“My home healthcare clients ask me all the time about profit and loss statements,” says Deepak Aggarwal, Tri-State Accounting Director, and CPA. “The first step to setting up a solid statement is to truly understand what it does when it’s done right.”
First, it’s important to note that the Profit and Loss statement measures the health of home healthcare businesses—something that goes far beyond just reporting its net income. Below are steps on how you can ensure you are the getting the most out of your Profit & Loss statement.
- Breakout the different revenue streams
You can organize and analyze your revenue streams all in one place via Payer Mix, for things like Medicaid, Aetna, and private pay.
- Break out Direct versus Indirect Labor.
What’s the difference? Direct costs within home healthcare sectors typically fall under Field Staff salaries and the associated payroll taxes, which are directly related to generating revenue. Indirect costs are indirect labor costs such as support staff (DON, Biller, and Scheduler).
You can break these out by assigning every employee to a department so when you pull your monthly payroll report this is done automatically.
- Break out the Other Indirect Costs by department
The most common departments for home healthcare agencies are Facilities & Equipment, Sales & Marketing, and Finance & Administration.
- Benchmark, Benchmark, Benchmark
Now that your P&L is structured correctly you can calculate your costs as a percentage of gross revenue and compare them to industry standards. For instance, your gross margin should be 34-36%. Typical Industry benchmarks come from industry-specific data sources such as Cost Report Data, NAHC, and more.
Want additional help in getting started on your own home healthcare Profit & Loss Statement? Give the trusted professionals at Tri-State Accounting a call at 513-791-6288 or fill out a contact form here.