quick follow ups, you can rest assured that your clinic receives prompt payments.

Over time, you will experience improved revenue cycle management and better cash flow. By boosting cash flow, your clinics’ cash flow risk will decrease – cash-flow risk exists as a type of liquidity risk and is among the most important concerns for doctors in private practice. Therefore, good cash flow management is essential for your clinic to succeed, and having a cash flow statement will allow you to monitor your clinic’s growth.

Formulate a solid business plan and realistic budget 

 Whether your clinic is a new start-up or a mature one, the success of it rests on your clinic’s budget plan.  A good budget guide will help you to actively manage your income and clinic expenses to achieve your long-term revenue goals.  Your budget should factor in both fixed and variable costs.  Fixed costs include your rent, utilities, manpower cost, assets depreciation and professional services fees.  Variable costs are costs that are incurred when generating the revenue, for example costs of drugs, marketing costs and delivery of medications, etc.

For any new start-up clinic, a business plan details the various costs such as equipment, manpower, and even bank loans:

Equipment Costs

Every clinic requires some form of healthcare equipment and supplies like examination tables, computers, information systems and software. If laboratory service or radiology service is provided, you will need to decide whether or not to lease or buy the laser, ultrasound and X ray machine.  Depending on the type of equipment and terms of the lease, a viable option is to lease with the intention of buying only at a later date.

Manpower costs

In Singapore, one of the biggest costs is manpower, which can account for as much as 70% of total business costs.  Especially in healthcare settings, recruiting a good clinic manager and quality local staff can be difficult and costly.  Even if you intend on hiring foreign staff, you are still vulnerable to other risks.  For instance, many clinics experienced labour shortages during the pandemic period when travel restrictions slowed the influx of foreign labour and many foreign workers in Singapore decided to return home.

A finance team assesses your business operations and strategize workforce planning to increase productivity and better utilise your human resources.  By recruiting the right staff and establishing performance measures that best meet your clinic’s needs, you will experience an increase in productivity and obtain quality staff at the lowest possible cost.

Medical Business loans

There are many types of business loans available for medical practices in Singapore for whichever business needs you have. For instance, managing cash flow, furthering business growth, equipment and property loans.  There are also certain application criteria to be met when you are trying to secure a business loan.

A finance team will advise you based on your financial track record, business ownership and credit score. Like any other loans, business loans are accompanied by interest payments and needs to be considered in your plan.  Having a business plan that is functional enough will allow you to repay the monthly repayments without digging into your own pocket.

Tax Advisory & Compliance

Whether you have sole ownership of your medical practice or have other shareholders, you are responsible for paying taxes on profits earned for the year. While keeping up to date with Singapore’s statutory and regulatory tax compliance requirements may not necessarily your core competency, you will still be penalized by the Inland Revenue Authority Singapore (IRAS) if tax payments are not made on time.

A finance team well-versed in the latest tax regulations will relieve you of this burden and prevent unwarranted penalties.  In fact, through proper management and monitoring of your expenses, some of these expenses can be used as deductions to significantly reduce your tax liability.

Achieve Long term growth

A key component of financial management is strategic planning for long-term growth through sound medical investments and the creation of new revenue streams. According to the Organisation for Economic Co-operation and Development (OECD), a digital transformation is taking place in healthcare due to growing patient demand and accelerated by the healthcare crisis. As data and information management becomes a critical component of privacy and digital security, the finance team will assess the necessary investment in these digital services.

The development of digital health tools such as digital health apps and telemedicine can support preventive care and improve patient care and satisfaction.

A strategic financial management plan allows doctors to effectively track and analyse their expenses, create a long-term plan for financial success, and consider how to invest for future growth.

Other tasks, such as budgeting, are necessary to ensure that sufficient funds are available to cover these expenses.

How To Grow Your Medical Practice

All companies must expand their activities to grow.  However, there must be concrete statistics about where it is most beneficial to invest and improve revenue earnings.  This is a significant role of corporate financial management because a good finance team can help you identify areas that are worth growing and investing in and can bring in good returns.  Although financial management is a difficult task, with a proper support system in place, your medical practice can expect to grow in the coming years.

As Singapore’s population continues to age amidst the rising affluence of Singaporeans, the demand for private healthcare services is growing faster than any other. Driven by the current high demand, a new generation of private practices is flourishing and turning to the financial markets to fund their growth.

As your revenue increases, you can think about buying out other medical practices to expand your clinic or become a publicly listed company. After a successful public listing, the proceeds from the Initial Public Offering (IPO) can be used to expand your clinic through mergers and acquisitions or to fund your working capital.

The importance of financial management in healthcare cannot be underestimated. You can expect to see revenue growth with the implementation of strategic cost-cutting measures, unconventional ideas to increase revenue and ways to increase profitability alongside quality of patient care, leading to increase in profitability.

Developing An Exit Strategy

For doctors entering retirement, developing an exit strategy and succession planning is an important consideration. To take this burden off your shoulders, a financial management team can help you to find a well-qualified successor that aligns with your clinic’s goals.

Often, doctors are faced with the issue of decreased profitability due to decreased competitiveness. Statistics show that the number of doctor-owned clinics have declined from 54% in 2018 to 49.1% in 2021 (AMA, 2021).  Even for doctors with the intention of relinquishing ownership, you need a good financial team experienced in mergers and acquisitions in order to find a larger buyer and make a sale at better prices.

Regardless of why you are seeking an exit strategy, it always pays to know how to sell off your clinic when the time comes and, more importantly, at a lucrative price.

The Price-to-Earnings (P/E) ratio is a key element in valuing a company for sale.  Simply put, the P/E ratio is calculated by dividing the market price of your company’s stock by its earnings per share.  Clinics that are in an early growth phase have a relatively high P/E ratio, which is an indicator of positive future performance.  So buyers have higher expectations for future earnings growth and are willing to pay more for it.  As your clinic matures and its growth rate declines, the relatively low P/E ratios are considered value stocks.  This is also a great bargain that would attract buyers because your company’s stock prices trade at a lower value relative to its dividends and earnings.  An experienced finance team will calculate your company’s P/E ratio and suggest a price that will allow you to sell quickly while maximizing your profitability.

Most importantly, selling your clinic requires an experienced finance team to build a solid foundation, perform due diligence, and act quickly.

References 

AMA. (2021, May 5). AMA analysis shows most physicians work outside of private practice. American Medical Association. Retrieved September 12, 2022, from https://www.ama-assn.org/press-center/press-releases/ama-analysis-shows-most-physicians-work-outside-private-practice 

OECD Digital Economy Outlook 2020: En. OECD. (n.d.). Retrieved May 10, 2022, from

https://www.oecd.org/digital/oecd-digital-economy-outlook-2020-bb167041-en.htm