Management Accounts for Healthcare Practices: What Owners Should Review Every Month

Running a healthcare practice involves making financial decisions throughout the year, not simply when the annual accounts are prepared.

A GP practice may need to decide whether it can afford another member of staff. A private clinic may be considering new equipment or additional consulting rooms. A dental practice might want to understand whether its private income is growing profitably. A healthcare group may need to compare the performance of several locations.

In all of these situations, waiting until year end for financial information can make decision-making unnecessarily difficult.

This is where management accounts for healthcare practices can become particularly valuable.

Management accounts give practice owners, directors, partners and managers regular visibility over revenue, costs, profitability, cash and other areas of financial performance. Instead of only looking backwards once a year, management can monitor what is happening inside the organisation while there is still time to respond.

For growing or increasingly complex healthcare businesses, good management accounts can become an important part of financial control and strategic decision-making.

What Are Management Accounts?

Management accounts are internal financial reports prepared for the people running a business.

They are different from statutory year-end accounts.

Annual accounts are primarily concerned with reporting the financial results and position of the organisation for a completed accounting period and meeting relevant reporting requirements.

Management accounts are designed to help management run the organisation.

They may be prepared monthly, quarterly or at another suitable interval and can include information such as:

• income
• expenditure
• profit
• balance-sheet movements
• cash position
• outstanding debtors
• liabilities
• budget comparisons
• performance by location
• performance by service
• workforce costs
• financial trends

The exact management-accounting pack should depend on the healthcare organisation using it.

A single private practitioner does not necessarily need the same level of reporting as a healthcare group operating multiple clinics.

The objective is not to create the largest possible report.

The objective is to create useful financial information that helps management make better decisions.

Why Year-End Accounts Alone May Not Be Enough

Year-end accounts remain essential, but they are historical.

By the time annual accounts are finalised, many of the events reflected in them may have happened months earlier.

Consider a healthcare practice where temporary staffing expenditure gradually increases.

The practice may still appear busy. Revenue may remain healthy. The bank balance may not immediately create concern.

However, if locum and agency costs have increased every month for most of the year, the practice’s profitability could be deteriorating.

If management only identifies the trend at year end, the opportunity to investigate sooner has been lost.

Monthly management accounts could identify the movement considerably earlier.

That allows management to ask questions such as:

• Why are temporary staffing costs increasing?
• Is the problem related to recruitment?
• Is overtime increasing?
• Has patient activity changed?
• Are staffing levels appropriate for the current level of revenue?
• Is this temporary or likely to continue?

Good financial reporting therefore changes the conversation from:

“What happened last year?”

to:

“What is happening now, why is it happening, and what should we do about it?”

Which Healthcare Organisations Can Benefit From Management Accounts?

Management accounts can be useful across many areas of healthcare, including:

• GP practices
• private medical practices
• dental practices
• pharmacy businesses
• care providers
• healthcare recruitment businesses
• diagnostic providers
• specialist clinics
• multidisciplinary healthcare practices
• healthcare partnerships
• healthcare limited companies
• multi-site healthcare organisations

The more complex the organisation becomes, the more valuable regular reporting can be.

Complexity may arise from multiple sources of income, several owners, a large workforce, different locations, NHS and private activities, significant equipment expenditure or rapid growth.

The reporting structure should therefore reflect the organisation rather than relying on a generic template.

1. Start With a Clear Profit and Loss Account

The profit and loss account is usually one of the central reports in a management-accounting pack.

It shows income generated during the period and expenditure incurred in producing that income.

However, a basic profit and loss account may not provide enough detail for a healthcare organisation.

Management should be able to see meaningful categories.

Revenue might be divided between areas such as:

• NHS income
• private patient income
• insurance income
• contract income
• membership income
• diagnostic services
• additional clinical services
• other commercial activity

Costs might be divided between:

• clinical staff
• administrative staff
• locums
• agency staff
• laboratory costs
• medical supplies
• premises
• software
• professional fees
• equipment
• insurance
• marketing
• other overheads

The categories should make sense to the people making decisions.

If every type of income is grouped together and every significant cost is buried inside broad categories, the report may technically be correct but commercially unhelpful.

2. Separate Major Revenue Streams

Healthcare businesses often have more than one source of income.

That makes revenue analysis particularly important.

Imagine that total monthly practice income has increased from £150,000 to £160,000.

At first glance, performance appears to have improved.

But suppose the detail shows that one established service has fallen from £100,000 to £80,000 while a newer activity has increased from £50,000 to £80,000.

Total revenue has increased, but the organisation is experiencing a significant change in its revenue mix.

That may affect:

• staffing requirements
• margins
• capacity
• VAT treatment
• cash collection
• operational risk
• future investment decisions

Management accounts should therefore help identify where income is coming from, rather than only displaying total revenue.

Where appropriate, businesses with mixed taxable and exempt activities should also ensure that changes in income streams are considered as part of their VAT position. Specialist assistance may be needed where healthcare services have different VAT treatments. Kudos Accounting provides dedicated VAT support for healthcare organisations for businesses dealing with these issues.

3. Monitor Workforce Costs Closely

For many healthcare organisations, workforce expenditure represents one of the largest areas of cost.

A good management-accounting pack should make these costs visible.

Depending on the organisation, workforce reporting might include:

• basic salaries
• employer costs
• pension costs
• locum expenditure
• temporary workers
• agency costs
• overtime
• bonuses
• recruitment costs
• training expenditure

It can also be useful to compare workforce costs with revenue.

If income grows by 5% but workforce expenditure grows by 15%, management should understand what is causing the difference.

There may be a perfectly reasonable explanation.

The practice may have recruited ahead of expected growth.

A new location may be opening.

Temporary cover may have been required.

However, the movement should be visible.

Healthcare organisations with complicated salary calculations, variable hours or multiple categories of employees may also benefit from reviewing how payroll information feeds into financial reporting. Kudos Accounting’s payroll service for healthcare is designed around healthcare organisations and medical practices.

4. Review Direct Clinical Costs

Some costs can be directly connected with providing particular services.

Depending on the practice, these may include:

• laboratory charges
• clinical consumables
• medicines
• associate payments
• contractor costs
• treatment materials
• diagnostic costs
• service-specific equipment

Separating these costs from general overheads can make profitability analysis more meaningful.

For example, two services generating similar revenue may have very different costs of delivery.

Without separating direct costs, management may assume that both contribute equally to profitability when that is not the case.

5. Keep Overheads Visible

Healthcare organisations also incur general costs that support the business as a whole.

Typical examples include:

• rent
• utilities
• software
• insurance
• telephone and internet
• professional subscriptions
• accounting fees
• administration
• repairs
• marketing
• office costs

One small increase may not attract much attention.

However, several small increases occurring at the same time can materially change annual expenditure.

Management accounts allow management to review these costs regularly instead of discovering the cumulative effect at year end.

6. Include a Balance Sheet

Management reporting should not stop at profit.

A practice could report a healthy profit while developing financial problems elsewhere.

The balance sheet provides important information about what the organisation owns, what it owes and how its financial position is changing.

Areas worth reviewing can include:

• cash
• trade debtors
• other amounts receivable
• trade creditors
• tax liabilities
• payroll liabilities
• loans
• finance agreements
• equipment
• retained profits
• amounts due to or from owners

This can reveal issues that the profit and loss account alone will not show.

For example, reported revenue may be increasing while outstanding debtors are increasing even faster.

The business appears profitable, but cash collection may be deteriorating.

7. Understand Profit Versus Cash

One of the most important concepts for healthcare business owners is that profit and cash are not the same thing.

A practice can make a profit and still experience pressure on its bank account.

This may happen because:

• invoices remain unpaid
• tax payments are approaching
• equipment has been purchased
• loan repayments are being made
• owners have withdrawn cash
• payments have been made in advance
• income has been recognised before cash is received

Management accounts should therefore be reviewed alongside cash information.

A business should not assume that a strong profit figure means all of that amount is available to spend.

8. Review Debtors and Outstanding Income

For healthcare organisations that invoice patients, insurers, companies or other bodies, debtor management should form part of regular financial reporting.

Useful information might include:

• total outstanding invoices
• overdue invoices
• balances outstanding for more than 30 days
• balances outstanding for more than 60 days
• balances outstanding for more than 90 days
• large individual debts
• repeated late payers

Management can then distinguish between an income-generation issue and an income-collection issue.

Accurate financial information starts with accurate day-to-day records. Businesses that need help maintaining those records can consider dedicated bookkeeping for healthcare so that reconciliations, expenses and financial records remain up to date.

9. Monitor Creditors and Future Commitments

It is equally important to understand what the organisation owes.

A healthy current bank balance can sometimes give management false confidence if significant payments are approaching.

Management reporting should therefore identify relevant liabilities, including:

• supplier invoices
• payroll liabilities
• tax liabilities
• loan payments
• equipment finance
• pension-related payments
• other contractual commitments

This gives management a more realistic picture of available cash.

10. Compare Budget Against Actual Results

A budget becomes substantially more useful when actual results are compared with it.

Without comparison, a budget can become a document prepared at the start of the year and forgotten.

A management-accounting pack can show:

The numbers themselves are only the beginning.

The important question is why the variance occurred.

Revenue could be below budget because a clinician was unavailable.

Payroll might be above budget because temporary cover was needed.

Clinical expenditure might be lower because patient activity was lower.

A budget variance therefore needs interpretation.

11. Compare Against Previous Periods

Management should also examine trends.

Useful comparisons can include:

• current month versus previous month
• current quarter versus previous quarter
• current month versus the same month last year
• year to date versus prior year
• actual versus budget
• rolling 12-month performance

Healthcare income and expenditure can sometimes vary because of timing.

Looking at several periods reduces the risk of overreacting to one unusual month.

12. Include Cash-Flow Information

Cash-flow reporting can be especially useful for practices experiencing growth, making major investments or dealing with variable income.

A simple cash forecast can help management understand:

• expected receipts
• payroll requirements
• supplier payments
• tax payments
• loan repayments
• equipment purchases
• expected closing cash position

This allows the organisation to identify potential pressure before the bank balance becomes a problem.

13. Make Tax Liabilities Visible

Tax should not be treated as an unexpected payment that appears at the end of the year.

Where possible, management reporting should help owners understand likely liabilities and set aside cash appropriately.

Depending on structure and circumstances, a healthcare business may need to consider areas such as:

• Corporation Tax
• Income Tax
• PAYE
• National Insurance
• VAT
• personal tax obligations
• payments on account

Tax treatment varies significantly according to business structure and individual circumstances, so professional advice may be required.

Kudos Accounting provides business tax support for healthcare practices and other UK businesses that need assistance with tax compliance and planning.

14. Do Not Forget NHS Pension Considerations

For doctors, GP partners and other professionals participating in NHS pension arrangements, pension information can add another layer of complexity.

The accounting records themselves do not replace specialist pension analysis.

Where NHS income, practitioner earnings or different employments affect pension records, the relevant information may need to be reviewed separately.

Kudos Accounting provides dedicated NHS pension accounting support for medical professionals who require assistance understanding records, pension statements and related tax matters.

How Often Should Management Accounts Be Prepared?

There is no single timetable that suits every healthcare organisation.

However, common options include:

Monthly

Monthly management accounts are often appropriate for:

• growing practices
• businesses with significant payroll
• multi-site organisations
• organisations with several income streams
• businesses with tight cash flow
• practices making regular investment decisions

Quarterly

Quarterly reporting may be sufficient for smaller or more stable businesses where financial activity is relatively predictable.

More Frequent Cash Reporting

Even where formal management accounts are prepared monthly or quarterly, some businesses may monitor cash and debtors weekly.

The right frequency depends on how quickly the information needs to influence decisions.

Management Accounts for Multi-Site Healthcare Businesses

As healthcare organisations expand, group-level numbers often become less useful on their own.

Suppose a healthcare group operates four clinics.

Overall revenue and profit may look healthy.

However:

• Clinic A might be highly profitable.
• Clinic B might be stable.
• Clinic C might have rapidly rising payroll costs.
• Clinic D might be losing money.

If all four are reported as one number, management cannot easily see the problem.

Multi-site healthcare organisations may therefore benefit from management reporting by:

• location
• department
• service
• legal entity
• clinician
• NHS versus private activity

This can help management identify where performance differs.

What Makes a Good Management-Accounting Pack?

A good pack should be:

Accurate

Decisions cannot be better than the underlying data.

Timely

Receiving monthly accounts three months later substantially reduces their usefulness.

Consistent

Categories and calculations should remain sufficiently consistent to allow meaningful comparison.

Relevant

The report should contain information linked to actual management decisions.

Understandable

A report that only an accountant can interpret is unlikely to become an effective management tool.

Actionable

The purpose is to help owners decide what requires attention.

Good Bookkeeping Comes First

Management accounts rely on accurate underlying records.

If bank transactions are unreconciled, invoices are missing or costs are incorrectly classified, the resulting management information may be misleading.

A reliable month-end process can include:

1. completing bank reconciliations;
2. posting income and expenditure;
3. reviewing payroll information;
4. recording outstanding invoices;
5. reviewing supplier balances;
6. posting relevant adjustments;
7. checking unusual transactions;
8. producing management reports;
9. comparing results against budget;
10. discussing important variances.

This is one reason why healthcare bookkeeping and management accounting should work together rather than being treated as completely separate activities.

Common Management-Accounting Mistakes

Healthcare organisations can reduce the usefulness of management accounts in several ways.

Producing Too Much Information

A 50-page report is not automatically better than a 10-page report.

Too much detail can hide the numbers that matter.

Reviewing Revenue Without Costs

More revenue does not automatically mean better performance.

Management should understand the costs associated with generating that revenue.

Ignoring the Balance Sheet

Profit tells only part of the story.

Debtors, liabilities and cash may reveal risks that are not immediately visible in the profit and loss account.

Using Inconsistent Categories

If transactions move between different accounting categories every month, trend comparison becomes unreliable.

Failing to Investigate Variances

Reporting that payroll is £10,000 above budget is not enough.

Management needs to understand why.

Producing Reports But Not Discussing Them

Management accounts should create conversations and decisions.

Simply emailing a report to the owners each month does not guarantee that the information will be used.

Turning Management Accounts Into Decisions

The real value of management accounting is not the report itself.

It is what management does with the information.

Good reporting can support decisions about:

• recruiting staff
• reducing temporary staffing
• investing in equipment
• opening additional locations
• reviewing service profitability
• changing pricing
• managing drawings
• renegotiating supplier arrangements
• improving debt collection
• building cash reserves
• preparing for tax payments
• reviewing underperforming services
• changing budgets and forecasts

For example, if monthly reports show that revenue is increasing but profit is falling, management can investigate whether payroll, clinical expenditure or overheads are responsible.

Without regular reporting, the same issue may continue unnoticed.

Questions Healthcare Practice Owners Should Ask Every Month

A useful monthly financial meeting does not have to be complicated.

Owners can start with questions such as:

1. Has total revenue changed significantly?
2. Which revenue streams caused the movement?
3. Are workforce costs increasing?
4. Are locum or agency costs unusually high?
5. Are clinical costs changing in line with activity?
6. Which overheads have increased?
7. Is actual performance above or below budget?
8. Why have important variances occurred?
9. Are debtors increasing?
10. Are suppliers being paid on time?
11. Is sufficient cash available for upcoming liabilities?
12. Have any new financial risks appeared?
13. Does the forecast need updating?
14. Are any locations or services underperforming?
15. What financial action should be taken before the next meeting?

These questions turn accounting information into management information.

When Should a Healthcare Practice Consider Specialist Support?

Not every practice requires complicated management reporting.

However, the need generally becomes greater when:

• turnover increases
• the workforce grows
• the practice introduces new services
• multiple owners are involved
• NHS and private income are combined
• another site is opened
• an acquisition is completed
• borrowing increases
• cash becomes difficult to predict
• management cannot explain changes in profitability
• year-end accounts arrive too late to influence decisions

At that stage, the quality of financial reporting can begin to affect the quality of management decisions.

Healthcare businesses that want accounting support designed around the financial characteristics of the sector can explore Kudos Accounting’s specialist accounting support for healthcare professionals and businesses.

Management Accounts Should Tell You What to Do Next

The purpose of management accounts is not to produce more accounting paperwork.

It is to provide clearer financial visibility.

Practice owners should be able to understand:

• where revenue comes from;
• where money is being spent;
• whether profitability is changing;
• whether cash is under pressure;
• whether actual performance matches expectations;
• and where management attention is required.

When management accounts are prepared consistently and discussed regularly, financial information can become part of day-to-day decision-making rather than something reviewed only after the financial year has ended.

Kudos Accounting works with healthcare professionals and organisations across accounting, bookkeeping, payroll, tax and financial reporting.

If your current accounts mainly tell you what happened in the past but do not give you enough information to decide what to do next, contact Kudos Accounting to discuss the financial reporting needs of your healthcare practice.