Using
Cash Flow Projections
Attaining a steady, positive cash flow should be a priority for your
practice. By effectively managing cash flow, you can help your practice grow
and thrive through all types of economic conditions.
A critical tool in managing cash flow is the cash flow projection. Simply
put, this is a forecast of your practice’s cash receipts and expenditures on
a weekly or monthly basis. A cash flow projection lets you see the flow of
money coming in and moving out of your practice. With this information, you
can devise strategies to handle your practice’s cash surpluses and deficits
and to better control overhead.
Putting a Forecast Together
Using your accounting records and historical patterns as a guide, break
out income and expense categories into anticipated monthly cash receipts and
expenditures. Combining your practice’s cash balance at the beginning of the
month with the projected net cash flow for the month will show you whether
you have a projected cash surplus or deficit at the end of the month. If,
for example, your projection for January indicates that cash expenditures
will exceed receipts by $10,000 and you have an $8,000 cash balance at the
beginning of January, your deficit for that month is $2,000. Update your
forecast monthly, if not weekly, using actual financial data.
Handling a Projected Deficit
If future cash flow deficits are provisionally identified, you’ll want
to decide on the steps you will take to manage those deficits. Your choices
will commonly come down to using a line of credit, obtaining a short-term
loan, taking steps to speed up the collection of money owed to your practice
or reducing expenses.
Having a line of credit you can draw on will help you even out fluctuations
in cash flow. A good accounts receivable tracking system will promptly flag
overdue accounts so that you can quickly follow up with delinquent patients
and insurers. Follow up at regular intervals if you still haven’t been paid.
Your practice could also tackle projected deficits by looking for ways to
reduce expenses. An energy audit, a top-to-bottom review of purchasing
policies, a close look at your practice’s space requirements and a review of
your current compensation practices are all ways that your practice might
use to reduce expenses.
Making the Most of Surpluses
You can pay down a line of credit or invest in short-term or liquid
instruments when you have a surplus. 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.
An Important Tool
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. We can help you review your current cash management
practices and suggest possible improvements--please
contact us.
Health Care Commentaries is
provided by Somerset’s
Health Care Team
for our clients and other interested persons upon request. Since
technical information is presented in generalized fashion, no final
conclusion on these topics should be made without further review. For
additional information on the issues discussed, please contact a member
of our Health Care Team. This
document is not intended or written to be used, and cannot be used, for
the purpose of avoiding tax penalties that may be imposed on the
taxpayer.
Somerset CPAs,
P.C.
3925 River Crossing Parkway, Third Floor
Indianapolis, Indiana 46240
317.472.2200 • 800.469.7206 • FAX 317.208.1200
www.SomersetHealthCareTeam.com
info@somersetcpas.com
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