How to take control of your practice’s cash flow

As a practice owner, you are directly responsible for the financial performance of your practice. This responsibility may require you to understand your business’s cash flow — the numbers you plan to achieve in order to meet your obligations and earn a profit — and the most effective ways to generate those numbers.

Indeed, understanding your cash flow is one fundamental aspect of ultimate financial success. Here are several important steps you can take to effectively manage and generate cash flow:

1. Establish production goals

Production is the first step toward a healthy cash flow. To sustain and grow your practice, your goal may be to collect enough of what you produce to cover your operating expenses, pay down debt, and deliver adequate profit. One important key to maximizing your cash flow is to establish daily and monthly production goals and a plan for reaching them. For example, try to maintain a full schedule by staying on time to the extent possible to avoid losing appointments and working late. Also maintain a waiting list and call those patients to fill any open slots due to cancellations. 

2. Improve internal systems

Internal systems can encompass everything from patient collections portals to staff payroll software, and they can be critical in establishing both operational and financial efficiencies. Using ineffective patient follow-up systems can take time away from your professional development or business planning, and computer programs that don’t capture all charges may limit your cash flow. Developing an efficient, effective, and quality-driven internal operation may help support your cash flow function while upholding your brand and overall practice value.

3. Invest in marketing

Marketing can be a critical factor to cash flow generation — not just when you’re starting your practice, but throughout your career. By routinely investing in a marketing program that may include a website, social media, and community and industry engagement, you can help ensure a regular flow of patients to your office along with a potentially robust production schedule. To get the most for your marketing dollars, take a look at Digital marketing: What to DIY and what to refer out.

4. Take control of debt

Starting your own business often means incurring debt around real estate, office remodels, equipment, and supplies. To take control of your debt, consider consolidating loans and credit accounts to possibly lower monthly payments. Try to pay more than what’s due, especially on bills with a higher interest rate. Also, see if you qualify for lower interest rates on existing loans and credit cards, and look at other fees and charges to see if they can be waived. Every dollar adds up.

5. Create a budget and stick to it!

One plan for helping to ensure your spending levels are reasonable is to create an annual financial forecast with a specific budget for each month. Here’s a suggestion on how to do it:

• Determine your projected gross income. Guesstimate the number and types of procedures you expect to perform each week (based on recent months or years) and use this to calculate what you expect to earn in a month.
• List your operating expenses and overhead per month. That’s anything required to keep the doors open, such as salaries, lease payments, supplies, and monthly subscription fees. Total up these costs.
• Determine your projected monthly cash flow. To do this, subtract your operating expenses and overhead from your projected gross income.
• Create a budget. Make a list of all your other expenses, such as continuing education, kitchen snacks, marketing, and other nice-to-haves. Decide how much of your projected gross income to allocate to each category per year, per month, and per week.

Tuck these ideas for managing and generating cash flow in your practice-management toolkit, and you’ll be well on your way to maximizing the financial performance of your practice and helping to ensure its continued success in years to come.