Business of Radiology 101

Overview:

The success of a radiology practice, academic or private, requires both the provision of quality services and a necessary understanding of business and accounting principles. While these financial topics may seem banal and distant from medicine they are critical to “keeping the lights on.” Financial statements educate group leaders and investors regarding the business’ habits, health, and sources of revenue and expenditures.. While government is working on new ways to evaluate physicians and hospitals from a medical quality perspective, a number of finance tools can be used to evaluate the financial standing of a practice. As will be explained in the coming sections the most basic of these tools is the balance sheet, income statement, and cash flow statement.

A balance sheet evaluates the business as a whole at a defined pointem> in time. It demonstrates all of the assets of the group compared to its liabilities (e.g. loans) and equity (e.g. invested capital). At a glance, the balance sheet can help the reader understand where the business' income, loans, and capital has gone as well as how much short or long-term debt the group has.

In contrast, income statements and cash flow statements evaluate a practice over a defined periodem> of time (monthly, quarterly, annually…). The income statement shows the entire revenue of the practice over that time as well as the expenses incurred by the practice in order to earn those revenues. If revenues are greater than expenses, then the business will have earned a net profit for that period. This statement shows the reader the funds that were collected by the practice and a list of expenses that were used to generate the product or service sold (supplies, wages, taxes etc). A cash flow statement seeks to divide expenses into three main categories: Operating, Financing, and Investing and itemize the activity in each of these areas.

All financial statements are interrelated and show similar if not the same information in a slightly different manner. Thus changes on one sheet can affect the other financial statements as well. The abbreviated financial statements on the following pages are interactive and will recalculate after any changes you care to make.