Patient care and the health of its patients is of the utmost importance to any medical or dental practice. Have you ever stopped to consider though, how is the practice’s ‘financial’ health?
Cash flow is one of the most significant indicators of the overall ‘financial’ health of any practice.
Not to be mistaken with the profitability of a practice, many practices can be profitable but cash flow deficient. So how do you go about making sure this doesn’t happen to you?
Understand your practice
Take the time to gain an understanding of your practice’s daily operations. We are not saying you need to micromanage every aspect of the practice but spend time overseeing the daily mechanics as you may be able spot issues or inefficiencies and areas of improvement.
Simply observing will be the first building block in understanding the practice’s cash flow demands.
Know the difference between profit and cash flow
Cash flow refers to the way money moves in and out the practice and, specifically, the practice’s bank account. This is different from the practice’s profit, which is the amount of income left over after taking in to consideration all of the expenses for a practice. Importantly, these expenses can be cash and non-cash transactions such as the depreciation of equipment.
An important fact to remember that just because a practice is profitable, it doesn’t mean that its cash flow is positive.
Set a budget
When you have a budget for your practice you increase your chances of success and profitability.
Budgeting is not a set and forget process. A successful budget will be monitored on an ongoing basis to ensure it is still on track with the goals and operations of the practice. A budget from time to time may need to be revised. Using an up to date budget enables you to manage the practice’s cash flow and identify what needs to be achieved in future periods.
A simple starting point can be breaking down your costs and outgoings in to categories so they are easier to understand and manage.
One way to keep a close eye on both your practice profit and overall cash flow is to review your financial statements regularly and engage a knowledgeable team of advisors to help you do this.
Educate your staff
Your key staff members play a pivotal role in ensuring positive cash flow for your practice. Delegating responsibilities to these staff members can improve stock control and ordering, increase the monitoring of variable overheads and empower staff to take control and make sensible change to improve the practice’s cash flow position.
A team that is aligned to the practice’s overall goals and objectives will undoubtedly be successful.
Engage a team of experts
The right practice manager, bookkeeper and accountant are critical in ensuring you understand the cash flow dangers and pitfalls within your practice. The right team will ensure your practice stays on track and you remain informed. This team needs to be the right fit for your practice and should be willing and able to help you get this right.
With a new financial year just around the corner now is the time to act.
If it has been a while since you have taken the time to understand your practice’s cash flow, or if you require assistance with budgeting and ongoing monitoring, please get in touch with the team at Cutcher & Neale.
