9 Essential Financial Reports to Set Your Agency Up for Long-Term Profitability

These reports will help you see exactly how your agency is performing!

These 9 Reports Will Help You Understand Your Agency’s Financial Wellbeing

There are two kinds of people who own and operate behavioral health agencies: those who enjoy managing financials and those who do not. But whether you like calculating your ROI and claims denial rate or not, you don’t have time to spare. Yet the financial health of your agency isn’t something that you can neglect, even for a day, otherwise you risk losing out on large amounts of revenue.

Fortunately, technologies like big data are helping agencies like yours glean valuable information from your existing datasets. Using analytics to help you visualize exactly how your business is performing, you can save yourself time, money, and stress.

Analytics are critical, but the skills and tools to interpret them are lacking.

Recently Kaufman Hall surveyed healthcare CFOs about their comfortability with financial analytics. They found that 70% know they want to build better dashboards and visualizations to display and analyze their data and 64% are struggling to be able to pull that data from multiple sources into one report. Yet, more than 95% of respondents do not have confidence that they, or their organizations have the necessary skills to interpret their financial analytics. Yet when organizations implement financial analytics, 73.5% of them have reported seeing high rates of measurable success.

The 9 Essential Financial Reports


Service Profitability Analysis

You need to know which services you provide are most profitable. While determining the profit margin on services is more complex than finding it for product lines, the general idea is the same.

Revenue from Service Provided – Cost of Providing Service = Profit Margin 

While calculating this, there are a couple of items to keep in mind:

  • True Labor Cost: Your cost should include the cost of your employees’ time. Use a time-tracking software to better understand productivity levels and better understand how much time your people are spending on each service you provide. Not all employees are equally productive, even if they are making the same salary. 
  • True Resource Cost: Beyond your employees, what other resources does it take to for your agency to function? Think about software, office space, insurance, and taxes. If you have to pay it to be able to provide a service, part of that cost should be factored into your service profit margin, though as a fixed cost. 

Be sure to factor in which services insurance covers. While this depends on each patient, some services are still more likely to be covered, increasing your probability of being paid.

Once you know which services are most and least profitable, it’s time to determine why. Perhaps everything is functioning perfectly. If this is the case, great! You now know which service has the highest profit margin and can begin to increase that service while decreasing your least profitable one. 

However, you also must account for human and technological error. Use this opportunity to see if there are inefficiencies taking place that you can correct, thereby increasing your profit margin on under-performing services.


Customer Profitability Analysis

You also need to understand how profitable your customers are. Certain people will share similar characteristics, which can help you group them. Some of these groups will be more profitable than others. While you may not want to change anything relating to your customers, after all you are in the business of healing people, it is important to understand who brings you more money to be able to make informed business decisions. The 80/20 rule says that 20% of your customers will bring you 80% of your revenue.

  • Cost of Customer Acquisition: It’s always more expensive to gain a customer. Factor in any marketing and advertising costs plus the time you spend networking, getting the word out about your agency, and the time and resources your staff spend.
  • Cost of Customer Retention: Once you’ve gained a patient, how much does it cost to keep them? This includes communication, your time, and your staff’s resources.
  • Customer Lifetime Value: be sure to look at the value your patients bring you over their entire work with you. If you only look at brief time periods like a month, or even one year, you could be missing valuable insights.

Understanding how much revenue your patients bring in is not enough. You must look at the profit margin of different groups to have a full picture and be able to build a business strategy based on all of your data.


Predictive Revenue Cycle

Most businesses, behavioral health agencies included, don’t have a revenue stream that is evenly spread throughout the year. Maybe you see more patients over the holiday season, which brings in more revenue. However, many business owners don’t account for this cyclical revenue cycle in their financial projections. 

Using predictive sales analytics can help you forecast your financials more accurately. All you need is the last few years of your sales data. Take a look at each year, month by month and identify trends. Be sure to account for any one-time spikes or dips as these may throw off your averages.


Cash Flow Analysis

Understanding your cash flow is key to being able to make long-term strategic financial decisions. Use calculations like working capital ratio to understand how much working capital you have available and the health of your agency.

The working capital ratio shows how efficient a business is with its short-term capital. 

Total Current Assets / Total Current Liabilities = Working Capital Ratio

Most consider a ratio between 1.2 and 2 a healthy working capital ratio, though it does vary by industry. Depending on your goals, you may want to investigate taking on debt or reducing your debt load. Having a healthy cash flow allows you to be flexible, weather unexpected storms, and plan for a strong future. 


Claim Denial Rate

Having insight into your claim denial rate is crucial. You’ve billed the hours, expect the revenue but then the insurance company has other ideas. Not only do you need this to better predict your actual income but you need it to identify patterns to see if there are claims that you should be getting paid on.

How Much Revenue are You Losing?

Use BillCare’s Claim Denial Calculator to see how much revenue you might be missing out on.

Claims Denial Calculator


Productivity Analysis

Measuring productivity is deceptively simple.

Units of output / units of input = productivity

In the case of agencies, your units of output are likely the number of patients seen, beds filled, or services rendered. The units of input are where things get more complicated. Direct labor should be a part of it (i.e. the hours or dollars a counselor spends treating one patient) but indirect labor, materials, overhead, and more (like depreciation) also need to be factored in. The indirect labor includes time you spend working on your business, not just in it. 

To start, figure out what you want to measure. It should be something you can compare “apples to apples” not “apples to oranges.” For instance, if you want to measure how productive your counselors are, your equation might look like:

Clients seen by [      ] / hours spent by [      ] = productivity rate of [      ] over your given time period.

This is a simplified example but is a place to start. If you did this, or something similar, for each of your staff members, you can feed this into your service profitability analysis.


Accounts Receivable Report

Every agency has an accounts receivable report but many don’t look at it or know how to interpret it. This is unfortunate as these reports hold a plethora of information. From it, you can tell how much your agency is billing in a given time period, how fast (and how many) of your payments are coming in, and what is being written off. These three pieces of information are necessary for agencies to know to be able to make the best business decisions and to be able to forecast for future months.


Allocation of Payments Report

Like the accounts receivable report, agencies should have an allocation of payments report. This shows whether a payment received from the insurance payer has been applied to the services it was supposed to cover. This helps track revenue and should be used to help plan for cash flow projections. It can also help agencies make sure they are not spending time following up on claims that were already paid. 


Forecasted vs. Actual Report

Agencies need to know if they are being paid correctly from insurance without needing to track down each individual payment from each payer. A report that displays forecasted versus actual revenue helps agencies make sure they’re getting paid correctly, without wasting time. This can also help with budgeting and operational planning.

The Bottom Line

It’s impossible to make strategic decisions without a complete and accurate picture of your agency’s financials. Having the right analytic, processes, and automated reports in place will save you both time and money and help your business see an increase in profitability and efficiency.

If you’re interested in how to make your financial reporting and analysis easier, let us know. Simply click the “Let’s Talk” button below!

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