3 Essential Financial Reports to Ensure Your Profitability

Okay, I’m going to dive right in to one of the biggest problems for many solopreneurs, and one that quite likely will keep them awake at night… finances!

Creating a robust financial management system is THE essential system for your business – after all it’s the one system that will show you:

if your business is making a profit;
if you can afford to make an investment in a program or product;
if you can take advantage of an opportunity as it arises;
or if you can take a salary (also known as Owner’s Draw) at the end of each month.

If you don’t know where you are financially in your business then you are very quickly going to get into a sticky situation. Today I’d like to share with you three essential reports you need to run on a regular (read: monthly) basis to ensure that your finances stay healthy.

1. Income Analysis: This is a very simple report that you can set up using a spreadsheet that tracks your monthly income. This is money you receive into your business from clients, products, programs, affiliate commissions – in fact, any income that you receive as part of your business activities you need to list in this report.

Set up your report so that you monitor the whole year on one spreadsheet, broken down month by month. And also categorize your income so that you can see where your biggest income streams are.

2. Expenditure Analysis: The flip side to the Income Analysis is the Expenditure Analysis and, again, you can set up a spreadsheet that will track this for you. Like the Income Analysis you’ll want to be able to see the whole year at a glance, and have it broken down month by month. You’ll also want to be able to see where most of your money goes too – your biggest expenditure items – so you’ll need to categorize your expenditure too.

Your Expenditure Analysis will contain things like your monthly list management service (e.g. 1ShoppingCart, Aweber, iContact etc.), merchant fees, shopping cart account, membership fees, advertising, website expenses etc. etc.

3. CashFlow Report: Now that you have Income Analysis and Expenditure Analysis all in place you are all set to create your CashFlow projection. Put simply, a Cashflow projection shows whether your anticipated income will be able to cover your expected (projected) expenses and this report is very beneficial to you in your business; in fact it’s a must-have!

It is an annual report and, if set up correctly, will show you how your cash will flow through your business throughout the current financial year. Again, setting up a spreadsheet so that your Cashflow is automatically calculated throughout the year is an invaluable tool for your business.

I’ve been using a Cashflow Report in my business for many years and find it invaluable. I also like to use my Cashflow Report to plan out upcoming expenses too so that I can see exactly when they’re due and how they will impact on my finances.

Not only will having a robust financial management system give you peace of mind but it will also mean that you can take advantage of opportunities immediately they arise. For example, just recently the chance to participate in a high-profile teleclass series came up, and because I have my financial systems in place, I knew straightaway that it was something I could afford take part in!

Impact of Basel III on the Financial System

The global financial system created a vacuum of financial regulatory reform and transformation. With the growth in housing defaults and the impact of sub prime loans and CDOs on the economy, the international community focused on forming a united banking front / regulation. Defined as the Basel III accord, the system was first devised in 1988 by leading central bankers in the top 10 nations. The first step in the Basel Accord, this laid the groundwork and liquidity requirement for banking institutions in the largest nations. Sprung from the liquidation of a leading German Bank, the system was built to alleviate the pressures of one banking weakness on the entire system. Stipulating that international banking organisations were required to hold 8% liquidity with respect to the total assets on balance sheet, the reform brought about significant change in the13 member states who adopted it.

Basel II was the second round of regulatory reform on the banking industry. Designed in 2004, the accord focused on three main pillars of risk, which included credit, operational, and market/liquidity. Banks were categorised based on both Tier 1 and Tier 2 capital ratios and their propensity to possible liquidity crunches. Tier 1 capital is sometimes viewed as the key measure of a banks health, defining the overall degree of assets it has on the balance sheet (ie cash/ assets from earnings, common and preferential stock). Tier 2 capital on the other hand focuses on the other assets which could include hybrid investments, sub ordinate debt, and overall general provisioning.

The Basel III Accord has recently become a topic of hot debate as it provides a new bar for banking regulation and reform. Spurn from the recent credit crunch, the Basel III will look at a number of key measures to ensure the sustainability of the banking industry. These include:

Installation of a new measure of leverage control, which will maximum the risk both a bank or hedge fund will be able to take
Credit risk limitations. Organisations are limited to amount of credit they can borrow based on their assets. It will ensure that Banks and other financials do not take on too much risk.
Liquidity Ratio changes. To alleviate the possibility of a credit crunch, firms will now need to pledge a section of movable cash or credit to ensure borrowing or lending is not hindered.
Banks will be required to have a 4.5 percentage of common equity by 2015. This level will be extended to 7% past this date.

The new Basel III accord has come under scrutiny by leading economists, and industry analysts as being too restrictive. Economically, the debate over the how much of an impact the new Basel reform will have on both developed and emerging markets is leading to a significant divide between both corporations and regulators.

Using Financial Measures to Improve Patient Safety and Quality

I believe that the most important measures to track for any healthcare site are those that measure patient health, financial health, and management of time and effort. These three, as you know, are closely linked. Working to improve one affects the other two. Unfortunately, many healthcare sites fail to track the impact of financial health at their site(s), or if they do, fail to link these efforts with quality improvement efforts. Hospitals do a better job than primary care sites, in general, because they have staff devoted to just this issue. However, even at hospital sites those who track financial measures are not commonly part of teams that work with quality improvement of clinical measures.

The best businesses track quality improvement of product and financial measures. They are careful to see what changes in processes of manufacturing or services affect the bottom line. Accountants of such businesses are consulted by quality improvement teams or actually a part of the team. They want to know if changing a process that improves quality is too expensive, if it has a serious effect on the bottom line or if it saves on expenses while improving the product or service (which commonly happens).

Healthcare sites should adopt this approach. One QI medical site that advocates this is TransforMed. The TransforMed site chronicles the progress and achievements of primary care sites that are adopting the Advanced Medical Home model under the guidance of the American Academy of Family Physicians. In the area of practice management the authors advocate a disciplined financial management approach, which includes cost-benefit decision making, optimized coding and billing, and revenue enhancement. However, even though TransforMed advocates financial tools, an economic case for the Advanced Medical Home has not been documented yet, according to a white paper by the American College of Physicians. It seems that they haven’t completely followed their own advice.

For many of those who do track financial measures, the emphasis is wrong. Instead of thinking globally, that is having a budget and tracking a wide variety of accounting measures to see the cumulative effect on the bottom line over time, they concentrate on only one or two measures, which can lead to poor processes and perceptions. This can be the income produced by the individual patient, for instance. Some physicians and primary care office managers avoid having staff spend too much time with patients on whom they believe they would lose money; this is good business sense, isn’t it? Primary care physicians at times don’t spend the time needed with chronic care patients because to do so would have a negative financial impact, supposedly. This lack of focus or a focus on the inadequate measures leads to a failure to see what the true impact of alternative approaches in the healthcare setting is; advocates of the Chronic Care Model argue that their approach improves finances or is budget neutral. Hospitals are guilty of this too. Too many hospitals track savings from a quality project with a narrow focus only on the department undergoing a process transformation without looking at the overall impact on the operations of the hospital.

Another new potential pitfall for healthcare providers in budgeting and finances is focusing too much effort on achieving pay-for-performance (P4P) goals in order to improve income. In a recent Robert Wood Johnson Foundation study, “Paying for quality: Understanding and assessing physician pay-for-performance initiatives”(available free from the Foundation, see their web site), the results of pay-for-performance initiatives are mixed. In one geographical region, for instance, there may be a variety of P4P initiatives from various payers, which can lead to conflicting goals and processes. The report goes further to state that P4P revenue may not be cost effective and does not provide significant income when compared to the overall income of the healthcare site. Any site seeking improved income through P4P initiatives should be careful to track the impact on a good set of financial measures and patient health.

What, then, should you be measuring to assess the financial state of your site and the impact of new quality improvement initiatives? There are actually many good measures to track. The measures required by the IRS for reporting on business income and expenses are a good starting point, but these are hardly adequate. Hospital accountants are generally more familiar with other good tracking measures as they have been trained for such. If you are at a primary care site, you might want to contact an accountant who specializes in healthcare expenses and income to help set up an system that your bookkeeper can effectively use. I have also found two good free articles from the American Academy of Family website which list many useful measures and ways of implementing the measures, although the articles do not discuss how to use quality improvement tools in conjunction with financial measures. For instance, the articles do not discuss how to use process improvement to raise the productivity in the coding and billing department. The two articles are “Look Beyond Your Practice’s Bottom Line” (Albert Y. Yu and Jonathan E. Rodnick) and “Three Steps to an Effective Practice Budget” (Keith Borglum). Some of the measures that they advocate are:

–revenue per FTE physician
–staff hours per FTE physician
–cost per square foot of site
–total compensation per FTE staff
–work revenue value units per encounter.

Keeping a focus on a good set of financial measures at a healthcare site helps insure its financial health. Doing so, according the Borglum, “results in a smoother, more profitable, less stressful practice.” Combining financial measures with quality improvement efforts leads to improved profits and improved patient health and satisfaction. SSM Health Care of St. Louis, a Baldrige Award winner, by concentrating on the right economic measures and quality improvement has increased its share of the St. Louis market over three years to 18 percent while three of its competitors have lost market share. For four consecutive years the organization has maintained an AA investment rating, a rating that is maintained by fewer than 1 percent of all U.S. hospitals. By maintaining this rating the system has drastically cut the cost of borrowing money and improved the bottom line while improving patient satisfaction and health.

Overall I contend that many healthcare sites overlook a good financial system to track the success of their improvement efforts, that if they do so that they often track the wrong measures or not enough measures, and that they don’t integrate accountants as part of all QI teams. If they do make use of good financial measures in tracking the financial health of their respective sites, then the payoff will be significant, both in terms of the bottom line, patient health and satisfaction, and finding enough time to get important things done.

Hyperinflation, Monetary Collapse of the Financial System – Be Prepared!

The politicians want your votes and they want to keep their cushy jobs full of perks for an eternity. The only way they can guarantee their own job security is to promise the populous everything and constantly go on a deficit spending spree to pay for it. If you’re happy, they stay in their cushy jobs and the cycle just keeps repeating each election year. The Fed is obligated to the politicians; they insure an unlimited supply of fiat currency is available for the politicians to fund all the government programs and handouts.

In recent years, massive efforts to keep central bank printing presses running from the US, UK, EU, Japan, China and others goes on unchecked. Deficit spending from the governments of these countries has become an unstoppable force now growing completely out of control. The current financial structure is designed for sheer pandemonium and chaos. At some point during this decade there will be a massive transfer of wealth, from paper to real assets. To protect your current assets, invest now into tangible assets such as gold or silver. These are hard assets that are capable of surviving through any major economic crisis, insuring the great wealth transfer to you is complete.

When excess money is printed wealth transfers take place. This happens all the time, it is known as inflation. Inflation is a central banker’s tool, used to evade the severity of austerity measures that would otherwise be implemented. Currently you only need to look at Greece to measure how the current austerity measures are being accepted by the Greek populace. Eventually the outcome here will either be all out hyperinflation, potentially on a scale multiple times greater than Weimar Germany in 1923, combined with a total collapse of the fiat currency system, or a massive corrective deflationary crash.

The reason being when high inflation hits this time around opposed to the inflation of the 70’s, the extent of the fall-out will be significantly worse. Because the entire world’s financial system is heavily connected with the dollar. Historically once people come the conclusion that their currency can no longer be relied upon, a loss of faith occurs within the country’s fiat currency. This is one example of how a fiat currency based monetary system dies. From here you have sheer panic among the masses.

It is vital for everyone to move a major part of their current assets into physical forms of gold and silver now. Stay away from paper gold and silver such as ETF’s. You must have something real that you can physically see and hold in your hands to guarantee your wealth is protected. Once the global financial system goes down if you’re not already prepared, sadly you’re going to go down with everyone else. Those fortunate enough to make the right decisions now will be richly rewarded once the greatest wealth transfer in history takes place. Be Prepared!

How to Profit With the Right Forex Trading System

The most recent financial losses experienced by the general public are not only a result of the economic downturn but also a result of a lack of basic financial knowledge. Many individuals made the decision to abandon the middle man related to the trading industry in order to manage their own finances and profit off of their own decisions.

This decision is encouraged by many financial institutions however an error in proceedings occurred when these novice traders chose not to research the concept of trading and instead blindly invested in companies whose names they were familiar with. The reality is that a company that is well know is not always the best financial decision since their success may have peaked, leading to slow growth and a likely small downturn.

Aside from this, a lot of individuals are focusing on the trading opportunities of stock rather than pursuing other money making avenues such as the forex trading system. The forex trading system reference the trade of foreign exchange that when traded properly can often offer a great turnaround for investors.

The forex trading system utilizes currency exchange where you can purchase another country’s currency and if that currency increases in value over any other country you can find a buyer to purchase your currency at the higher rate of exchange. This creates a profit for you in a market that is often easy to follow and fluctuating on a regular basis. The important thing to follow when investing in this marketplace is that you conduct the proper research not only in your potential investment but also into the concept of the forex trading system. Having a general knowledge attainment of the forex trading system may help you to get started however without detailed knowledge of its inner workings you risk losing a tremendous amount of money.

Another style of trading in addition to the forex trading system is found with commodity trading. Unlike stock trading where you invest in a company, commodity trading actually invests in a bulk item such as food. You contract a specific quantity of the commodity you will be commodity trading in the expectation it will increase in price. When it does you sell your commodity trading commodity and profit off of the increase in price. If you are involved in a commodity trading contract and predict a decrease in price sell the commodity for the value you purchased it at to avoid the loss.