A medical practice is one of the most challenging types of businesses to manage cash flow due to lack of visibility. When a patient books an appointment, it’s very difficult to predict with certainty how much revenue that booking will generate, not to mention when the practice will get paid and what percentage of the amount owed will eventually be written off as uncollectable. This makes budgeting and forecasting finances very difficult and has resulted in many practices going under.
To help you grow and maintain a successful medical practice, this article will help you with your financial health. Here are 3 questions that you need to be able to answer when it comes to cash flow and budgeting for a medical practice.
Question 1: Do you know how much you need to be able to finance the practice through the first 12 months?
How much will running a medical practice cost? How long will you be able to finance yourself in the worst case scenario? These questions can be answered by drawing up a business plan, outlining your business goals, and forecasting potential challenges as well as financial projections.
When thinking about the cash flow and budgeting for a medical practice, you need to first make realistic assumptions about the practice such as number of patients, regulatory changes, and technological advancements etc. Once you have these documented, you can then create your budget model. Start with fixed expenses (rent, insurance, interest and utilities) and then move on to your variable expenses that fluctuate in relation to your revenue (payroll, medical supplies and billing services). Lastly, you need to identify discretionary costs that you may cut if times get tough as well as areas you would like to develop if you exceed your expectations.
Question 2: How will you monitor your financial health?
When your medical practice is open and up and running, you need to be monitoring your finances regularly to make sure that they are healthy. If you don’t, you won’t be able to identify any potential financial problems that may arise and therefore, implement changes to prevent or minimise them.
To monitor your progress and plan for growth, review your monthly financial statements. It is helpful to review your balance sheets, income statements, and cash flow, and compare these figures to the previous month as well as your budgeted figures. By doing so, you will be able to easily identify trends, spot potential issues early, and make better financial decisions for your practice.
Question 3: What steps will you take to change the results?
The best advice that we can give when it comes to cash flow and budgeting for a medical practice, is to take action. If you’re not getting the results that you want, take the time to review, re-evaluate, and renew your efforts to change the results.
The answer to this question will depend on the specific challenges that you and your medical practice are facing. However, if you are analysing your financial goals and budget plan on a regular basis, then you will have a much clearer idea of the needs of your practice and what changes you need to make to achieve wealth and financial security.
Need help with opening your own practice? We can help with your business planning, including creating a cash flow and profit strategy to ensure that whatever decision you make is a success. Just contact me via email@example.com and I’d be keen to help.
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