WEBVTT 00:00:08.508 --> 00:00:08.975 All right. 00:00:08.975 --> 00:00:11.978 Well, I'm happy to be here and present some, 00:00:12.278 --> 00:00:14.881 financial related topics. 00:00:14.881 --> 00:00:16.683 For the lab management class. 00:00:16.683 --> 00:00:21.488 And, hopefully the information here will be beneficial to you as you continue 00:00:21.521 --> 00:00:25.492 your education and go into your careers, especially as many of you are going to be, 00:00:26.693 --> 00:00:30.697 you know, leading in labs, this financial information will be pertinent as you, 00:00:31.364 --> 00:00:34.634 take on new roles and the leadership roles that, you know, 00:00:34.634 --> 00:00:38.371 the understanding of finances, although you don't want to, as, you know, 00:00:38.671 --> 00:00:43.243 lab, lab people that, knowing the finances is an important part of, of, 00:00:43.543 --> 00:00:46.513 of running an operation, running a lab. 00:00:46.513 --> 00:00:49.349 So hopefully you can learn some stuff from here and, 00:00:49.349 --> 00:00:52.085 I'll just, we'll kind of get started. 00:00:52.085 --> 00:00:54.387 Let's see. 00:00:54.387 --> 00:00:55.655 Okay. So. 00:00:55.655 --> 00:00:57.657 Yeah, you guys want to talk about finances? 00:00:57.657 --> 00:00:58.825 Probably not. 00:00:58.825 --> 00:01:02.762 Not the most exciting thing, but, it's kind of a necessary evil. 00:01:03.363 --> 00:01:07.700 When we're running, running a lab, you need to know how finances are and why. 00:01:07.700 --> 00:01:09.302 Why do you guys need even hear about it? 00:01:10.403 --> 00:01:11.805 You know, we're we're medical people. 00:01:11.805 --> 00:01:13.540 We're not accountants. 00:01:13.540 --> 00:01:16.209 You know, and you look to that left on that, that bubble, 00:01:16.209 --> 00:01:19.045 you know, says I work for a nonprofit organization, so profit doesn't matter. 00:01:19.045 --> 00:01:19.846 Right. 00:01:19.846 --> 00:01:23.883 And so you'll find that many, hospital organizations, labs 00:01:24.050 --> 00:01:28.354 that there may be non profit, but, actually profit is an important part 00:01:28.888 --> 00:01:31.691 of these nonprofit organizations because if they if they don't 00:01:31.691 --> 00:01:35.595 make some money or keep some of that, they can't survive. 00:01:35.895 --> 00:01:38.364 And we'll kind of get into that a little bit later. 00:01:38.364 --> 00:01:41.367 So so understanding finances is an important part. 00:01:42.368 --> 00:01:47.173 First, you know, we'll tackle the, the boring and, confusing. 00:01:47.173 --> 00:01:50.176 We'll get that over with. But, let's see. 00:01:50.210 --> 00:01:53.213 So accounting is the language of business. 00:01:53.880 --> 00:01:58.351 And I'll focus on some of the typical term terminology that you'll hear 00:01:58.651 --> 00:02:02.522 related to, to finance, as it pertains to you in the lab. 00:02:03.823 --> 00:02:06.826 So, it's not, it's, it's simple math. 00:02:06.826 --> 00:02:09.395 We're not talking calculus or crazy rules. 00:02:09.395 --> 00:02:11.731 It's it's pretty simple logic. 00:02:11.731 --> 00:02:14.701 That that, you know, most people get, 00:02:14.701 --> 00:02:18.004 and why, you know, is, is why we talk about 00:02:18.004 --> 00:02:21.841 money is relevant, especially for a nonprofit medical setting, 00:02:21.841 --> 00:02:22.909 you know, why do we care about money? 00:02:22.909 --> 00:02:28.815 Because our job is to, you know, provide health care to, patients and individuals. 00:02:28.815 --> 00:02:30.717 Is money important? 00:02:30.717 --> 00:02:32.452 It's not important when you're doing the services, 00:02:32.452 --> 00:02:35.455 but it is important to keep the the business alive. 00:02:36.055 --> 00:02:39.926 So, why why are you guys even being asked to to learn about this? 00:02:40.727 --> 00:02:44.197 So obviously with, with the Health Care Reform Act in 2010, you know, 00:02:44.197 --> 00:02:48.334 there's a big push to, to reduce cost and in the health care industry. 00:02:48.735 --> 00:02:51.337 And so as I've underlined here, you know, understanding 00:02:51.337 --> 00:02:54.974 the unit cost structure and efficiencies of the average for profit 00:02:55.441 --> 00:02:59.312 and nonprofit clinical laboratory becomes a critical necessity. 00:02:59.612 --> 00:03:03.082 So understanding the cost and those relationship 00:03:03.082 --> 00:03:06.085 and it is important to to survive, 00:03:06.152 --> 00:03:10.390 because there is a tightening of cost in the health care industry. 00:03:11.491 --> 00:03:13.259 Additionally, 00:03:13.259 --> 00:03:14.894 you know, in today's managed care environment, 00:03:14.894 --> 00:03:17.497 with ever increasing government regulation, 00:03:17.497 --> 00:03:20.700 the laboratory manager must have an understanding of the complex 00:03:20.700 --> 00:03:24.504 relationships between and among costs, productivity and revenue. 00:03:24.938 --> 00:03:27.607 You know, so understanding productivity, how, 00:03:27.607 --> 00:03:30.610 how or, you know, how many samples are we producing? 00:03:30.710 --> 00:03:33.279 Are we efficient with the labor we have running those samples 00:03:33.279 --> 00:03:34.948 with the equipment, running the samples? 00:03:34.948 --> 00:03:36.849 Are we efficient with our supplies? 00:03:36.849 --> 00:03:41.087 You know, are we wasting, the reagents that we're using to do this testing? 00:03:41.354 --> 00:03:44.357 So just being aware of these things is really important. 00:03:45.892 --> 00:03:47.860 In the lab industry. 00:03:47.860 --> 00:03:51.231 So I want to talk about margin versus mission. 00:03:51.798 --> 00:03:56.302 Now, when I say margin, what what I'm referring to is not a piggy bank, but, 00:03:57.136 --> 00:04:00.273 at a company, you're going to generate revenue, you're going to make earnings, 00:04:00.273 --> 00:04:01.874 you're going to earn, 00:04:01.874 --> 00:04:03.509 you're going to perform a task, you're going to get money 00:04:03.509 --> 00:04:04.877 for performing that test, 00:04:04.877 --> 00:04:07.880 but you're also going to incur expenses to perform that test. 00:04:07.880 --> 00:04:09.182 You're going to have a equipment. 00:04:09.182 --> 00:04:12.151 You're going to have supplies, you're going to have people to run the test. 00:04:12.218 --> 00:04:13.219 So those are expenses. 00:04:13.219 --> 00:04:13.953 So you're gonna have the money 00:04:13.953 --> 00:04:17.890 you make the expenses to to make that money to do that test. 00:04:18.157 --> 00:04:22.395 And then what's left over is called margin or profit, or earnings. 00:04:22.395 --> 00:04:23.963 There's a lot of terms to use for that. 00:04:23.963 --> 00:04:26.966 But I'm going to use the term margin throughout the course of this. 00:04:27.300 --> 00:04:30.069 And so the question is, is there's this margin versus 00:04:30.069 --> 00:04:33.072 mission, you know, the mission of performing health care. 00:04:33.239 --> 00:04:34.540 What do we do? 00:04:34.540 --> 00:04:37.543 And, the question is which one's more important? 00:04:37.910 --> 00:04:42.448 And that's a bit of, a trick question because neither one is more important 00:04:42.448 --> 00:04:43.483 than the other. 00:04:43.483 --> 00:04:45.018 They both are equally important. 00:04:45.018 --> 00:04:47.387 If you don't have margin, you're not going to, 00:04:47.387 --> 00:04:49.322 you know, if you don't have money left over in the bank, 00:04:49.322 --> 00:04:50.523 you're not going to be able to continue 00:04:50.523 --> 00:04:53.960 to do your mission to help, to do patient care. 00:04:54.360 --> 00:04:54.794 But again, 00:04:54.794 --> 00:04:57.897 if you don't have a patient care mission, you're not going to make money. 00:04:58.131 --> 00:05:01.134 So so the two are equally important to have. 00:05:01.434 --> 00:05:05.571 So, you know, we can't have a provide health 00:05:05.571 --> 00:05:08.908 care to people without having money to be able to continue to do it. 00:05:09.309 --> 00:05:13.046 And, you know, the primary goal of financial management is to ensure 00:05:13.046 --> 00:05:16.649 both the profitability and the survival of the organization. 00:05:17.350 --> 00:05:19.986 So both of these two are key, the profitability. 00:05:19.986 --> 00:05:22.822 And to ensure the survival of the organization. 00:05:22.822 --> 00:05:26.526 So if you don't have any margin, what happens? 00:05:26.526 --> 00:05:28.294 You we have a skinny piggy bank. 00:05:28.294 --> 00:05:29.962 You know, we're not going to have the money 00:05:29.962 --> 00:05:32.965 to be able to keep the mission going. 00:05:33.032 --> 00:05:36.002 Whereas if you have margin end, 00:05:36.002 --> 00:05:38.838 mission, you can get more missions. 00:05:38.838 --> 00:05:42.241 So we're going to talk about money and medicine and how to effectively 00:05:42.508 --> 00:05:45.511 and how effective financial management can help us achieve our mission, 00:05:46.179 --> 00:05:47.580 with health care. 00:05:47.580 --> 00:05:50.616 So, just a couple things I'll throw out there 00:05:50.817 --> 00:05:52.985 is, you know, a lot of times I'm an accountant, 00:05:52.985 --> 00:05:55.321 and a lot of times people ask me what I do. 00:05:55.321 --> 00:05:58.758 There's basically three different types of of accounting that goes on 00:05:58.925 --> 00:05:59.525 in the business. 00:05:59.525 --> 00:06:01.861 There's financial accounting, which I've listed here. 00:06:01.861 --> 00:06:04.464 That is just looking at the operations of a business. 00:06:04.464 --> 00:06:06.566 How are we doing financially? 00:06:06.566 --> 00:06:07.600 There is tax accounting. 00:06:07.600 --> 00:06:08.601 I don't do taxes. 00:06:08.601 --> 00:06:10.737 I know enough to be dangerous. 00:06:10.737 --> 00:06:13.940 But, tax accounting is just, you know, filling out tax forms 00:06:14.307 --> 00:06:17.110 and then another form of accounting that you may be familiar with as cost 00:06:17.110 --> 00:06:18.511 or managerial accounting. 00:06:18.511 --> 00:06:22.048 And you're going to be exposed to that in the labs. 00:06:22.048 --> 00:06:23.649 And many of you probably already are exposed. 00:06:25.084 --> 00:06:28.321 What cost accounting is, is basically the cost of the test, you know, 00:06:28.321 --> 00:06:31.290 so you look at a certain assay or test that you're going to perform. 00:06:31.290 --> 00:06:33.059 And what does it cost to do that test? 00:06:33.059 --> 00:06:34.627 What does it cost for the supplies? 00:06:34.627 --> 00:06:36.362 What does it cost for the labor. 00:06:36.362 --> 00:06:40.466 What does it cost for the the supervisor manager to to manage that labor? 00:06:41.200 --> 00:06:44.137 All these things kind of build into the cost of a test. 00:06:44.137 --> 00:06:46.305 And then when you develop that cost of the test, 00:06:46.305 --> 00:06:49.375 then you go to sell that test, you go to a hospital and say, 00:06:49.375 --> 00:06:52.011 hey, I'm going to perform this test for you, for X dollars. 00:06:52.011 --> 00:06:55.481 And hopefully, you know, you're you're if it's $100 test 00:06:55.481 --> 00:06:58.618 and your cost are, say $90, you're covering your cost. 00:06:58.885 --> 00:07:01.087 So that's what the cost of managerial accounting is. Understanding 00:07:01.087 --> 00:07:05.425 the cost of performing the work you do, is is extremely important. 00:07:06.025 --> 00:07:10.430 So, the history of accounting, you know, there's this guy name, Luca, Pac. 00:07:10.463 --> 00:07:12.131 Really? He invented this accounting. 00:07:12.131 --> 00:07:16.169 I'm not going to spend a lot of time on this, but just as an FYI, he, 00:07:16.269 --> 00:07:21.274 that last bout, bullet point is, trade the double entry accounting. 00:07:22.842 --> 00:07:23.576 And and the 00:07:23.576 --> 00:07:27.780 objective here is with, with what this PAC really was 00:07:27.780 --> 00:07:31.751 developing is what should how did we do, you know, kind of looking at our finances. 00:07:31.751 --> 00:07:34.620 How did we do and what should we do about it? 00:07:34.620 --> 00:07:36.722 You know, and really simply, you can think of it 00:07:36.722 --> 00:07:38.624 like, in your own personal lives, 00:07:38.624 --> 00:07:42.361 you know, as you look at your bank accounts, as you look at your budget, 00:07:42.728 --> 00:07:46.232 you know, how did I do, you know, am I spending more than I earn? 00:07:47.166 --> 00:07:50.970 And so that's the same concept goes goes in a business setting, too. 00:07:51.571 --> 00:07:54.173 And, this PAC, 00:07:54.173 --> 00:07:57.910 you only developed this accounting theory back in the day in the 1400s. 00:07:58.177 --> 00:07:59.378 And as I've underlined here, 00:07:59.378 --> 00:08:02.381 the kind of the key concepts was symmetry and balancing. 00:08:02.582 --> 00:08:05.718 And so what that means is, in the accounting world, 00:08:05.718 --> 00:08:08.721 you have an equation and one side equals the other side. 00:08:08.721 --> 00:08:11.190 And when you take away from one side, you have to affect this side 00:08:11.190 --> 00:08:14.193 so that you're here scale your balance is always balancing. 00:08:14.260 --> 00:08:17.330 And so he created this double entry methodology 00:08:17.330 --> 00:08:20.533 where if you take away you subtract from one side, you add to one side, 00:08:21.734 --> 00:08:23.002 or if you take away from one side, 00:08:23.002 --> 00:08:26.172 you add to another bucket in there so that your scale still balances. 00:08:27.540 --> 00:08:28.975 Anyways, 00:08:28.975 --> 00:08:32.278 and then yeah, two years later, we had the invention of the pocket protector. 00:08:32.678 --> 00:08:35.681 Because that to us accounts are total geeks. 00:08:35.815 --> 00:08:38.818 So I talked about the balance, that this equation. 00:08:39.218 --> 00:08:42.321 And so what that equation is, is basically assets. 00:08:42.555 --> 00:08:46.859 If you look at that red line, the assets equals the liabilities plus equity. 00:08:47.393 --> 00:08:51.330 So what does that mean in, you know, real terms. 00:08:51.564 --> 00:08:54.166 Assets is things that you own. 00:08:54.166 --> 00:08:56.102 You know, like a car or a bank 00:08:56.102 --> 00:08:59.305 account, a savings account, investments, a house. 00:08:59.305 --> 00:09:02.308 These types of things are assets, things that provide value. 00:09:02.542 --> 00:09:04.911 The other side of the equation is liabilities and equity. 00:09:04.911 --> 00:09:08.447 So liabilities is another way of saying that, you know, who do you owe? 00:09:08.581 --> 00:09:09.482 What do you owe? 00:09:10.416 --> 00:09:12.718 And so for instance, if you have this scale, 00:09:12.718 --> 00:09:16.722 you can see if you get a car, you're going to weigh down your 00:09:16.722 --> 00:09:18.991 your assets, your scale is going to go down. 00:09:18.991 --> 00:09:21.928 But maybe with that car you're going to have a loan. 00:09:21.928 --> 00:09:24.063 And so that loan is going to be on the other side of the scale. 00:09:24.063 --> 00:09:26.399 And so it'll it'll bring it back into balance. 00:09:26.399 --> 00:09:27.600 And that's, that's 00:09:27.600 --> 00:09:31.203 kind of a basic concept in the blue, you see it says debits and credits. 00:09:31.537 --> 00:09:34.674 Those are the terms that are used in accounting world. 00:09:35.174 --> 00:09:37.610 If you add an asset you're going to debit it. 00:09:37.610 --> 00:09:40.479 If you're going to add a liability, you're going to credit it. 00:09:40.479 --> 00:09:43.482 So the debits always equal the credits. 00:09:43.482 --> 00:09:45.251 And there's kind of some examples. 00:09:45.251 --> 00:09:45.618 If you have 00:09:45.618 --> 00:09:49.488 an asset on one side of the scale, it's cash accounts receivable, inventory. 00:09:49.488 --> 00:09:52.992 So inventory you buy it and you're going to use it that that's considered an asset. 00:09:53.526 --> 00:09:58.798 And then we have liabilities, you know, wages you owe or loans etc.. 00:09:59.198 --> 00:10:02.001 And then equity is, is retained earnings, 00:10:02.001 --> 00:10:04.837 the ownership or stock in the company. 00:10:04.837 --> 00:10:07.506 So what does it all mean? 00:10:07.506 --> 00:10:09.208 Well, let me just give you a quick example. 00:10:10.242 --> 00:10:13.446 In real terms, so, so let's say you want to start 00:10:13.446 --> 00:10:16.449 you kind of follow along in this example, but I'll read it to you. 00:10:16.515 --> 00:10:19.752 You want to start your own lab, you think it will need $1 million to get started? 00:10:19.752 --> 00:10:22.755 However, you only have $1,000 in savings. 00:10:22.855 --> 00:10:26.292 You approach your wealthy uncle Bob and tell him you want to start your own lab. 00:10:26.659 --> 00:10:30.062 And you convince him that if he gives you the money he will need, 00:10:30.062 --> 00:10:32.231 he will share in the profits of the lab. 00:10:32.231 --> 00:10:36.002 Uncle Bob agrees and gives you $1 million in return. 00:10:36.002 --> 00:10:38.037 You give him a an official document. 00:10:38.037 --> 00:10:42.575 A stock certificate is another term, identifying him as the owner of the lab. 00:10:42.575 --> 00:10:44.877 He he owned it. He put the money in it, so he owns it. 00:10:46.045 --> 00:10:46.412 And then 00:10:46.412 --> 00:10:50.249 later that day, you go to the money grows on tree Bank, and you ask 00:10:50.249 --> 00:10:54.487 for a 2 million, you ask for $2 million to purchase a building for your lab. 00:10:54.920 --> 00:10:57.923 The bank agrees and hands you a check for $2 million. 00:10:57.990 --> 00:11:00.960 In return, you sign a loan agreement or a mortgage 00:11:00.960 --> 00:11:04.263 with the bank, promising to pay back the $2 million in the next two years. 00:11:04.263 --> 00:11:06.699 So you have this scenario of uncle Bob giving you money, 00:11:06.699 --> 00:11:09.702 and then you go to the bank and you get some money from the bank, 00:11:10.936 --> 00:11:13.706 and then we will continue the story 00:11:13.706 --> 00:11:16.942 the next day with the money you have, you, 00:11:17.276 --> 00:11:20.446 you want a shopping spree and you buy a building for $2 million, 00:11:20.746 --> 00:11:25.518 you buy some equipment for $3 million, and you buy some supplies for $100,000. 00:11:25.885 --> 00:11:28.621 And basically, now you have what you need to start your lab. 00:11:28.621 --> 00:11:30.690 And let's say that you're the only person working there. 00:11:31.791 --> 00:11:35.494 So going back to that, what does this scenario look like 00:11:35.494 --> 00:11:38.931 in the accounting world with the balance scale, the debits and the credits? 00:11:40.232 --> 00:11:43.636 Basically on the one side and the, the pink, you have the debits 00:11:43.936 --> 00:11:44.937 and your assets. 00:11:44.937 --> 00:11:46.439 So you got inventory 00:11:46.439 --> 00:11:50.209 100,000, you got equipment of 300,000, and you got a building for 200,000. 00:11:50.443 --> 00:11:53.446 So those kind of weights, your scale down, of assets. 00:11:53.813 --> 00:11:56.882 And then you have your credit side where you get a loan. 00:11:56.882 --> 00:12:00.886 So the $2 million, that's money that you owe to pay off that debt. 00:12:01.120 --> 00:12:03.489 And then you have your uncle who gave you the million dollars. 00:12:03.489 --> 00:12:06.625 He's he has an equity share, an ownership in your company. 00:12:06.625 --> 00:12:08.094 He owns it. 00:12:08.094 --> 00:12:09.361 And so that weights down the other. 00:12:09.361 --> 00:12:12.732 So now when you look at both of those, you know, we should be equaling. 00:12:13.165 --> 00:12:13.899 However, 00:12:15.000 --> 00:12:16.102 how much cash do we have left? 00:12:16.102 --> 00:12:19.004 So you can see there's just kind of the question mark. 00:12:19.004 --> 00:12:22.742 Our scales don't balance equally because we have 3 million 00:12:22.742 --> 00:12:27.713 on, liabilities and equity, but we have 2.4 million on our assets, 00:12:27.713 --> 00:12:29.582 so we need to equal the sides need equal. 00:12:29.582 --> 00:12:33.619 So that means you have $600,000 left in cash in your assets. 00:12:33.819 --> 00:12:36.822 And now that both sides equal, they balance. 00:12:37.456 --> 00:12:40.092 That's just a quick overview of of kind of accounting theory. 00:12:40.092 --> 00:12:44.897 So what we do, what a lot of companies do is they generate financial statements. 00:12:45.264 --> 00:12:49.201 This is a means to allow both the management, 00:12:49.201 --> 00:12:52.605 the leadership of the company to get a help. 00:12:52.872 --> 00:12:54.240 How is the company doing financially? 00:12:54.240 --> 00:12:55.641 What's the health of the company. 00:12:55.641 --> 00:12:57.843 But it also allows other third parties, 00:12:57.843 --> 00:13:00.846 other companies to know how your company is doing. 00:13:00.913 --> 00:13:04.183 This is really helpful for, say, banks, like in my example, 00:13:04.183 --> 00:13:08.154 I gave I got $2 million from the bank to to buy the mortgage. 00:13:08.154 --> 00:13:09.188 Well, the bank is going to want 00:13:09.188 --> 00:13:12.758 to see financial statements every year to see how I'm doing 00:13:12.958 --> 00:13:16.796 so that they can know if they're going to get repaid the money that they gave me. 00:13:17.196 --> 00:13:21.300 And so most companies have to generate these, these three types of statements, 00:13:21.300 --> 00:13:22.735 and I'll go through them. 00:13:22.735 --> 00:13:24.603 The first one is a balance sheet. 00:13:24.603 --> 00:13:25.671 So again, going back to that 00:13:25.671 --> 00:13:28.707 first example of, of the scale, you have your assets and liabilities. 00:13:30.276 --> 00:13:33.279 And the next one is called an operating statement. 00:13:33.546 --> 00:13:35.748 It has in the red that I've listed here. 00:13:35.748 --> 00:13:39.251 It has many other names PNL, profit loss statement, income statement, 00:13:39.552 --> 00:13:42.488 statement of revenue, expenses and change in there that so it has multiple names. 00:13:42.488 --> 00:13:43.956 But the operating statement 00:13:43.956 --> 00:13:47.760 a way to think of it is kind of when you think of say like your W-2, 00:13:47.760 --> 00:13:51.897 if if you've ever got a W-2 for working somewhere, you know, you you have 00:13:52.331 --> 00:13:55.801 the W-2 only goes for a 12 month period, January to December. 00:13:56.101 --> 00:13:59.104 And, every year your W-2 resets. 00:13:59.705 --> 00:14:02.508 It shows all the money you earned, the income 00:14:02.508 --> 00:14:05.845 and then the taxes you paid and that that's your W-2. 00:14:05.845 --> 00:14:08.747 So the operating statement of a company is kind of like that. 00:14:08.747 --> 00:14:13.185 It shows all the money a company's earned are the expenses they paid for labs 00:14:13.185 --> 00:14:16.889 for to pay for people, supplies, etc. 00:14:17.289 --> 00:14:21.861 and, it shows it for over a period of time for a 12 month period typically. 00:14:22.161 --> 00:14:23.796 And so at the end of the 12 month period, 00:14:23.796 --> 00:14:25.664 we're going to reset that operating system. 00:14:25.664 --> 00:14:26.999 It's going to start back at zero. 00:14:28.300 --> 00:14:28.901 The next 00:14:28.901 --> 00:14:31.904 one that's common is called the cash flow statement. 00:14:33.038 --> 00:14:35.040 And that the cash flow statement 00:14:35.040 --> 00:14:38.010 is kind of like taking your bank statement that you get. 00:14:38.177 --> 00:14:41.413 And in the bank statement it's going to show like say your checking account 00:14:41.714 --> 00:14:45.217 and it's going to show all these, this money coming in, say from, 00:14:45.217 --> 00:14:47.319 you know, a job if you get auto deposit 00:14:47.319 --> 00:14:49.688 or you get a check, you deposit the money coming in. 00:14:49.688 --> 00:14:50.389 It's also going to show 00:14:50.389 --> 00:14:53.659 all the money you spent, you know, as you go to the laundry, 00:14:53.659 --> 00:14:57.763 as you go to eat food or pay on a car loan, whatever it may be. 00:14:58.097 --> 00:15:02.101 The cash flow statement is in a similar to a, bank statement. 00:15:02.101 --> 00:15:05.704 It's going to show all the the cash going in and out, of the account. 00:15:06.105 --> 00:15:10.376 And so those are the basic statements that a company will look at to understand 00:15:10.376 --> 00:15:11.277 the health of their company. 00:15:12.678 --> 00:15:14.713 And then there's two other notes there at the bottom. 00:15:14.713 --> 00:15:16.081 So here's an example. 00:15:16.081 --> 00:15:19.852 I just wanted to show of a balance sheet for, say, like any of us, 00:15:19.885 --> 00:15:23.589 you know, a college student, whatever it may be, you're going to have assets, 00:15:24.323 --> 00:15:27.760 at that top area like cash, a checking account, savings account, etc. 00:15:28.060 --> 00:15:29.728 you're going to an automobile. 00:15:29.728 --> 00:15:33.032 Then you have liabilities, you know, things that you owe, debt that you owe, 00:15:33.032 --> 00:15:35.534 you know, hey, I have to pay for a phone bill. A cell phone bill. 00:15:35.534 --> 00:15:39.305 I have a bank loan for my car, a college loan, you know, all these types of things. 00:15:39.305 --> 00:15:40.773 So those are your liabilities. 00:15:40.773 --> 00:15:43.542 And then the last one is your net worth. 00:15:43.542 --> 00:15:45.511 That shows kind of what between your assets 00:15:45.511 --> 00:15:47.279 and liabilities, what is what is your net worth? 00:15:48.314 --> 00:15:49.848 So that that's a kind of an example 00:15:49.848 --> 00:15:52.851 of how a balance sheet would look like if you looked at it at a person. 00:15:53.452 --> 00:15:56.789 You can see on the left hand side we have our assets, cash 00:15:56.789 --> 00:16:00.859 investments, accounts receivable, inventories, accounts receivable. 00:16:00.859 --> 00:16:03.862 That's basically when you perform work for a lab, 00:16:04.096 --> 00:16:07.099 and they don't they pay you in a month or two later. 00:16:07.967 --> 00:16:10.402 And so that's receivable, and it's work you perform for lab, 00:16:10.402 --> 00:16:13.706 you send them a result, they're going to pay you for that work. 00:16:13.706 --> 00:16:15.107 And so it's, it's receivable to you. 00:16:15.107 --> 00:16:19.545 It's an asset that you're expecting money to, to, to cover that. 00:16:20.312 --> 00:16:25.050 Then the right hand side is just, you know, liabilities and, net position, 00:16:25.484 --> 00:16:28.420 so just an example of, of a company's actual, balance sheet. 00:16:29.855 --> 00:16:30.255 The next one 00:16:30.255 --> 00:16:33.258 I want to talk about is this income statement. 00:16:33.993 --> 00:16:37.229 And the first step on that income statement is looking at revenue 00:16:37.730 --> 00:16:38.931 and, revenue. 00:16:38.931 --> 00:16:39.832 And in simple terms, 00:16:39.832 --> 00:16:43.702 if you think of a lab, it's going to be the samples that you brought in the 00:16:43.702 --> 00:16:47.306 the volume, the build units, whatever you want to call the samples that come in. 00:16:47.639 --> 00:16:50.876 And then how much do we charge our client for each of those samples? 00:16:52.011 --> 00:16:56.148 That, you know, the samples times the price per test equals the revenue. 00:16:56.148 --> 00:16:58.584 That's pretty straightforward. 00:16:58.584 --> 00:17:01.787 And as I said, I have a out of the quote here says reflect the earnings 00:17:01.787 --> 00:17:05.657 of the organization, both billed on billed and collected are yet to be collected. 00:17:05.657 --> 00:17:09.161 So like I said, you know, if, you perform a test 00:17:09.161 --> 00:17:12.164 and you send the result to your client or the hospital, 00:17:12.398 --> 00:17:14.967 but they don't pay for a month or two, that's still revenue to you. 00:17:14.967 --> 00:17:16.035 You have performed your work. 00:17:16.035 --> 00:17:19.605 You have fulfilled your obligation to give them a result of the test, 00:17:19.972 --> 00:17:22.641 even though they don't pay you right then and there. 00:17:22.641 --> 00:17:25.978 They will pay you later when you send them an invoice, or a bill, 00:17:27.179 --> 00:17:29.815 the next step in this income stream is going to be your expenses. 00:17:29.815 --> 00:17:32.651 So it's the money spent or cost incurred in an organization's 00:17:32.651 --> 00:17:36.455 efforts to generate revenue, representing the cost of doing business. 00:17:36.455 --> 00:17:39.391 So in a lab setting, 00:17:39.391 --> 00:17:42.561 the expenses are just going to be, you know, the cost for my people, 00:17:43.095 --> 00:17:46.498 the technicians, the managers, the supervisors. 00:17:47.199 --> 00:17:50.202 What does it cost labor wise, to generate the test? 00:17:50.702 --> 00:17:52.704 It's the cost of the supplies. 00:17:52.704 --> 00:17:55.774 What reagents and supplies do I need to to buy 00:17:55.774 --> 00:17:59.545 in order to run this test through the the equipment and then also the equipment? 00:18:00.145 --> 00:18:02.581 What equipment do I need to buy to run this test? 00:18:02.581 --> 00:18:05.584 Like a, you know, a mass spec or, a centrifuge or whatever it may be. 00:18:05.584 --> 00:18:06.585 You know, you're buying equipment 00:18:06.585 --> 00:18:09.588 to in order to do the test to generate the revenue. 00:18:09.822 --> 00:18:11.123 And then last of all, like, 00:18:11.123 --> 00:18:14.126 like I mentioned earlier in the presentation, is margin or profit. 00:18:14.993 --> 00:18:17.129 It's the remaining amount of revenues after the expenses. 00:18:17.129 --> 00:18:20.199 So as you earn the revenue for the test 00:18:20.499 --> 00:18:23.402 and then you have expenses, you reduce the expenses from your revenue. 00:18:23.402 --> 00:18:26.371 What's what's left over is, is your margin, 00:18:26.371 --> 00:18:28.707 kind of like when you think of, of a paycheck, 00:18:28.707 --> 00:18:31.176 you know, when you get a paycheck, you've earned gross wages, 00:18:31.176 --> 00:18:33.445 your number of hours, you worked times your hourly rate. 00:18:33.445 --> 00:18:36.115 That's your your revenue, so to speak. 00:18:36.115 --> 00:18:39.251 And then the expenses would behave that the taxes I have to pay. 00:18:39.918 --> 00:18:41.253 If you have deductions for like health care 00:18:41.253 --> 00:18:45.390 insurance or retirement, whatever, those kind of come out of your paycheck, 00:18:45.491 --> 00:18:48.994 what's left over is, is your net pay and your paycheck. 00:18:49.061 --> 00:18:51.096 Kind of the same thing is with with margin. 00:18:51.096 --> 00:18:51.897 That's what's left 00:18:51.897 --> 00:18:56.401 over for you to put in the bank or spend on other things that you need to. 00:18:58.303 --> 00:19:00.806 When I talk about margin, there's actually some other term. 00:19:00.806 --> 00:19:03.909 So in this box, if we say revenue less expenses is bottom line. 00:19:04.376 --> 00:19:05.477 But there are other terms. 00:19:05.477 --> 00:19:08.480 You, you may hear, as you go through that, your career 00:19:08.714 --> 00:19:11.984 income margin, earnings, profit loss net. 00:19:12.751 --> 00:19:14.119 So all those are our terms are here. 00:19:14.119 --> 00:19:15.854 And one thing I want to clarify too 00:19:15.854 --> 00:19:19.091 is, you know, non profit companies, they still have a profit. 00:19:19.091 --> 00:19:21.960 You know they still have. What did we earn in revenue. 00:19:21.960 --> 00:19:24.163 What do we have expenses. What's left over. 00:19:24.163 --> 00:19:27.166 They may not call it profit or maybe margin or earnings. 00:19:28.400 --> 00:19:31.637 But you know that's the companies nonprofits 00:19:31.637 --> 00:19:34.640 may still have to have money left over to continue their mission. 00:19:36.041 --> 00:19:40.112 Here's an example of an income statement that, you know, college students may have 00:19:40.479 --> 00:19:44.483 so that top areas shows income, which could be, you know, scholarship 00:19:44.483 --> 00:19:49.354 funds that you get, or, you know, earnings from a job, tax refund, etc.. 00:19:49.354 --> 00:19:52.357 Those could be those are like income, those that's revenue you're earning. 00:19:52.791 --> 00:19:56.461 And then the next section on down about a third of the way down says expenses. 00:19:56.461 --> 00:19:59.398 And so, you know, just typical stuff that you guys are all familiar with, 00:19:59.398 --> 00:20:02.834 you know, buying food, car loan payment, laundry, 00:20:03.368 --> 00:20:06.371 health insurance, all these types of things are considered expenses. 00:20:06.371 --> 00:20:09.875 And then at the very bottom, you see it says surplus or deficit. 00:20:10.542 --> 00:20:13.145 That would be the same as saying margin or profit or earning, 00:20:13.145 --> 00:20:15.781 you know, what do you have left over after you've paid all of your bills? 00:20:16.748 --> 00:20:19.585 Companies function the exact same way. 00:20:19.585 --> 00:20:22.588 And here's an example of an income statement. 00:20:22.621 --> 00:20:24.890 And, what I'll kind of focus on. 00:20:24.890 --> 00:20:26.792 You see, the top line says revenue. 00:20:26.792 --> 00:20:28.594 The next section is operating expenses. 00:20:28.594 --> 00:20:32.497 So in a lab setting you'll typically see a breakout of some of these expenses 00:20:32.497 --> 00:20:33.699 may not be exactly the same. 00:20:33.699 --> 00:20:36.034 But you know, the first line is laboratory testing. 00:20:36.034 --> 00:20:37.202 That is everything. 00:20:37.202 --> 00:20:40.172 You know what what, the instrumentation, 00:20:40.172 --> 00:20:43.809 the people, the supplies, the overall cost to run the lab. 00:20:44.109 --> 00:20:47.879 And then the support could be, you know, it's the specimen receiving group, 00:20:47.879 --> 00:20:48.614 it's logistics. 00:20:48.614 --> 00:20:51.416 Bringing the sample to the lab. 00:20:51.416 --> 00:20:53.518 And then the rest of these categories I won't go through, 00:20:53.518 --> 00:20:56.888 but there's just various other categories that a company will have to cover. 00:20:57.522 --> 00:20:59.691 You know, to keep the, the business in, in operation. 00:21:00.926 --> 00:21:02.160 Then, 00:21:02.160 --> 00:21:05.163 the next one that we've talked about is a cash flow statement. 00:21:05.931 --> 00:21:09.735 This statement is, really important for leadership 00:21:09.735 --> 00:21:12.738 because they want to see what cash you know, how the cash is being handled. 00:21:12.871 --> 00:21:15.374 And, you know, cash is king in the business world. 00:21:15.374 --> 00:21:18.377 If you don't have cash, you you can't continue to operate. 00:21:18.510 --> 00:21:21.680 But in the cash flow statement, there are three basic categories. 00:21:22.514 --> 00:21:24.650 The first one is operating activities. 00:21:24.650 --> 00:21:28.153 So an example, in operating activities is cash for a customer. 00:21:28.153 --> 00:21:32.190 So as you get a customer pays you that is considered a cash inflow. 00:21:33.425 --> 00:21:36.061 And then the outflow would be buying supplies. 00:21:36.061 --> 00:21:38.063 So this this first section is around operating. 00:21:38.063 --> 00:21:39.998 You know what what cash is coming in. 00:21:39.998 --> 00:21:43.602 What cash is going out in order for us to, to operate to to to do services 00:21:43.602 --> 00:21:46.605 for the lab, the next one down is investing activities. 00:21:47.372 --> 00:21:50.075 So this isn't really necessarily tied to the labs, but it's, it's 00:21:50.075 --> 00:21:51.176 what are we doing as a company? 00:21:51.176 --> 00:21:54.379 And so you're going to have inflows from selling equipment. 00:21:54.379 --> 00:21:58.617 So as you have all the equipment that, you need to resell because it's no longer 00:21:58.617 --> 00:22:01.887 useful, the money you get from selling it is going to be an inflow. 00:22:02.821 --> 00:22:04.923 Outflow would be as if you buy new equipment. 00:22:04.923 --> 00:22:06.625 So you're going to buy new instrumentation, 00:22:06.625 --> 00:22:08.493 and so you're going to spend money, to do that. 00:22:08.493 --> 00:22:12.364 Then financing activities is in our example, I gave with uncle Bob 00:22:12.764 --> 00:22:14.833 the inflow. You know, uncle Bob gave you $1 million. 00:22:14.833 --> 00:22:16.168 So that's an inflow to you. 00:22:16.168 --> 00:22:17.903 That's a financing activity. 00:22:17.903 --> 00:22:20.906 And then an outflow would be the cash payment for the loan. 00:22:21.306 --> 00:22:24.309 So you're paying the bank for the loan? 00:22:24.543 --> 00:22:26.244 And that example. 00:22:26.244 --> 00:22:28.847 So just a quick overview of, of the statement of cash flows. 00:22:28.847 --> 00:22:30.582 And like I said earlier, it's 00:22:30.582 --> 00:22:32.551 you kind of think of it like your bank statement, 00:22:32.551 --> 00:22:36.722 you know, what's in my checking account, what's going in and out and, and basically 00:22:36.722 --> 00:22:40.559 categorizing my inflows and my outflows was, you know, buying food. 00:22:40.826 --> 00:22:44.229 Is that considered an operating activity so that I can live, paying 00:22:44.229 --> 00:22:47.232 a loan on my car loan that's, you know, considered like a financing activity. 00:22:47.232 --> 00:22:50.369 So that's just, kind of a, an example to show. 00:22:50.369 --> 00:22:52.070 And then here's, here's another example. 00:22:52.070 --> 00:22:55.440 And, you know, the one thing I'll, I'll kind of focusing on is that first, 00:22:55.674 --> 00:22:58.677 that first section that says cash flow from operating activities, 00:22:59.144 --> 00:23:03.315 that's, you know, probably one of the most important, sections of the statement, 00:23:04.216 --> 00:23:07.586 as a leadership of, of the company, you know, as many of you become leaders 00:23:07.586 --> 00:23:08.754 in companies, 00:23:08.754 --> 00:23:10.088 you know, that's going to be an important part 00:23:10.088 --> 00:23:13.425 if you can see that it shows 101 million positive. 00:23:13.692 --> 00:23:17.028 If this were negative, if, you know, we weren't receiving cash and we were, 00:23:17.062 --> 00:23:19.831 you know, we had a negative cash from operating activities, 00:23:19.831 --> 00:23:23.402 you know, then as leaders of this company, you'd be concerned, you know, that 00:23:23.402 --> 00:23:27.305 we don't have constant positive cash coming in to the company. 00:23:28.440 --> 00:23:30.308 You know, it's kind of like if you think in your own personal life, 00:23:30.308 --> 00:23:33.512 if you're spending more, than you earn, you know, there's 00:23:33.512 --> 00:23:38.183 something needs to be changed, to, to rightsize that, so that's where this, 00:23:38.183 --> 00:23:41.186 this statement can be, can be useful for, for leadership. 00:23:42.988 --> 00:23:45.991 Now, I'm not going to I'm going to kind of skip over this. 00:23:46.792 --> 00:23:50.095 It's just showing a hierarchy of at the very bottom of transactions 00:23:50.562 --> 00:23:53.598 that very a lot of millions of transactions happen every day 00:23:53.598 --> 00:23:56.601 in a company, and it flows all the way up to the balance sheet. 00:23:56.902 --> 00:24:00.405 And I think a good way to think of it is kind of like your your textbooks 00:24:00.639 --> 00:24:01.773 for school, 00:24:01.773 --> 00:24:02.741 you know, you're going to have 00:24:02.741 --> 00:24:05.744 at the very bottom, you're going to have a glossary of terms. 00:24:05.911 --> 00:24:08.713 And at the very top you're going to have your overall textbook. 00:24:08.713 --> 00:24:12.684 But in between, within your textbook, you have a glossary of terms. 00:24:12.684 --> 00:24:14.786 And then you go up to sections in a chapter. 00:24:14.786 --> 00:24:16.321 Then you're going to go to a chapter, 00:24:16.321 --> 00:24:18.690 and then you're going to go to another section of of 00:24:19.691 --> 00:24:21.092 that your book is broken into sections. 00:24:21.092 --> 00:24:22.060 Then you have the overall book. 00:24:22.060 --> 00:24:25.864 So the same thing happens in a business where we just managing 00:24:25.864 --> 00:24:30.035 the amount of activity and trying to organize and structure the transactions. 00:24:30.936 --> 00:24:34.406 Now in a lab, I'll kind of let this animation go through. 00:24:34.639 --> 00:24:37.008 You start off with cash, you get inventory, 00:24:37.008 --> 00:24:41.346 you buy the inventory with the cash, the samples come in, you get some labor 00:24:41.346 --> 00:24:44.349 and perform the testing on that sample, 00:24:44.349 --> 00:24:47.352 and then you send the results, to your client. 00:24:47.786 --> 00:24:50.522 And then you have this receivables where you've sent a bill to them 00:24:50.522 --> 00:24:53.525 saying, hey, pay me for the results that I sent you. 00:24:53.725 --> 00:24:57.062 And so this is this is an ongoing thing in, in a laboratory 00:24:57.395 --> 00:25:00.632 is you start with cash, buy the inventory, get the samples, 00:25:01.199 --> 00:25:04.202 perform the test, get the results, and then the receivables 00:25:04.302 --> 00:25:06.671 you send to the client, and then they pay you for the receivables. 00:25:06.671 --> 00:25:09.407 And then you get the cash and you start all over again. 00:25:09.407 --> 00:25:11.543 Just basic, lab operating cycle. 00:25:13.712 --> 00:25:16.181 Now in the finance world, 00:25:16.181 --> 00:25:19.150 we break things up into, 00:25:19.618 --> 00:25:23.788 periods or, quarters or months or years. 00:25:23.989 --> 00:25:26.658 And so, you know, not going to be rocket science to you. 00:25:26.658 --> 00:25:28.326 But this is kind of a typical break up. 00:25:28.326 --> 00:25:30.962 You're going to have a year obviously represents 12 months, 00:25:30.962 --> 00:25:33.999 and then you're going to have quarters every three months and then months. 00:25:33.999 --> 00:25:38.403 And so in the accounting world we report at these various periods 00:25:38.670 --> 00:25:41.673 and to our, to our leadership. 00:25:41.806 --> 00:25:45.744 And so, going on from that, when you have different periods, you all 00:25:45.911 --> 00:25:47.379 there's a term called accrual accounting. 00:25:47.379 --> 00:25:49.481 I it's going to be a kind of a weird term. 00:25:49.481 --> 00:25:51.683 And hopefully I kind of explain what it means. 00:25:51.683 --> 00:25:54.419 You may hear it as you go throughout the labs. 00:25:54.419 --> 00:25:57.155 So there's basically two ways of typical accounting. 00:25:57.155 --> 00:25:58.924 There's cash basis, which is 00:25:59.958 --> 00:26:00.659 you get cash 00:26:00.659 --> 00:26:04.529 instantly, you know, so as I perform a test for a lab, I send them a result, 00:26:04.729 --> 00:26:05.196 you know, 00:26:05.196 --> 00:26:08.199 they're going to give me cash today for that lab, for that work that I did. 00:26:08.266 --> 00:26:10.502 That's kind of a cash basis. 00:26:10.502 --> 00:26:13.972 You receive the cash, the period's received, accrual basis 00:26:14.239 --> 00:26:17.409 is is more common, especially with larger entities. 00:26:19.110 --> 00:26:20.378 Accrual accounting is basically. 00:26:20.378 --> 00:26:23.715 Hey, I perform the test for the lab, I send them the result, 00:26:24.182 --> 00:26:27.152 and I, they may not pay me for a month or two. 00:26:27.619 --> 00:26:30.055 Based on me sending them an invoice or a bill. 00:26:30.055 --> 00:26:32.524 And then they're going to, you know, the terms of our arrangement. 00:26:32.524 --> 00:26:35.193 I say I'm going to give them 30 days to pay that bill. 00:26:35.193 --> 00:26:36.695 And so a accrual basis is 00:26:36.695 --> 00:26:39.698 even though I performed that result, I sent it to them in July. 00:26:39.731 --> 00:26:42.734 I may not get paid until August or September. 00:26:43.335 --> 00:26:44.369 Whereas cash basis, I'm 00:26:44.369 --> 00:26:47.405 going to perform the test in July and I'm going to get the cash in July. 00:26:48.139 --> 00:26:51.109 So there's, there's two ways a cash basis is really for like small mom 00:26:51.109 --> 00:26:55.647 pop type stores, but most companies are required to do accrual based accounting. 00:26:56.715 --> 00:26:59.784 So if we think about revenues in accrual base 00:27:00.051 --> 00:27:03.221 revenues are recognized or reflected in the income statement 00:27:03.521 --> 00:27:04.956 when they are earned, 00:27:04.956 --> 00:27:08.059 the lab results delivered to the client, not when the cash is received. 00:27:09.160 --> 00:27:13.298 On the flip side, expenses the same thing, expenses are recognized 00:27:13.298 --> 00:27:16.301 or reflected in the income statement when they are incurred. 00:27:16.735 --> 00:27:19.371 When a service is performed in the company's behalf, 00:27:19.371 --> 00:27:23.942 or when the goods or supplies are used in the testing, not when. 00:27:23.942 --> 00:27:28.980 Not when we pay for the the supplies or when we pay for the services. 00:27:29.981 --> 00:27:32.484 A way to think of it is kind of like a, 00:27:32.484 --> 00:27:35.020 in many labs they have, you know, instrumentation like, 00:27:35.020 --> 00:27:38.023 let's say a mass spec and a mass spectrometer 00:27:38.223 --> 00:27:41.860 is going to have a service agreement where the manufacturer will come 00:27:41.860 --> 00:27:43.928 in periodically and service the instrument to make sure 00:27:43.928 --> 00:27:45.630 it's still operating properly. 00:27:45.630 --> 00:27:47.499 And so a lot of times when you have a service contract 00:27:47.499 --> 00:27:50.435 with this manufacturer, you're going to pay a year in advance. 00:27:50.435 --> 00:27:50.935 You're going to say, I'm 00:27:50.935 --> 00:27:52.170 going to pay you $12,000, 00:27:52.170 --> 00:27:55.073 and you're going to service this instrument for 12 months. 00:27:55.073 --> 00:27:58.977 And so rather than charging the company the full 12,000, you know, 00:27:59.010 --> 00:28:02.147 we'll pay the cash, we'll, we'll pay that, that, manufacturer. 00:28:02.280 --> 00:28:05.283 But rather than take the $12,000 that first month of the year, 00:28:05.583 --> 00:28:08.153 we're going to split it up over the 12 months. 00:28:08.153 --> 00:28:12.557 So that $12,000 becomes $1,000 a month over the course of 12 months, 00:28:12.824 --> 00:28:16.027 until that full year of that service contract has expired. 00:28:16.861 --> 00:28:19.931 That's the kind of a simple way to think of accrual accounting. 00:28:20.532 --> 00:28:23.535 Even though we paid for it upfront on July 1st, 00:28:23.568 --> 00:28:26.971 we're going to expense it for 12 months, July all the way through 00:28:26.971 --> 00:28:27.939 June of next year. 00:28:29.441 --> 00:28:32.444 So let me just give you some kind of some scenarios. 00:28:32.744 --> 00:28:36.848 So which period do we earn the revenue when we sign the contract? 00:28:37.982 --> 00:28:42.087 When we perform the service, when we issue an invoice or a bill 00:28:42.287 --> 00:28:45.990 to the, the client, or when we receive the payment, which period? 00:28:45.990 --> 00:28:47.926 April, May, June, July. 00:28:47.926 --> 00:28:50.729 Do we recognize the revenue? 00:28:50.729 --> 00:28:54.699 Well, if we're cash basis, I'm going to show revenue in 00:28:54.699 --> 00:28:58.336 July even though I sign the contract, perform the service, issued the bill. 00:28:58.336 --> 00:29:03.274 I'm going to show revenue in July, not in any earlier month on accrual basis. 00:29:03.274 --> 00:29:06.377 You're going to show the revenue in May because you performed, 00:29:06.377 --> 00:29:09.380 you set, you got a result and you sent it to the hospital. 00:29:09.848 --> 00:29:12.851 So that's kind of a distinguishing between cash basis and accrual. 00:29:13.685 --> 00:29:15.420 So we can use the same scenario. 00:29:15.420 --> 00:29:16.488 But on an expense. 00:29:16.488 --> 00:29:19.891 So you're going to order reagents, you're going to receive the reagents 00:29:19.891 --> 00:29:21.526 and get an invoice from the, 00:29:21.526 --> 00:29:24.529 the person that that made the reasons for you the company. 00:29:24.763 --> 00:29:27.766 And then you're going to pay that invoice for those reagents. 00:29:27.932 --> 00:29:31.202 And then later on in July you're going to actually use them in the lab. 00:29:31.503 --> 00:29:33.805 So again, which period do we expense it. 00:29:33.805 --> 00:29:36.808 If it's cash basis when we pay the invoice? 00:29:36.808 --> 00:29:38.176 If it's accrual basis, 00:29:38.176 --> 00:29:41.846 we're going to do it in July when we actually used the supplies. 00:29:44.682 --> 00:29:47.152 So just some other kind of key concepts 00:29:47.152 --> 00:29:50.188 that you should be familiar with in, you know, in the lab setting. 00:29:51.189 --> 00:29:54.058 The first one is prepaid, so it's, it's like that example 00:29:54.058 --> 00:29:55.193 I gave with the service contract. 00:29:55.193 --> 00:29:57.495 You're going to pay it upfront in July, 00:29:57.495 --> 00:29:59.697 but you're going to benefit from their services. 00:29:59.697 --> 00:30:00.799 They're going to keep coming. 00:30:00.799 --> 00:30:03.701 You know, they'll service your instrument for the next 12 months 00:30:03.701 --> 00:30:04.869 even though you paid all upfront. 00:30:04.869 --> 00:30:08.907 And so a prepaid is you paid out front and you get their bent. 00:30:08.940 --> 00:30:11.943 You get the benefit of their services for the 12 months, 00:30:12.577 --> 00:30:13.344 capitalized. 00:30:13.344 --> 00:30:16.347 And and this is revolving around like instruments. 00:30:16.548 --> 00:30:19.684 So when you buy a mass spec, you know, let's say it's $300,000, 00:30:20.084 --> 00:30:21.452 you buy it for three years. 00:30:21.452 --> 00:30:24.756 You're not going to reflect the full $3,000 in your income statement. 00:30:25.423 --> 00:30:27.725 Remember, the income statement lasts for about 12 months. 00:30:27.725 --> 00:30:30.061 Your revenue, expenses, margin. 00:30:30.061 --> 00:30:33.798 So you're not going to show a $3,000 hit your expense in there 00:30:34.232 --> 00:30:37.068 because that instrument is not you're going to use it 00:30:37.068 --> 00:30:39.938 once and it's going to be obsolete or is not going to work anymore. 00:30:39.938 --> 00:30:40.805 You're going to have that instrument. 00:30:40.805 --> 00:30:43.808 It may may work for like 5 or 8 years. 00:30:43.842 --> 00:30:48.313 And so what you want to do is take that instrument and spread out the expense. 00:30:48.313 --> 00:30:51.316 You're going to spread it out over 5 to 8 years. 00:30:51.482 --> 00:30:54.319 So you know, you spread it out each year, each month and each 00:30:54.319 --> 00:30:57.655 year, over the useful life of that instrument, 00:30:59.624 --> 00:31:01.392 and then cut off. 00:31:01.392 --> 00:31:04.963 So what cut off means is basically, you know, you have to 00:31:05.496 --> 00:31:09.300 at some point cut off each financial year or quarter or month. 00:31:09.567 --> 00:31:13.605 So a quick example is, you know, let's say our year end is June 30th. 00:31:13.605 --> 00:31:17.375 That's, you know, every June 30th, we end our year a new one starts July 1st. 00:31:17.909 --> 00:31:21.512 And so on June 30th, for the cutoff purposes, 00:31:21.512 --> 00:31:25.850 let's say I get a sample in my lab on June 30th at 6 a.m.. 00:31:25.884 --> 00:31:29.988 It comes into my lab and it's, you know, going through the processes or whatnot. 00:31:30.288 --> 00:31:35.226 And then on July 1st, we at 6 a.m., we resolve 00:31:35.226 --> 00:31:38.229 the test, you know, we get a result and we send it to our client. 00:31:38.296 --> 00:31:43.167 So even though the sample came in in June, we're not going to recognize the revenue 00:31:43.167 --> 00:31:45.103 because we didn't get a result to our client. 00:31:45.103 --> 00:31:47.372 We didn't fulfill our obligation until July. 00:31:47.372 --> 00:31:50.308 And so as of June 30th at midnight, 00:31:50.308 --> 00:31:52.343 even though the sample came in, we don't get revenue for it yet. 00:31:52.343 --> 00:31:54.712 We get we recognize the revenue in the other period. 00:31:54.712 --> 00:31:57.916 So the cutoff is what I'm highlighting here is June 30th is the cutoff, 00:31:58.783 --> 00:32:02.587 where we show recognition of revenue and expenses in one period or the other, 00:32:04.188 --> 00:32:04.689 accrue. 00:32:04.689 --> 00:32:07.692 We've kind of talked through that accrual is just, the act of moving revenue 00:32:07.692 --> 00:32:11.496 expense into another period, regardless of when the cash comes in. 00:32:13.097 --> 00:32:17.268 So, when in the second one down, the capitalized 00:32:17.402 --> 00:32:20.371 talking about instrument, you know, you buy and you appreciate it 00:32:20.371 --> 00:32:23.508 over the life that you're going to use it, the mass spec 5 to 8 years, 00:32:24.309 --> 00:32:27.345 the term that is often used that you'll hear is called depreciation. 00:32:28.313 --> 00:32:30.915 And so depreciation is the permanent decrease 00:32:30.915 --> 00:32:33.918 in value of an asset through wear or tear. 00:32:34.352 --> 00:32:37.322 In use obsolescence or passage of time. 00:32:37.522 --> 00:32:40.258 So it's an instrument as you use it for 5 to 8 years. 00:32:40.258 --> 00:32:43.061 The mass spec, it may not function properly. 00:32:43.061 --> 00:32:46.064 It may, you know, kind of be out of calibration or whatever. 00:32:46.431 --> 00:32:48.800 And so you depreciate that value. 00:32:48.800 --> 00:32:51.836 It's even though you bought it for $3,000 today, in eight 00:32:51.836 --> 00:32:54.605 years, it's not going to be worth $3,000 because you've been using it 00:32:54.605 --> 00:32:56.341 and it doesn't have as much value. 00:32:57.275 --> 00:32:57.608 And so 00:32:57.608 --> 00:33:01.279 depreciation is that periodic charge over the useful life of the asset. 00:33:01.279 --> 00:33:04.549 Like I said, it's you know, if it's eight years, you spread it out every month. 00:33:04.549 --> 00:33:08.619 You put a little incremental piece, over the life that you have. 00:33:08.619 --> 00:33:10.221 That instrument, 00:33:10.221 --> 00:33:13.224 it reflects the cost over time rather than at the time of purchase. 00:33:13.424 --> 00:33:16.060 So you spread it out. 00:33:16.060 --> 00:33:17.695 That the key here is appreciation 00:33:17.695 --> 00:33:21.299 over a period of time reflects a better matching of the revenues 00:33:21.499 --> 00:33:25.636 attributable to the use of the equipment with the cost of the equipment over time. 00:33:25.837 --> 00:33:28.840 So what that means is, you know, 00:33:28.873 --> 00:33:31.342 we're you're going to buy this mass spec and it's going to be 00:33:31.342 --> 00:33:34.278 you're going to be able to generate revenue for 5 to 8 years from it. 00:33:34.278 --> 00:33:35.646 You're going to be able to run tests through it, 00:33:35.646 --> 00:33:38.649 and you're going to be able to earn money because of this instrument. 00:33:38.983 --> 00:33:41.853 And so the the spreading out of the depreciation 00:33:41.853 --> 00:33:45.690 over the 5 to 8 years matches or goes along with the revenue 00:33:45.690 --> 00:33:48.893 that you plan to earn over that same time frame, because that instrument, 00:33:49.293 --> 00:33:50.094 if there comes a point 00:33:50.094 --> 00:33:52.130 where the instrument is just not working anymore, 00:33:52.130 --> 00:33:54.599 then you no longer have a revenue from that instrument. 00:33:54.599 --> 00:33:56.100 It's it's not working. 00:33:56.100 --> 00:33:59.670 And so you have to get rid of it and get a new instrument to start that up again. 00:34:01.873 --> 00:34:04.275 And here's just a quick visualization of it. 00:34:04.275 --> 00:34:08.012 So you have a mass spec three, $1,000, let's say it's useful is life 00:34:08.012 --> 00:34:10.982 is three years and we depreciate it 00:34:11.416 --> 00:34:14.419 $100,000 every year for the three years. 00:34:14.519 --> 00:34:16.454 So beginning year we start at 300,000. 00:34:16.454 --> 00:34:20.224 When you buy it the end of year one, it's now worth $200,000 00:34:20.224 --> 00:34:23.961 because you have taken a $100,000 expense in depreciation year 00:34:23.961 --> 00:34:26.064 to another hundred thousand and year three, 00:34:26.064 --> 00:34:28.232 you have fully depreciated your instrument. 00:34:28.232 --> 00:34:32.303 And so what that means is, let's say you get to use it for a year for 00:34:33.137 --> 00:34:34.739 so that's going to be really good for the company 00:34:34.739 --> 00:34:36.441 if you can use it for that fourth year, 00:34:36.441 --> 00:34:36.974 you're not going to have 00:34:36.974 --> 00:34:40.178 any depreciation expense because you fully depreciated it over 00:34:40.178 --> 00:34:41.245 the first three years. 00:34:41.245 --> 00:34:45.783 That fourth year is going to be a much more profitable, year for the company. 00:34:46.284 --> 00:34:47.285 If if they can do that. 00:34:48.719 --> 00:34:50.254 So, another 00:34:50.254 --> 00:34:53.257 accounting concept is materiality. 00:34:53.357 --> 00:34:56.360 It's precision within reason, you know, it's focusing on numbers 00:34:56.794 --> 00:34:59.831 and trying to find it out within reason. 00:34:59.831 --> 00:35:02.133 So here here's an example. 00:35:02.133 --> 00:35:05.103 So let's say $100 drops out of your pocket. 00:35:06.838 --> 00:35:08.706 Is how does that impact you? 00:35:08.706 --> 00:35:11.409 If $100 drops from your pocket on the sidewalk, 00:35:11.409 --> 00:35:14.412 if you have $500 to your name, 00:35:14.412 --> 00:35:17.014 you know, is that $100 kind of important to you? 00:35:17.014 --> 00:35:19.484 Yeah, it's it's it's material to you. 00:35:19.484 --> 00:35:22.487 It's it's it's very significant to you. 00:35:23.087 --> 00:35:27.391 But let's say you have $500 million if you drop $100. 00:35:27.725 --> 00:35:28.960 Is that significant to you? 00:35:28.960 --> 00:35:31.062 Well, you hate to drop $100, 00:35:31.062 --> 00:35:34.165 but in the same sense, it's not going to be the end of you. 00:35:34.165 --> 00:35:37.835 You know, it's not you're going to depend on food, with that $100. 00:35:38.136 --> 00:35:41.339 And so that's the same thing with with materiality at a company. 00:35:41.606 --> 00:35:44.242 You know, sometimes if you see variances, 00:35:45.443 --> 00:35:48.212 you know, depending on how large it is, you may have to go after it. 00:35:48.212 --> 00:35:52.083 But if it's not material, it's just not worth the effort to send, 00:35:52.183 --> 00:35:56.187 you know, accounting or finance or the lab people to, to figure out 00:35:56.187 --> 00:35:59.190 what that variance is or where that dollar went. 00:35:59.423 --> 00:36:01.826 Because it may not be material, it's just not worth the benefit. 00:36:01.826 --> 00:36:04.829 The benefit of spending money to find it out is just not worth it. 00:36:05.163 --> 00:36:06.130 So that's just a concept. 00:36:06.130 --> 00:36:09.133 You may hear materiality. 00:36:09.167 --> 00:36:11.269 And so kind of coming back to the slide where I showed you 00:36:11.269 --> 00:36:14.272 that the three different categories of accounting, 00:36:14.972 --> 00:36:18.309 but I want to focus on now the cost and managerial accounting, 00:36:18.743 --> 00:36:21.479 managerial cost accounting is a system for providing 00:36:21.479 --> 00:36:24.916 an analysis of cost information used in decision making. 00:36:25.683 --> 00:36:29.053 The lab manager must identify the total cost associated with the service. 00:36:29.453 --> 00:36:32.924 And must be effective in defining and itemizing all costs 00:36:32.924 --> 00:36:36.227 associated with the testing and other services provided in the lab. 00:36:36.360 --> 00:36:38.296 Okay. So translation. 00:36:38.296 --> 00:36:40.431 What that basically means is you want to understand 00:36:40.431 --> 00:36:43.134 when you have a task that you're going to, you're going to perform an assay 00:36:43.134 --> 00:36:45.469 you want, understand all the costs that go into that. 00:36:45.469 --> 00:36:48.372 What is the labor? What are the supplies. 00:36:48.372 --> 00:36:49.207 What is the equipment? 00:36:49.207 --> 00:36:52.310 All these types of things you want to understand, you must identify 00:36:52.310 --> 00:36:55.580 the total cost of the services that you're providing to your clients. 00:36:57.215 --> 00:36:58.449 So in, 00:36:58.449 --> 00:37:01.652 in in the cost accounting world, you have a term called fixed cost. 00:37:02.220 --> 00:37:04.488 These are not impacted by volume. 00:37:04.488 --> 00:37:09.026 So an examples are G&A salaries mean like accountant or I.T. 00:37:09.060 --> 00:37:11.796 people their salaries rent depreciation. 00:37:11.796 --> 00:37:16.500 So on a lab as the volume goes up meaning the number of samples, 00:37:16.500 --> 00:37:21.172 if it increases, you know, 10%, that doesn't really change the rent. 00:37:21.172 --> 00:37:24.108 The rent still going to be the same every every month. 00:37:24.108 --> 00:37:27.111 You're still going to pay, you know, $1,000 for rent every month. 00:37:27.211 --> 00:37:31.282 Even if volume goes from 0 to 1 million, your rent is still going to stay the same. 00:37:31.282 --> 00:37:33.351 So it's a fixed cost. 00:37:33.351 --> 00:37:35.253 The other one is variable cost. 00:37:35.253 --> 00:37:38.689 These are costs that move in relationship to the volume and change 00:37:38.689 --> 00:37:39.624 in the direction of volume. 00:37:39.624 --> 00:37:44.762 So supplies, as your volume increases, as you have more samples coming through, 00:37:44.895 --> 00:37:50.001 you're going to have to use more supplies in order to test those, samples. 00:37:50.401 --> 00:37:53.304 And so that that expense of your supplies is going to increase. 00:37:54.338 --> 00:37:55.473 The same with like send out. 00:37:55.473 --> 00:37:58.476 Now, when I say send out, it's when you have to send it out to another lab. 00:37:59.010 --> 00:38:03.147 So potentially you're going to increase, your cost as you have more of those. 00:38:03.481 --> 00:38:04.882 So that's a variable cost. 00:38:04.882 --> 00:38:08.119 It, it's going to vary with the volume that comes in. 00:38:08.753 --> 00:38:11.756 And then the next one is the semi variable or mixed cost. 00:38:11.856 --> 00:38:14.859 So these are kind of a blend or a hybrid. 00:38:15.092 --> 00:38:16.560 That can go up incrementally. 00:38:16.560 --> 00:38:20.464 So like electricity for instance you know your electricity may stay 00:38:20.464 --> 00:38:22.800 pretty much the same. Your usage may stay the same. 00:38:22.800 --> 00:38:25.703 But if your volume goes up, you know, 50% 00:38:25.703 --> 00:38:29.040 all sudden you're running your instrumentation 24 over seven. 00:38:29.273 --> 00:38:32.276 And so also on your electricity is going to be consumed a lot more. 00:38:32.410 --> 00:38:35.246 So there's not a direct relationship, but there is kind of 00:38:35.246 --> 00:38:37.148 an indirect relationship. 00:38:37.148 --> 00:38:41.786 As the volume increases, these costs will also increase, indirectly. 00:38:43.554 --> 00:38:44.121 So here's 00:38:44.121 --> 00:38:47.491 just a quick snapshot of, of a cost sheet. 00:38:48.225 --> 00:38:51.062 I don't want to go through this in too much detail, 00:38:51.062 --> 00:38:55.232 but you can see in the red and and green boxes that I've highlighted 00:38:55.232 --> 00:38:58.202 there, we have our direct labor cost, our direct supplies. 00:38:58.402 --> 00:39:01.739 You know, this just goes through an example of trying to identify the cost 00:39:01.972 --> 00:39:04.141 with a certain type of test. 00:39:04.141 --> 00:39:06.177 And then here's a list of all the supplies. 00:39:06.177 --> 00:39:11.148 So at the bottom you can see that $5.81 total supply cost in red. 00:39:11.582 --> 00:39:14.552 That matches what we have on the summary sheet here. 00:39:14.785 --> 00:39:17.788 The 588 in the red for the total supply cost. 00:39:18.356 --> 00:39:21.492 And then, we have some, standards and control. 00:39:21.492 --> 00:39:22.660 So you kind of just 00:39:22.660 --> 00:39:26.731 you want to understand the overall cost that it is to run this, this test. 00:39:27.298 --> 00:39:28.833 So that's that's cost accounting. 00:39:28.833 --> 00:39:30.701 We'll put that aside. 00:39:30.701 --> 00:39:34.004 The next the next thing that's going to be important for you guys 00:39:34.405 --> 00:39:37.408 as you start to go into labs and take leadership roles, 00:39:37.742 --> 00:39:41.278 is you're going to be wanting to know, how did we do as a company? 00:39:41.479 --> 00:39:45.950 That's where finance comes in, is finances, is there to provide 00:39:45.950 --> 00:39:50.888 information to help leadership executives, you know, to make decisions, 00:39:51.589 --> 00:39:54.158 for the company to help it, you know, improve. 00:39:54.158 --> 00:39:57.061 So we're going to be measuring performance, you know, how did we do. 00:39:58.062 --> 00:39:58.929 And you know, so 00:39:58.929 --> 00:40:01.932 you just have all these these things that you're going to be keeping track of. 00:40:01.932 --> 00:40:04.935 So like I talked before, there's margin 00:40:05.002 --> 00:40:08.806 you know how did you know the money left over after expenses net margin. 00:40:09.173 --> 00:40:12.176 And what I want to focus on or these last three ones 00:40:12.176 --> 00:40:14.979 is this common size income statement. 00:40:14.979 --> 00:40:17.281 Revenue per unit and expense per unit. 00:40:17.281 --> 00:40:19.784 And I'll kind of go through what those mean. 00:40:19.784 --> 00:40:21.118 These are really helpful tools. 00:40:21.118 --> 00:40:22.653 I think to many of you, 00:40:22.653 --> 00:40:25.890 as you start to become, you know, leaders in the company in a lab. 00:40:26.824 --> 00:40:30.428 So what you have here is just an example I showing 00:40:30.428 --> 00:40:33.431 April, May and June of a typical, you know, just a company. 00:40:33.564 --> 00:40:37.568 And when you look at the numbers you're like, wow, okay, April, 00:40:37.568 --> 00:40:38.836 we did $1,000 in revenue. 00:40:38.836 --> 00:40:40.604 May 5th thousand, June 10th out. Yeah. 00:40:40.604 --> 00:40:42.606 So you kind of get lost in the numbers. 00:40:42.606 --> 00:40:44.041 It's kind of hard to translate. 00:40:44.041 --> 00:40:45.109 Okay, well, what does that mean 00:40:45.109 --> 00:40:48.179 if if, you know, I had $9,000 in June of operating expense. 00:40:48.179 --> 00:40:49.246 What does that mean? 00:40:49.246 --> 00:40:53.083 We use the these common size income statement, these common size ratios. 00:40:53.083 --> 00:40:56.253 So if you look at the numbers in green, what we're saying 00:40:56.253 --> 00:41:00.424 is every expense as a percent of revenue, that's our common size ratio. 00:41:01.592 --> 00:41:03.594 Now you can get lost in the percentages too. 00:41:03.594 --> 00:41:06.697 So another way to think of it, if you look at that $100, 00:41:06.964 --> 00:41:10.601 if we look at April, there's $100 in the green, 100%. 00:41:11.101 --> 00:41:12.870 Let's say that represents $100. 00:41:12.870 --> 00:41:16.540 So for every $100 I bring in revenue and you go down the line 00:41:16.540 --> 00:41:19.810 operating expense, I'm going to spend 60% or $60. 00:41:19.810 --> 00:41:23.113 So for every hundred dollars I want to spend $60 to cover 00:41:23.113 --> 00:41:24.181 operating expense. 00:41:24.181 --> 00:41:27.151 Then I'm going to spend $20 to cover support expense. 00:41:27.418 --> 00:41:30.554 And then $15 to cover over, overhead expense. 00:41:31.021 --> 00:41:34.792 My total expense is going to be 95% or $95. 00:41:34.792 --> 00:41:39.630 So for that $100 that I earned, 95 of that 100 is going to cover my expenses. 00:41:39.964 --> 00:41:44.735 And what that means is my net margin is five is is $50 or 5% 00:41:44.969 --> 00:41:47.972 or $5 of that $100. 00:41:48.439 --> 00:41:51.442 So the really it's really helpful tool to look at that. 00:41:51.442 --> 00:41:53.210 And the reason we do this is, 00:41:53.210 --> 00:41:57.047 you know, if you look at April, we did $1,000 in revenue. 00:41:57.047 --> 00:42:00.050 But if you look at May, we did $5,000 in revenue, 00:42:00.084 --> 00:42:02.820 and then you look at the expenses in April 00:42:02.820 --> 00:42:06.323 versus May, the red versus the blue, and you come back. 00:42:06.323 --> 00:42:09.326 Well, you know, we we spent $3,000 more, 00:42:09.860 --> 00:42:13.063 or we spent $3,000 versus 600 in April. 00:42:13.864 --> 00:42:15.132 You know. Yeah, we spent more. 00:42:15.132 --> 00:42:16.100 But is that good or bad? 00:42:16.100 --> 00:42:18.569 I don't know, that's where these percentages come in. 00:42:18.569 --> 00:42:21.572 If you look at the May in April on those green percentages, 00:42:21.639 --> 00:42:26.610 they're the exact same all the way down, you know, six, $60, 60% covered 00:42:26.610 --> 00:42:31.982 operating expenses, 20% for support, 15% for overhead, total expense, 95. 00:42:31.982 --> 00:42:34.985 So even though the revenue went up and expenses went up, 00:42:35.085 --> 00:42:38.088 you know, you look at that common size percentage, 00:42:38.389 --> 00:42:41.492 you can see that we did we performed just the same in both of those months. 00:42:42.159 --> 00:42:44.662 You know, so that's a way to kind of make it make it 00:42:44.662 --> 00:42:48.799 turn it into apples to apples comparison rather than apple and orange. 00:42:48.799 --> 00:42:49.266 When you look at 00:42:49.266 --> 00:42:53.671 just the dollars on the flip side, if you look at June compared to May, 00:42:54.672 --> 00:42:57.675 you know, you may look at just the numbers of like, wow, we did $10,000. 00:42:57.675 --> 00:43:00.244 We doubled our revenue compared to last month. 00:43:00.244 --> 00:43:03.647 But then you look at your expenses, we did 9000 compared to 3000. 00:43:03.981 --> 00:43:07.051 And you go on down the line and you look at those common size ratios in June, 00:43:07.384 --> 00:43:11.922 you know, 90 for every $100 we make, 90 of it went to cover our operating and 00:43:11.922 --> 00:43:15.793 30 of it went to cover support expenses, and 23 went to cover our overhead. 00:43:15.793 --> 00:43:21.031 So we overspent in June, even though we had more revenue, our expenses were up. 00:43:21.031 --> 00:43:24.768 And so you look at June and, you know, that's that's where this can come into 00:43:24.835 --> 00:43:26.403 that that's worth can benefit 00:43:26.403 --> 00:43:27.938 because leadership is going to look at June 00:43:27.938 --> 00:43:29.573 and be like, man, we need to do something 00:43:29.573 --> 00:43:32.142 about our operating or our overhead expenses. 00:43:32.142 --> 00:43:34.244 You know, we're just running two. 00:43:34.244 --> 00:43:35.045 They're too expensive. 00:43:35.045 --> 00:43:37.047 We need to do something to scale that down 00:43:37.047 --> 00:43:39.750 so that we're back to our level of of May and April. 00:43:39.750 --> 00:43:42.252 And so that's really where the benefit of this common size ratio is. 00:43:42.252 --> 00:43:45.756 It allows you to just ignore all the numbers, the, the actual numbers, 00:43:46.023 --> 00:43:49.893 and to kind of put them on the same plane to compare apples to apples. 00:43:51.462 --> 00:43:54.031 So yeah, just kind of show you there. 00:43:54.031 --> 00:43:57.901 And, and then the last thing I want to talk about is this lower section 00:43:58.035 --> 00:44:00.037 looking at revenue and expense per unit. 00:44:00.037 --> 00:44:04.008 This is another helpful thing that you'll want to do in a lab is, 00:44:04.008 --> 00:44:05.476 you know, how much revenue we're doing per unit. 00:44:05.476 --> 00:44:07.311 You can see April, May and June. 00:44:07.311 --> 00:44:10.047 We did the exact same $10 per unit. So that's that's good. 00:44:10.047 --> 00:44:12.516 You know, we're still getting $10 per unit. 00:44:12.516 --> 00:44:15.786 But then when you look at expense per unit you can see April, May 00:44:15.786 --> 00:44:16.954 we stayed the same. 00:44:16.954 --> 00:44:20.157 But in June we just spent too much expense per unit. 00:44:20.157 --> 00:44:21.492 Again this is an indicator. 00:44:21.492 --> 00:44:24.561 You could look at this and be like, wow, we have a lot more. 00:44:24.561 --> 00:44:27.631 We're spending in supply per unit than the previous months. 00:44:27.898 --> 00:44:29.433 So that's an actionable thing. 00:44:29.433 --> 00:44:32.102 That's something that tells management to do something to change. 00:44:33.037 --> 00:44:35.406 And then of course margin that's the same story. 00:44:35.406 --> 00:44:38.409 So these two things, this, this, 00:44:38.676 --> 00:44:41.845 percent of revenue for your expenses as well as these expense, 00:44:42.279 --> 00:44:46.950 these, per unit measurements are good tools to use to try and identify 00:44:46.950 --> 00:44:51.188 and see where where, you know, the lab needs to change or improve. 00:44:53.190 --> 00:44:55.993 So along with, with this section 00:44:55.993 --> 00:45:00.030 is, you know, here's an example of a chart where we did a percent. 00:45:00.030 --> 00:45:01.565 Remember, the percent of revenue. 00:45:01.565 --> 00:45:06.170 Again, you look at that at three seven at the very in the green 37.7. 00:45:06.737 --> 00:45:08.539 Think of it in terms of $37. 00:45:08.539 --> 00:45:13.277 So for every $100 worth, we'd spent $37.70 00:45:13.544 --> 00:45:16.380 on the salaries and wages line. 00:45:16.380 --> 00:45:19.349 And so this is a good way to allow comparability 00:45:19.349 --> 00:45:21.452 between other years, prior years. 00:45:21.452 --> 00:45:24.455 You know, you can kind of see how are we doing for every dollar of revenue? 00:45:24.621 --> 00:45:27.624 How much are we spending in in our in our labor? 00:45:27.624 --> 00:45:28.892 That's that's the benefit of this. 00:45:29.893 --> 00:45:32.463 Now you're going to see in, in companies, there's 00:45:32.463 --> 00:45:35.599 going to be a bunch of ratios that that leadership can use. 00:45:36.233 --> 00:45:38.102 I don't want to spend too much time dwelling on these, 00:45:38.102 --> 00:45:43.040 but these are additional ratios that can give the health, of a company. 00:45:43.741 --> 00:45:45.876 It's just kind of like taking the temperature of someone 00:45:45.876 --> 00:45:46.944 that comes to the doctor. 00:45:46.944 --> 00:45:47.911 They're going to take the temperature. 00:45:47.911 --> 00:45:49.246 And this is kind of these are ways 00:45:49.246 --> 00:45:52.883 to take the temperature of the company by looking at these ratios. 00:45:53.383 --> 00:45:56.687 So, kind of coming back to this, now that we have this chart, 00:45:56.687 --> 00:45:59.156 we have comparability, you know, what do we do about it. 00:45:59.156 --> 00:46:01.024 How do we address this, 00:46:01.024 --> 00:46:05.028 this chart, what this is showing is that for in our accounts receivable, 00:46:05.028 --> 00:46:07.431 you know, when we sent bills to our clients, 00:46:07.431 --> 00:46:10.167 how long is it taking us to get the money back from them? 00:46:10.167 --> 00:46:12.102 And it's saying, you know, anything that the percent 00:46:12.102 --> 00:46:14.404 of our accounts receivable that's greater than 90 days. 00:46:14.404 --> 00:46:15.606 So do we have clients 00:46:15.606 --> 00:46:18.542 that are taking greater than 90 days to get a payment from them. 00:46:18.542 --> 00:46:23.580 And, you can see that at the far left it's really high, like 22.2 days, 00:46:23.881 --> 00:46:27.584 you know, 22% of our accounts receivable balance is over 90 days. 00:46:27.584 --> 00:46:28.418 That's a bad sign. 00:46:28.418 --> 00:46:31.421 That means a lot, 22% of what people owe you. 00:46:31.622 --> 00:46:34.358 It's taking them 90 days or longer to pay you, 00:46:34.358 --> 00:46:37.161 whereas you've if you go to the right, as we've progressed 00:46:37.161 --> 00:46:40.430 down, it's now down at the far right at 7.4. 00:46:40.430 --> 00:46:45.636 So only 7% of our accounts receivable balance takes 90 days or more to pay us. 00:46:45.636 --> 00:46:47.738 So that that's a trend you want to do. 00:46:47.738 --> 00:46:51.508 So seeing something like this gives some directive and 00:46:51.508 --> 00:46:54.111 and helps management decide, okay, hey, we need to start 00:46:54.111 --> 00:46:57.114 being a little more proactive in getting payment from our clients. 00:46:57.414 --> 00:47:00.551 Otherwise we're going to be, you know, held without getting paid. 00:47:02.753 --> 00:47:05.455 So it's turning this information into action. 00:47:05.455 --> 00:47:09.760 And so, you know, one more example is, you know, I can see 00:47:09.760 --> 00:47:13.530 in the middle in 2011 the supply expense as a percent of revenue. 00:47:13.797 --> 00:47:17.201 It started off at 7.7 on the far right. 00:47:17.501 --> 00:47:19.770 And then in the middle it came up to 11.1. 00:47:19.770 --> 00:47:23.240 So if you picture yourself as company leadership in 2011, 00:47:23.473 --> 00:47:26.577 we're looking at that going up and we're like, man, we need to do something. 00:47:26.577 --> 00:47:28.946 We're spending too much supplies. 00:47:28.946 --> 00:47:29.980 As a percent of our revenue. 00:47:29.980 --> 00:47:33.083 We need to to fix that, you know, are we paying too much for our vendors? 00:47:33.317 --> 00:47:35.085 Are we wasting the supplies? 00:47:35.085 --> 00:47:37.087 You know, just asking all these questions. 00:47:37.087 --> 00:47:40.490 And so apparently in 2011 that they discovered 00:47:40.490 --> 00:47:42.492 or they went after what was causing the problem. 00:47:42.492 --> 00:47:45.662 And now from 2011 to 2015, you can see that went down. 00:47:45.963 --> 00:47:51.435 And so it allows you to take action and to make improvements to the company. 00:47:53.003 --> 00:47:56.640 And these are just, you know, tools for effective financial management. 00:47:56.640 --> 00:48:00.811 You want it accurate and timely, open and accessible, drill down, 00:48:01.545 --> 00:48:06.049 and inclusive in the budget process and, you know, proper sense of ownership. 00:48:06.450 --> 00:48:10.554 And so that, that covers the basic accounting concepts, 00:48:11.588 --> 00:48:14.658 that I have that, you know, kind of pertains to the lab environment. 00:48:15.659 --> 00:48:16.526 Thank you very much.