Managing Finance in the Health and Social Care Sector

Preparatory Report

Importance of accounting and finance management in healthcare and social care organization

As we know there have been huge developments in all the fields because of the introduction of technology and academic researches. Similarly, health care and social care organizations have also adopted many changes in their operations and way of managing activities. In the recent past, we have seen that accounting has been adopted in all sectors because it provides the record of all the transactions, similarly, accounting plays an important role in healthcare and social care organizations because most of the operations of these organizations are accounting base, for example, the revenue which they earn from patients, record their details, expenditures related to a particular patient and other expenses which they occur in running their organizations, they have to record all these transactions and accounting has helped them very much in this purpose. Health and social care organizations prepare financial statements according to the accounting standards such as they prepare their financial statements like balance sheet, profit and loss statement and statement of cash flows. All financial statements help these organizations to record their assets, liabilities on a specific date and help them to record revenue earned and expenditure is incurred throughout the year.

Similarly, all these organizations want to manage their money and reduce the risks to achieving the goals of the organization effectively for this purpose. They use techniques of financial management because if the finance is not managed properly it will not be possible for the organizations to attain their goals. If an organization like healthcare and social care has proper financial management plans, they can provide better healthcare services to their patients. Finance management is done through some specific activities such as preparing budgets and planning. The finance management techniques in health and social care organizations can know what and how to make investments at what time to increase their revenue.

Utilization of financial software in the organization

In the recent past years, many software has been developed which help the organizations to maintain the records and manage their finance. These financial software helps the organization in effectively recording their transactions, storing data automatically, managing their assets. The use of this financial software has also reduced the time and costs for recording the transactions. Through the information provided by this financial software, managers of the organization can easily make necessary decisions regarding the organization. Following are some of the main financial software's which are being used in most organizations.

•Quick book

•Xero

•Oracle

Use of key financial ratios in social and healthcare organizations

Health care and social care organizations use the following key financial ratios in assessing their businesses:

1.Profitability ratios:

The ratio of operating income to total revenue (operating margin):

This ratio measures how profitable the health and social organization while assessing the performance of their primary activities. A negative operating margin is considered as the organization is facing financial difficulty.

The ratio of non-operating income to total revenue (Non-operating margin):

This ratio measures the profitability of an organization over its non-operating incomes like investment income, sale of assets, and other contributions.

The ratio of total income to total revenue (total margin):

This ratio measures the profitability of health and social care organization overheads primary and non-primary activities.

2.Liquidity ratios:

Current ratio:

This ratio measures the ability of an organization to meet its current liabilities with its current assets. If the current ratio is considered favorable, it means that an organization can meet its current liabilities by the organization's existing current assets.

Average days in account receivable:

This ratio measures the days in which receivables are collected from the patients. A large number of days indicate that the organization is facing difficulty in receiving cash and it is not in hand to use in its operations.

3.Solvency ratios:

Cash flow to total debt:

This ratio measures the amount of cash in comparison to the total outstanding debts of the organization. It helps to calculate the amount of cash that is required to repay the debts. If this ratio is lower a health and social care organization will be unable to pay its debts and may result in debt covenants.

Equity financing:

This ratio measures the ability of an organization to take on more debt to finance asset acquisition. If the value of this ratio is low, it indicates that an organization has used large debt to fund asset acquisition and may have difficulty taking more debt for further asset acquisition.

Difference between short-term and long-term business finance needs of health and social care organization

Health and social care organizations may need the finance to operates their business or expand its business. The need for finance to a health and social care organization for its operating activities is called short-term finance need because the loan or finance obtained to run the operational activities of the organization. Usually, short-term loans are taken whose maturities are less than the period of one year. Health and social care organizations can use trade credit selling accounts, receivable bank loans as a source of short-term financing. Other examples of needs for short-term finance are to meet expenses of advertisement, need for payment of wages to its workers, or pay for the premises where it operates.

Similarly, health and social care organizations may need long-term finance if they want to expand and develop their business operations. The organization may need long-term finance when they have a low cash balance and they need capital to carry out its operations for a longer period. Health and Social care organizations may take long-term finance if they want to purchase heavy machinery (like in hospitals a large number of ventilators are needed), new business premises for the expansion of its business.

Benefits and limitations of various sources of finance available to an organization

An organization can benefit from the finance available from different resources but it may have some issues which may be not in favor of an organization. Following are some benefits and limitations of available finance from different resources.

Available resources:

An organization may raise the short-term or long-term finance from various sources such as:

•Government grant

•Sale of trade receivables

•Bank loan

•Charity (it specially relates to health and social care organizations)

Apart from these, there are many other sources from which an organization may take the finance.

Benefits:

Source of government grants is a major benefit to an organization because the government provides the finance facilities to an organization without any cost or may require the repayment of fewer amounts than actual or no repayment of the amount. Through this, an organization can meet its business needs without heavy limitations and cost of finance.

Similarly, an organization can take a loan from banks or other financial institutions to expand their business and to meet the requirements easily.

Limitations:

To get finance from the government an organization has to be eligible for a government grant. For this purpose, an organization has to meet certain criteria which have been said by the government otherwise government grants will not be available. Apart from this, if finance or loan is taken from a bank or other financial institution, they charge high rates of interest and may require collateral security. Similarly, when the finances are obtained from the sale of receivables, these receivables are usually sold at less than the actual price.

Budgetary control and revenue management in health and social care organization

Budgetary control

means comparing the actual incomes and expenditures incurred with those which were expected to take necessary steps if required.

In health and social care organizations following are the main budgets which are prepared budgets:

•Statics budget

•Operating budget

•Cash budget

•Capital budget

For example, in a health and social care organization, a cash budget is prepared and all the estimated cash flows included inflows and outflows are recorded and then compared with the actual cash flows to see the unexpected fluctuations in the cash, and then necessary steps are taken to remove the variations if required.

Revenue management in health and social care organizations is a system of cracking the revenue from patients from the date of their initial appointment in the organization to the final payment of the balance. Health and social care organizations use and implement the approach of revenue management because they are facing the challenge of satisfying customers (patients) with uncertain demands while having almost fixed or limited resources. Revenue management is being used in health and social care organizations to improve their pricing policies to earn more profit through better management of limited resources and the demand of the customers. Revenue management technique which is used in health and social care organizations, when the demand for a particular service arises from the customers (patients) while having the limited resources allocating the resources efficiently on the request of the patients for a specific service and deciding how much-limited resource (e.g. time) should be allocated to each customer. Similarly, capital location techniques and policies are being used in health and social care organizations for the sake of increasing their profitability.

Rules of double-entry bookkeeping

Double entry is a method of accounting in which transaction is recorded in two accounts, a debit to one account and the credit to another account.Debits are recorded on the left-hand side of a ledger sheet. It records the increase in assets or decrease in equity and liabilities, decrease in revenue, and increase in expenses.The credit side is recorded on the right of the ledger sheet. It records an increase in revenue, decrease in expenses, decrease in an asset account, or increase in equity or liability.

A double-entry bookkeeping system is used to prepare the financial statements because through this system the financial position, profit and loss for the year can easily be calculated because it records transactions in such a way that you can easily see that how cash is spent and received. It also requires the assets and liabilities of an organization in a proper way, so you can easily assess the financial performance of the business. It is used in accounting because the users of financial statements can easily interpret and understand the financial performance and financial position of their business.

In a double-entry bookkeeping system, every entry has an opposite and corresponding entry of another account. To maintain the financial records through a double-entry bookkeeping system, we have to follow the following steps:

Step1: Firstly, we have to make a chart of accounts.

Step 2: We have to use credit and debit for all the transactions.

Step 3: We have to make sure that there are at least two components of every transaction.

Step 4: Start preparing for running your financial statements.

Business Report

Irrespective of the type of business and organization is undertaking business report is very important for efficient as well as succinct communication of the important as well as relevant information to the users. The business report in other words evaluates the operations business is carrying out and it also evaluates the performance of the organization

Influence of funding on policy formation

Funding has a great deal of influence on the policies formed relevant to Healthcare. It is always the money that helps a state or country to buy goods or services. The more amount of money is invested in health care the better services would be received by the citizens of the country and vice versa.

The prime example of this influence could be seen during any kind of pandemic covid-19 which the world is facing right now. The more funding which was received by the organization such as UNO and WHO, the better policies were formed by the nations. Not just that, the policies formed by our country also depend upon the country's financial position.

Anchor trust organizational budget

Anchor Hanover is responsible to provide support services to thousands of homes in Wales and England. Anchor Hanover also has the responsibility of strategic direction for the houses in England and Wales

Anchor trust has an annual revenue budget of over 110 million pounds and an annual capital budget of 2.5 million pounds. When we talk about their key performance indicators, we can see that their total assets after subtracting the current liabilities are £1333.5 million. The annual turnover of Anchor Trust is £526.4 million. They are operating with a surplus of £56.3 million and last but not least the net present value of all the housing and care properties they own is £1121.3 million.

Anchor trust provides rented care homes for the tenants as well and 98.9 percent of the property they own with the mindset of giving it to the customers for rent that is being used by the tenants. They also run the business of care homes and 89% of those care homes are also occupied and are in use.

In the year 2019, the rating which was given by their customers to anchor trust was 899 out of 1,000. In total 1700 sides are being managed by the anchor trust, where the number of homes including rental properties, leasehold properties, and also cares home properties they manage are 54000.

Impact of performance on the success of Health and social care

When we close to see the business which is been operated by the Anchor trust, it is very obvious that they are not just building houses and care home for their clients which are mainly old people, they are also entering their properties to the tenants and as well as they are taking part in the other aspects of health and social care as well. This is not because of reason that they have the finances to build these places for their customers. They are so successful because they are getting a rating of 899 out of 1,000 from the people who are being served by them. This is the reason that their annual sales are current year surplus and every other financial aspect is booming with success.

Capital expenditures by Anchor Trust

Anchor Trust is running a business that constantly needs to make capital expenditures to grow its business. In the year 2019, Anchor has made a capital expenditure in an under-construction site of €10.9 million.Their business is not restricted to building new properties or acquiring new properties. They also have to consistently invest in their existing properties. In the year 2019, Anchor has invested £36.5 million in India's retirement houses, £7.4 million in their residential care homes.

The business aspect of Anchor is not just relevant to the property, they also need to purchase some fixed assets for office use, and for using them as equipment for this purpose. They had made a capital expenditure of 3.4 million in the year 2019.In addition to that, they have planned maintenance in the retirement houses of £14.4 million and residential care homes of £3.7 million.

When we consider the properties owned by or in use of the Anchor Trust, we can on keen observation see that before the year and total care room which was own by Anchor Limited were 6082 during the year, they haven't made any development addition to those but they have disposed 614 out of them and till the year and they are left with 5468 care rooms. The total properties which were being provided by the Anchor Trust for the people on rent were 35506 out of them one has been developed by them during the year and 22 have been disposed of, so they are left with 35485 rented properties. Throughout the year, their main focus was on leasehold properties as they have developed 121 of them the year and they have disposed just of 80 out of them, at the start of the Year they had 12447 leasehold properties which after the addition and the disposal reached to 12488.

Capital expenditure appraisal techniques

It has been previously seen and details all of the capital expenditure which is been made by the Anchor Trust during the year, but the business report for an organization is not just restricted to see the capital expenditures which were made by them but also to evaluating those capital expenditures in terms of the techniques used by them and results which are being achieved by the organization.

Without any doubt and trust is very brilliant concerning the appraisal of the capital expenditure or investment made by them because we can easily see that through their financial statements as they are operating with a margin of 10.8%, they also have an operating surplus of 54.6 and their annual turnover is also booming with a lot of profit. So, we can easily say that they are using some brilliant capital expenditure appraisal techniques.

1.Technique 1:

ARR Method:

ARR = (Average Annual Profit / Investment) × 100 = (21.7 / 10.9) ×100 = 199.69

2. Technique 2:

Payback Period Method:

Payback Period = 3 + (x – y) / z= 3 + (65.2 – 37.16) / 32.6 = 3.86 years

The investment would be repaid after 3 years and before 4 years.

Recommendations

When we talk about the field of health and social care just not only respect our minds to the purity of the field in which health and social care provide facilities to those who are vulnerable and need such help. We also talk about money which the people are making from helping such vulnerable and needy companions of us. This money is not restricted to a small amount with the organizations such as Anchor Trust are making bulk loads of money by providing services of health and social care.

For this purpose, they are always making capital expenditures and expanding their business, but a lot of their properties which are being used by them are occupied by them on rent.

Every month or every year just for or using that property for that period is something they could improve in. As in the present world, a lot of people have focused on using the leasehold properties which in addition to the annual or monthly rentals paid by the acquirer, also provide an opportunity to receive those properties at the end of term. This is something they could focus on and make an improvement.

They are also maintaining a rating of 899 out of 1000 which is given by their customers. In hindsight, we can see that such a rating is not bad but this could be improved immensely. This is because they are in such a business where up-close relations could be made between the customer and the service provider. During the year, Anchor Trust has made a lot of profit and was able to earn a lot of revenue with the huge amount of operating surplus but there could also be seen a half a million of exceptional loss which is not ordinary and could be tackled in the future by the management of Anchor Trust.

This is such a field of work that most of the focus by the employees as well as employers in this field should be on providing the best and the most suitable service to the people. All of them should be accountable for everything they do, there should always be positive about their work and their responsibilities which they have in connection with their jobs. Their success should not be their profits but customer satisfaction.

This business is more about taking care of others, so these people should always be respectful of the person they are dealing with. Organizations in health and social care should always be front and honest in their advertisement as well as their business dealings concerning what they are providing to the general public because it is a very sensitive matter and any misconception or misrepresentation on their behalf would defect their businesses and licenses would be in danger.

Conclusion

It is not rocket science or hadn't felt that health and social care is an essential part of every society. For every government, every state, and every country provision of the best services in respect of health and social care is paramount, and also the general public would do any injustice or wrongdoing but in the field of health and social care, the organization answer trust is providing great services to all the people they are serving. Not just that their management is also very efficient concerning managing the organization in such a way that it makes a good amount of operating profit every year. This is the reason that they are in addition to doing such a holy task and also making a lot of money.

The higher management and employees of the Anchor Trust are working together in solitary to make this field great. This could be seen through the profits which represent the hard work of the upper management and the ratings which is evidence of the great services provided by the lower employees who are dealing with the customer’s one on one.

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