When you effectively manage your medical practice’s cash flow, you help your practice grow and thrive during both strong and weak economic times. The key to managing cash flow is the cash flow projection — a forecast of your practice’s cash receipts and expenditures.

A cash flow projection shows the anticipated flow of money entering and leaving your practice on a monthly (or weekly) basis. With the help of this information, you will be able to develop strategies to handle your practice’s cash deficits and surpluses and to control your overhead. Cash flow projections can identify periods when cash may be tight, so that you will have time to secure additional credit or take other steps to address the problem.

Creating a Projection

The first step in creating a cash flow projection is to examine your accounting records and historical patterns. For each income and expense category, project monthly cash receipts and expenditures. When you combine your practice’s cash balance at the beginning of the month with the projected net cash flow for the month, you can see if you will have a projected cash surplus or deficit at the end of the month.

For example, your projection for October indicates that cash expenditures will exceed receipts by $9,000 and you have an $8,000 cash balance at the beginning of October. Your deficit for that month is $1,000.

Update your forecast monthly, if not weekly, using actual financial data.

Managing a Deficit

If your projection indicates future cash flow deficits, you’ll need an action plan to deal with them. For example, you might use a line of credit, obtain a short-term loan, take steps to speed up the collection of money owed to your practice, or reduce expenses.

A line of credit can help you even out fluctuations in cash flow. A good accounts receivable tracking system should identify overdue accounts so that you can quickly follow up with delinquent patients and insurers. Stay on top of delinquent accounts with frequent calls and letters.

Reducing your practice’s expenses is another effective strategy for handling projected deficits. Expense-reducing ideas to consider include the following:

      • an energy audit
      • a comprehensive review of purchasing policies
      • a reassessment of your practice’s space requirements
      • a review of current compensation practices

Maximizing a Surplus

A surplus can allow you to pay down a line of credit or make short-term investments. Your bank likely offers a variety of cash management services, such as an automated investment sweep, that can help your practice make the most of its excess cash.

Contact Bob Baldassari, MCB’s Medical Practice tax and consulting leader, for a best practice review of your medical practice and tax planning and compliance services.

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