Knowing Your Worth
Whether or not it’s our collective focus, we would be remiss to ignore the fact that when it comes to the financial bottom line, healthcare is a business. In other industries there are financial benchmarks, or key performance indicators, that help businesses stay on the right track. All businesses should make use of some type of financial performance measures, from the companies dominating their industry and pulling in billions of dollars to the kid on your street selling lemonade. Understanding your organization’s profitability, debt and economic patterns of performance is key to ensuring that you can sustain that performance – and see revenue increase- for years to come.
What are KPIs?
When we talk about key performance indicators, or KPIs, we aren’t always talking about those in the financial sector. The KPI model works well in terms of tracking one’s economic impact, however, and so we’re going to take a look at some financial KPIs that your organization should be utilizing to assess whether your approach to revenue needs a tune up.
This KPI looks at your organization’s ability to pay off the debts you owe within a pre-specified time frame, usually a fiscal year. Looking ahead to 2015, you can use this measure to create a road map for paying down your debts and have a visual representation of how much of your revenue is going toward them.
Working Capital – or, your organization’s financial health
Looking at your working capital is like looking at the medical record of your hospital: by examining assets and liabilities, this KPI helps you understand what financial challenges you’re up against and what you already possess that can help you take them on. This creates a “big picture” point of view of your organization’s financial health and can help you determine potential weaknesses.
Debt to Equity Ratio
How effectively are you using your investments? Have you taken the time to break down the efficacy per individual shareholder? If you have a high debt to equity ratio, you may be relying too heavily on accruing debt to finance your organization.
Accounts Payable/Receivable Turnover
Particularly in healthcare, these KPIs are essential for determining where your organization’s money comes from – and where it goes. These KPIs are the two sides of your budgeting spectrum: how much are you bringing in and how much are you paying out? Keeping a close eye on these measures will help you avoid coming up short or, in the long run, bankruptcy.
Net Profit Margin
Healthcare is becoming a more fiscally competitive environment each year, and understanding how well you’re able to generate business for each dollar of revenue you bring in can help you strategize, particularly when it comes to industry competition.
Gross Profit Margin
Likewise, understanding your gross profit – that is, before expenses – only deepens your understanding of your profitability, and, your ability to be spendthrift about what investments you make with the money you bring in each year.
Financial Good Sense (Cents!)
Many of these KPIs aren’t just beneficial to organizations, but individuals. Setting a budget, sticking to it but being flexible when the financial landscape shifts in a major way, and focusing on sustainability and long-term goals for profit and reducing debt are financial lessons that we can all benefit from.