Process you would go through in a financial crisis to determine where to cut costs and how you could prepare the organization for turbulent times
Need a two hundred response for the discussion board
Explain the process you would go through in a financial crisis to determine where to cut costs and how you could prepare the organization for turbulent times. How would financial statement analysis play a role in that process?
When becoming aware of an impending financial crisis on the horizon the first thing that should be done is to review the financial statements of the business and see where costs can be cut. According to Gapenski & Reiter (2015), there are various types of financial statements that show what assets, liabilities, and cash the business has. These reports are used predominantly by stakeholders. Stakeholders are those that have an interest in the business being financially successful, typically because they have invested money in the business and want to see a return on their investment. The income statement is collected by looking at the business’s revenue, expenses, and profitability for a period, typically one year or part of a year. It can also be called the statement of operations because it gives an overview of the operation of the business. This report typically compares the financials of the business for the selected period, to the previous year’s financials to track trends and concerns. This report may have many lines and many categories or it may be basic and simple with minimal breakdown. This depends on the organization, its size, and the preparer of the statement.
Gapenski & Reiter (2015), cover that revenue in healthcare typically comes from patient payments, insurance payments, and any other revenue-generating each business does. Expenses could include a variety of things but typically includes supplies, salaries and benefits for staff, utilities, rent on the building, and various other expenses that are specific to each business. This report and other financial reports would be key to choosing how to prepare for another pandemic and seeing where we can cut costs or improve revenue to help the business stay afloat during turbulent times.
With this report, we can look at the income for the business, and consider how to boost that without adding expenses. Look at the expenses of the business and see if there is anything that can be cut out, minimized, or renegotiated so we have less money going out quickly. The bottom line of the statement has the net income of the business, showing the revenue minus the expenses, and if the business is making money, losing money, or breaking even.
In anticipation of turbulent financial times such as the early stages of the Covid-19 pandemic, I would look first at where to cut expenses. Do we have staff traveling unnecessarily? Are we paying for someone to commute to work that could be working from home? Is the business staffed? Are we paying excessive amounts of overtime and why? Would hiring help or hurt going into a pandemic? Can we cut costs on supplies? Can we buy supplies in bulk now to cut down on expenses later? Can we renegotiate any lease agreements we have? What about changing our billing to have revenue coming in faster?
References
Gapenski, L. & Reiter, K. (2015) Healthcare Finance: An Introduction to Accounting and
Financial Management, Sixth Edition Health Administration Press
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