Cash Flow Management for Doctors and Private Medical Practices

Welcome

Welcome to MoneyTalks, the Somo Financial Group newsletter dedicated to helping companies make or save money by picking the best financial products on Wall Street and bringing them to Main Street. Today, we’ll dive into the critical topic of cash flow forecasting and optimization for doctors and private medical practices. Running a medical practice can often feel like riding a roller coaster, with unpredictable highs and lows. But with effective forecasting and optimization, you can keep your financial ride smooth and steady, even as you grow and attract more patients.

Market Outlook

Cash management is witnessing rapid evolution driven by technological advancements and adapting markets. The Federal Reserve’s fluctuating interest rates significantly impact the cost of borrowing and the return on savings, making it imperative for businesses to stay informed and flexible. Additionally, regulatory scrutiny emphasizes the need for transparency and accuracy in financial reporting. The economic uncertainty of 2024 and upcoming election prove that now is a time more than ever to stay informed on what tools are on the market to help your business succeed. The programs are available but when you’re running your company you’re too busy keeping things moving to care. However, the pros keep tabs on what's going on and we hope that despite the warnings and feedback loops that are about the economy not doing well you find value in our assessment of cash flow management and forecasting options available for you and your practice.

Topic of Issue: Cash Flow Management

Cash flow management is the process of monitoring, analyzing, and optimizing the cash that flows into and out of your business. For doctors and private medical practices, one of the main challenges is dealing with irregular cash flow due to patient billing cycles or other unforeseen disruptions to patients making appointments. This irregularity can lead to periods of high cash inflow followed by stretches of low or no inflow, making it difficult to cover expenses consistently for your employees, your business, or even yourself.

Example 1: A practice might experience a surge in cash inflow at the beginning of the month when insurance payments are processed, followed by a drop as operational expenses are paid out.

Example 2: During flu season, a practice might see increased patient visits and payments, while other months might experience a lull, creating a cash flow imbalance.

Example 3: You’re an elective procedure based practice where your skill and reputation are the number one draw for new customers. What would it look like for your practice if nobody showed up for 3 months?

How Cash Flow Forecasting Works: Cash flow forecasting involves predicting your business’s future financial position by estimating the timing and amounts of cash inflows and outflows over a specific period. Effective cash flow forecasting helps you anticipate periods of surplus or shortage, allowing you to make informed financial decisions. Decisions like when, and where to leverage the cash you do have to generate some sort of additional return on your money. You can’t always work, you have to sleep, you have to eat, and take breaks but not your cash. Your company’s cash flow can and should always be working for you.

Strategies to Maximize the Return on Each Dollar

• Monitor Receivables: Keep track of outstanding patient bills and follow up promptly to ensure timely payments. According to a 2021 report by MGMA, practices that consistently follow up on receivables see a 10-20% improvement in cash flow.

• Optimize Payment Cycles: Align your expense payments with your cash inflow patterns to avoid periods of cash shortage. Practices that successfully align their billing and payment cycles can reduce cash flow gaps by up to 15%.

• Invest Idle Cash: Use high-yield cash management accounts to earn interest on surplus cash. Stay away from certificates of deposits! You need ultimate flexibility and can’t afford to have your company’s cash locked up. Practices investing idle cash in high-yield accounts have reported up to 5% annual returns sometimes more. This doesn't sound like much but the alternative is keeping your surplus cash in your standard business checking account. Sounds great, but this is like having it at home under your pillow. 

Anonymous Case Study

Imagine your practice as a roller coaster, with peaks representing periods of high patient payments and troughs representing periods of low patient appointments, receivables, and higher expenses. Just as a roller coaster needs a steady track to run smoothly, your practice needs effective cash flow forecasting to maintain financial stability.

Consider this practice in New York that, for two years, enjoyed steady patient inflows and generated over $6 million in top-line revenue annually. However, when their marketing efforts faltered, their online visibility plummeted, and patient referrals dwindled, their patient volume dropped by 80% for more than 60 days. During this period, the practice had to make critical decisions to survive the new cash flow situation.

It’s easy to feel on top of the world when everything is going well, but it's crucial to use those prosperous times to plan for the unexpected. By implementing basic cash flow forecasting strategies, this practice could have taken several proactive measures: securing a line of credit, depositing a budgeted surplus cash into a Somo cash management account, monitoring receivables, and collecting on past due payments. The goal is to buy critical time to address issues and gradually return to a status quo where you can focus on your patients and ensure the business side of the practice falls into place.

Now you might think, duh, I would’ve done that, but be honest would you have?

If you’d like to offer an experience or anecdote from your company or business, reach out with your story and we’ll publish your case study and give you and your company a promotion!

Key Takeaways:

• Accurate cash flow forecasting helps manage irregular patient billing cycles.

• It ensures your practice can cover expenses consistently, avoiding financial stress.

• Effective forecasting aligns with regulatory expectations for financial transparency.

• Monitoring receivables and optimizing payment cycles are key strategies.

• Putting surplus cash towards financial instruments like a high yield account, or other credit line option can maximize returns and provide needed emergency flexibility.

Actionable Steps/Recommendations to Use Somo's Cash Management Program

• Set Up a Cash Flow Forecasting System: Utilize simple tools or advanced software to see when and how patients historically pay to match when and how expenses are paid.

• Monitor Regularly: Conduct monthly reviews of your reports and forecasts with your staff to stay proactive and ahead of potential issues that are outside of your control.

• Leverage Somo’s Turbo Charged Cash Management Account: Open an account for free with no minimum deposit amount. Allow your unused capital to earn high interest rather than sitting idle. With no lockups and FDIC insurance, you gain ultimate flexibility and peace of mind.

Setting up and managing Somo's cash management program is hassle-free, allowing you to focus on being a doctor rather than a financial administrator. Let Somo handle the complexities of cash management so you can concentrate on providing excellent patient care.

Conclusion

Navigating the challenges of running a medical practice requires accurate cash flow forecasting and effective cash management. These tools are not just financial exercises but vital components of building a resilient and thriving practice. If you found this article helpful, please share it with your colleagues and network. Your support helps us spread valuable knowledge and improve financial health across the communities of business owners all over the country. You don’t have to be a doctor or run a private medical practice to benefit from our services.

We want to hear from you! What are your thoughts on what has or hasn’t worked for your practice? Do you have any questions or comments? Let us know below, and don't forget to check out Somo’s Turbo Charged Cash Management Account to start making your money work harder for you.

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Thanks for Reading!

Remember, when it comes to managing your business’ finances, you don’t have to do it alone. Let Somo help you keep your ride smooth and steady. We write this newsletter on the second and fourth Monday of the month on topics around operating and managing your business using some of the best kept Wall Street secrets. Somo Financial Group is a commercial business alliance helping companies save money and make money. Enjoy the journey, and till next time! Deuces.