You’re beginning to live the healthcare service dream.
You’re booking appointments. Seeing patients. Making lives better.
Saving lives.
Everything should just fall into place naturally, right?
We think so. But like it or not, if you’re in private practice you are two different people.
You are a professional clinician, but of equal importance, you are also an entrepreneur.
Your leadership now needs to extend to ensure your success as a businessperson.
By pointing out two potential danger zones in medical practice we hope to spread awareness of some very important information.
Not Understanding Profit vs. Cash Flow
A common stumbling block for many medical practices is the complexity of billing processes, including delayed invoicing, incorrect coding, and lack of follow-up on unpaid claims, all of which can precipitate cash flow problems.
Payments for services can take months to process, compounding the challenges associated with managing a medical billing cycle effectively.Poor management of the medical billing cycle, such as errors in coordinating benefits between multiple insurance providers and delays in billing patients, can lead to significant revenue losses and administrative burdens for medical practices.
These mistakes can result in claim denials, extended revenue cycles, and increased aging accounts receivable.
Possible solutions include implementing efficient billing software, staff training, and possibly outsourcing to specialized services.
This is just a front-end example of the importance of knowing the difference between profit and cash flow.
A quick discussion of the key differences is in order at this point.
Profit is a mathematical certainty that arises from the money you take in, minus the money you spend to create the money you take in.
There is more to it than that, certainly, but that’s the distilled truth.
Cash, on the other hand, comes and goes out of a business in more ways than just the simple earning and spending of overhead.
You have investing activities, including those investments the owner or owners make into the business itself.
Not to mention draws from your business. Even doctors have to eat and pay mortgages, or rent.
There are reductions in long-term liabilities such as equipment loans.
Additionally, if you are working a coordination of benefits you can almost count on your total cash arriving sometime after the actual recording of your revenue.
There is a solid reason why we present our clients with both a profit & loss and a statement of cash flows. Because not all of your cash activities touch the profit equation, in short.
Not Knowing the Score
For a practice dedicated to delivering top-tier medical care and ensuring a stellar patient experience, overlooking fiduciary responsibilities can be all too easy, especially given the extensive medical training required of practitioners over financial management.
Yet, understanding financial metrics is critical.
Without awareness of competitive hiring practices, unexpected increases in utility bills, or unnecessary software subscriptions, practices risk suffering from “financial hemorrhages.”
Effective practice management must extend beyond routine financial report reviews to include proactive accounting strategies such as microforecasting, scenario analysis, and forward-looking budgeting.
Relying on reactive accounting—akin to analyzing a game’s outcome well after it has ended—limits the ability to make timely, impactful decisions.
Embracing proactive accounting practices allows for adjustments in real-time, safeguarding not only the practice’s financial health but also its commitment to staff, patients, and the community.
When you get financial reports from a bookkeeper 10 to 15 days after the close of a month you are already studying history. Imagine Bill Belichick calling a play based on the box scores from the newspaper the morning after the game.
This does not compute. And yet, the vast majority of physicians depend on reactive accounting, which I say is the same thing as Monday morning quarterbacking.
Proactive accounting means microforecasting, what-if scenarios analysis, sensible forward-looking budgeting, and calling the play while there’s still time left on the metaphorical clock.
After all, your patients are not the only lives you are responsible for anymore. Besides you and your family, you are responsible for your staff and the community at large.
To Conclude Then…
While providing exemplary medical care and fostering a positive patient experience are foundational, they alone do not guarantee the success and growth of a private medical practice.
The dual identity as a healthcare provider and an entrepreneur demands that you embrace your perceived and actual role as a physician entrepreneur enthusiastically.
If you would like to discuss how having a non-equity financial partner guiding your practice’s business future can increase your wealth, reduce your taxes, and provide the peace of mind that will allow you to put 110% of yourself into your patient care goals?
We would like to talk to you as well.
We are still accepting one new business advisory client in the month of March.
Use the link I’m providing below now to choose a time to talk most convenient for you.
Imagine having a financial coach and compliance expert by your side, so that you can focus your professional clinical time where it belongs: on patient care.
Does that sound good?
Then reach out to me, and let’s talk: Free Profit & Cash Flow Analysis