- Welcome Aboard!
- Refractive Surgery in Children
- Treat Dry Eye to Prevent Contact Lens Problems
- Corneal Compensated IOP: A Game Changer?
- The Halogens Are Coming
- PDEK With a Graft Prepared by an Eye Bank
- The Optometrist’s New Role in Keratoconus Management
- The Great Debate in CXL: Epi-on Versus Epi-off
- The History of Electrophysiology
- DEWS II: The Sequel to DEWS
- Chatting With Patients: OSD Identification and Patient Education
- The Interaction of Dry Eye and Ocular Allergy
- What to Do When That Red Eye Will Not Go Away
- Dehydrated Amniotic Membrane for Ocular Surface Disease
- The Science Behind Intense Pulsed Light Treatments
- Neurostimulation Offers New Approach to Dry Eye
- Dry Eye Disease Therapy: A Flowing Pipeline
- OSD and Cataract: Preparing for Better Surgical Outcomes
- Postchiasmal Visual Field Defects in Multiple Sclerosis
- Upping Your Game
- Get to Know Josh Johnston, OD, FAAO
One of the most important factors in the financial health of your practice is cash flow. Your certified public accountant and financial advisors will likely spend a lot of time poring over financial statements. They will analyze your profit and loss statement and your balance sheet. They will discuss with you the merits of various statements analyzing production by physician or revenue by location. This is all important and necessary, but positive cash flow is the best indicator of sustainability.
Understanding your cash flow and using it to your advantage can make the difference between a profitable, successful, growing practice and one that limps along, barely getting by. Most of you are aware of the basics—positive cash flow is good, and negative cash flow is not, right?—but have you taken the time to determine how you can use cash flow to your advantage? You can maximize your business capital by managing your receivables and payables and by properly structuring capital expenditures and debt.
Receivables are the lifeblood of most medical practices. Having a handle on your receivables is paramount to maintaining a financially healthy practice. You should know which percentage of your receivables you are actually collecting. If some payers pay significantly faster than others, keep this in mind as you renegotiate contracts with insurance carriers. Ensure that your staff codes properly to facilitate quick turnaround on collecting receivables. Reducing the days in receivable by following up with slow payers or by ensuring that the bill is correct the first time can mean you get paid more quickly and spend less payroll on having a staff member hunt for cash.
Paying vendors on time reduces the costs associated with late payments, but paying them too early generally does not make sense for your business. Be sure your payables clerk pays attention to payment terms on invoices. You should monitor the system to make sure you are not being hit with late fees, and you should track costs to make sure your vendors’ price increases are reasonable. If you are looking to reduce payables, ask yourself this: When was the last time you bid out the services your vendors are providing to make sure their costs are competitive?
Capital needs for your practice can be a big drain on your cash flow. With interest rates low, you may be able to use leverage to your advantage. A capital lease of equipment at a low interest rate may be more advantageous than purchasing equipment with cash. A line of credit for the business may be used during periods of reduced cash flow at a relatively low cost. If you can finance at a 3.5% to 4% rate, you are likely better off paying interest than using your own funds. You can generally invest your own funds and get a better return. Debt can free up capital at a very low cost as long as it is properly managed.
As you review your financial situation with your advisors, make sure to discuss cash flow along with profitability and taxes so that you can ensure that your business is being run as efficiently as possible.
For a free hard copy of For Doctors Only: A Guide to Working Less & Building More, call 1-877-656-4362. Or visit ojmbookstore.com and enter promotional code NEWRET36 for a free e-book download of For Doctors Only or the shorter For Doctors Only Highlights for your Kindle or iPad.
Carole Foos, CPA
• principal, OJM Group, Cincinnati