LNCtips.com: Financial Terms for LNCs
I once was a chief nursing officer with a budget of hundreds of millions of dollars so I'm embarrassed to tell you this story. As a chief nursing officer, I knew what financial terms meant as they applied to capital and operational budgets. I later started a small business with my husband and made a big monetary mistake. Even though I knew how to read a balance sheet, I made the mistake because I didn't know how to apply some basic financial terms to my new role as a small business owner. I'll tell you more about that later.
As a new expert or independent legal nurse consultant, you're also a small business owner. You need to learn some basic financial terms so that you can prevent errors like mine. So let's look at some basic financial terms that affect legal nurse consultants:
Income. This is the money that you earn in your legal nurse consulting business. Examples of income sources include performing expert work, reviewing medical records, finding experts, testifying at depositions and trials, and conducting medical research.
Expense. This is what it costs you to run your business. Examples of expenses include office supplies, office equipment, continuing education, insurance, and marketing.
Profit. Profit is your income minus your expense. For example, if you earn $20,000 and have $5,000 in expenses, your profit is $15,000. Like other small business owners, many new legal nurse consultants operate at a loss for at least the first few years. Operating at a loss means that you spend more money than you take in.
Budget. A budget is a reasonable plan for expenses and income. Think of a budget as a road map. A budget helps you to get to your destination (profitability) by staying on the right road without veering off course.
Credit. In accounting, money that you owe to someone. For example, you buy new computer equipment but haven't paid for it yet.
Debit. In accounting, money owed to you. For example, you have performed services for an attorney but the attorney has not yet paid you.
So what's the error that I made when I first became a small business owner? We had an old-fashioned credit card processing machine that required us to press Credit or Debit. I thought that meant that I should press Credit when customers paid with a credit card and press Debit when they paid with a Debit card. Little did I know that when I pressed Debit, I was posting the cost of the sale to the card holder. That's because when I pressed Debit, it indicated that money was owed to the card holder. Pressing Debit was supposed to be used for refunds.
I didn't realize I had done anything wrong until I reviewed the first monthly statement from our credit card processing service. Then I had to notify all those customers who had used Debit cards (because none of them had notified me) that I had made a mistake which I was going to correct. It wasn't a great way to start my business.
Now that you know some basic financial terms, you won't make the same kind of mistake that I did!