How to Even Out an Irregular Cash Flow

Shelly Reese


December 27, 2012


You may be seeing plenty of patients, but if you're not managing your cash flow, you could have trouble paying bills, meeting payroll, or purchasing supplies and equipment.

"Cash flow is essentially how we exist, and yet most practices don't look at it," says Ken Hertz, a principle consultant with the MGMA Health Care Consulting Group. "They look at the balance sheet -- their assets and liabilities -- and at their profit and loss statement, but the cash flow statement is a critical piece that tends to get overlooked."

A cash-flow crisis can arise from myriad scenarios. The government puts a hold on Medicare payments. Payment for your oncology supplies is delayed. You need to make large, unexpected purchases or repairs in your office. A new doctor joins the practice and your largest payer says he isn't registered with the plan. Any one of these could rapidly derail an otherwise productive practice.

"By and large, practices don't keep large cash reserves, so a mistake or an oversight or a miscommunication or a 'somebody forgot to follow up' can cause an enormous cash-flow problem," Hertz says.

Ensuring healthy cash flow depends on managing expenses -- including unexpected ones -- and vigilantly tracking the money coming into the practice. That means paying attention to the details of the business.

"You need to analyze your balance sheet, income statement, and cash flow reports every month and consider them in the context of the past 6 months," Hertz says. "Look for trends, and if you notice an aberration, investigate. If you don't take the time to look at these and to understand them and to ask questions, do not be surprised when the practice runs into problems. Stupid stuff can get out of control."

Get a Handle on the Money

"The whole notion of cash flow begins with a budget," says Hertz, "and it's amazing how many practices don't have one."

You need to know when money is coming in and when it is scheduled to go out. Set up a calendar based on the past 6 months' experience, showing major payments and expenses -- including salaries, rent, utilities, and all types of insurance. Write expected expenses on the calendar.

Most practices will be able to track cash flow using a desktop spreadsheet, but if your practice is experiencing a major cash crunch, Hertz recommends recording the information on a wall calendar. "Seeing that information with expenses in one color or payments in another gives the issue prominence and forces you to pay attention," he says.