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Making Use of Cash Flow Projections

Posted on September 5th, 2019 by CIG

Topic: Business Advisory Services, Cash Flow, Growth Strategy, Medical Practice Management, Performance Management

When you manage your medical practice’s cash flow effectively, you can better prepare your practice for 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 forecast shows the anticipated flow of money entering and leaving your practice on a monthly (or weekly) basis. With the help of this information, you’ll be able to create strategies to handle your practice’s cash surpluses and deficits and to control your overhead.

Creating a Forecast

The first step in creating a forecast 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.

Let’s say, 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.

What To Do with a Projected 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 will 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. Some expense-reducing ideas to consider: an energy audit, a comprehensive review of purchasing policies, a reassessment of your practice’s space requirements, and a review of your current compensation practices.

Maximizing a Surplus

A surplus allows you to pay down a line of credit or invest in short-term or liquid instruments. Your bank most 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.

Cash flow projections can identify periods when cash may be tight so that you’ll have time to secure additional credit or take other steps to address the problem.  CIG Capital Advisors’ business advisory professionals can help identify and prioritize various measures that will help your practice run more efficiently. Specifically, we can help you review your current cash management practices and suggest possible improvements. To get started,   schedule a complimentary consultation with a CIG Capital Advisors business advisory professional.