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Tip of the week: Medical staff leaders need to know financial basics

Medical Staff Leader Connection, December 3, 2008

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New medical staff leaders might need an MBA or MMM to understand all the intricacies of costs, reimbursement, and financial issues that hospitals and physicians face. But if such a degree isn’t in your immediate future, you at least need to know what a balance sheet is. A balance sheet is a snapshot of a business’ financial condition at a specific moment in time, usually at the close of an accounting period. A balance sheet comprises assets, liabilities, and owners’ or stockholders’ equity. Assets and liabilities are divided into short- and long-term obligations, including cash accounts such as checking accounts, money markets, or government securities. The formula for a balance sheet is:

Assets = Liabilities + Owner Equity

A balance sheet helps a business owner quickly get a handle on the financial strength and capabilities of the business. Is the business in a position to expand? Can the business easily handle the normal financial ebbs and flows of revenues and expenses?

Balance sheets, along with income statements, are the most basic elements in providing financial reporting to potential lenders such as banks, investors, and vendors who are considering how much credit to grant.

This week’s tip was adapted from The Medical Staff Leader’s Practical Guide, Sixth Edition, by William K. Cors, MD, MMM, FACPE, CMSL; Mary J. Hoppa, MD, MBA, CMSL; and Richard A. Sheff, MD, CMSL.

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