As noted, profits are not the sole reason that health care organizations exist. Sometimes profits are just a means to an end, and not an end in itself at all. Health care organizations should always make decisions that keep their underlying mission in mind. I hope to provide many techniques throughout my blogs to help you make the best decisions, other things being equal. While studying how to become an accountant in the health industry, it became apparent that even allied health individuals as well as organizations, need accounting as well.
How can you make the best decisions financially, other things being equal? If two projects yield the same health benefit, the one with the greater profits at a lower risk is the logical best choice. However, what if the health care benefits are not the same? In this case, managers need to factor that into the decision. Sometimes you may decide that you are willing to take a lesser profit or take a higher risk in hopes of achieving a better health outcome.
Healthcare organizations have no desire to go bankrupt, so it is no surprise that one of the crucial goals of financial management is ensuring financial viability. The goal is often measured in liquidity and solvency.
Liquidity – liquidity is the measure of the amount of resources an organization has that are cash or easily converted to cash in the near term to meet the obligations of the organization. Accountants use near term and short term and current interchangeably. Generally the near term means within 1 year or less. Thus, an organization is liquid if it has enough near term resources to meet its near-term obligations.
Solvency – solvency is the same concept but from a long term perspective where long term means more then one year. Will the organization have enough cash generation potential over the next 3,5, and 10 years to meet the major cash needs that will occur over those periods? An organization must plan for adequate solvency well in advance because the potentially large amounts of cash involved may take a longer period to generate.
