Financials 101: The Balance Sheet

Why Financial Literacy Matters for Medical Practices

For many medical practice owners, understanding financial statements is a challenge. In a recent poll, only 36% of practice owners said they had reviewed their balance sheets in the past 60 days, leaving 64% operating in the dark. Even more concerning, 95% of medical practice owners struggle to fully understand their financial statements.

If that statistic resonates with you, you’re not alone. Many professionals across Australia describe their experiences with financial data as confusing, overwhelming, or even boring. As someone who has worked with countless medical professionals, I’m passionate about changing these stats. That’s why I created a Financials 101 series to provide practice owners with the tools to gain the confidence and clarity they need.

If you don’t understand your financials, you may be navigating your practice with incomplete information, which is risky. Leading to poor decision-making, increased fraud and theft risks, and constant stress.

In my Financials 101 series, we’ll break down the Profit & Loss (P&L) Statement, Balance Sheet and Cash Summary step-by-step. First in the series is understanding your Balance Sheet. By watching my video, you’ll learn how to interpret your statements and use these insights to make smarter, more informed decisions.

Financials 101: Understanding the Balance Sheet

The Balance Sheet

The balance sheet is often misunderstood, but it provides critical insights into your practice’s financial health. Divided into three sections, it helps you assess exactly where your business stands:

1. Assets

   This includes everything your practice owns, such as cash balances (current assets) and long-term investments like fit-outs or goodwill (non-current assets).

2. Liabilities

   This covers what your practice owes. Current liabilities include debts you’ll pay in the next 12 months, like wages or ATO payments. Non-current liabilities include long-term commitments like loans for equipment or leasehold improvements.

3. Equity

   Equity reflects the owners’ value in the business, including retained earnings (profits that haven’t been distributed back to owners) and initial investments in the practice.

   
   

A key concept to understand is the balance sheet equation: Assets = Liabilities + Equity

Why You Should Care

Your balance sheet provides answers to critical questions like:

• Are we financially healthy? For instance, do you have enough liquid assets to cover your current liabilities?

• Where did the cash go? Events such as dividend payments or new loans can significantly impact your assets and liabilities.

  
  

Understanding your financial statements, particularly your balance sheet, is essential for running a thriving medical practice. Here’s why:

• You’ll identify and avoid potential cash flow issues.

• You’ll see risks early, such as mounting liabilities or asset depletion.

• You’ll gain confidence in the decisions shaping your practice’s future.

The best person to safeguard your practice’s financial future is you.

Stay tuned for my next video, which will explain the profit and loss statement for medical practices.