Medical Practice Cash Management

How to Manage the Cash in Your Practice

Managing cash in your medical practice is a bit like driving on the interstate. Yes, there are certain rules designed to keep you safe—don’t drive 100 mph, don’t weave in and out of traffic— but assuming you aren’t being reckless, there is a broad range of acceptable practices that really are just dependent on what you are comfortable doing.

The Basics

You want to keep enough cash in the practice to operate comfortably. The definition of comfortably, of course, depends on the person making the decision. It is advisable, although not required, to maintain a cash balance sufficient to weather seasonality in your practice. And occasionally there are unforeseen events that require extra money. Think “Medicare is holding up my reimbursement” or your practice manager saying, “I think we need a new air conditioning system.” Some practice owners are comfortable drawing cash down to zero every month and relying on a bank line of credit to fund any cash shortfalls. That is okay assuming you have a plan for paying the money back. Just like credit cards, a line of credit balance can get out of hand quickly if management safeguards are not in place.

On the other end of the spectrum, some practice owners use the business bank account as a savings account. This is a bad idea. In any business, and certainly in one as high risk as the provision of medical services, there is no point in having nonessential assets sitting on the company books. Even if lawsuits don’t scare you, the risk of employee theft should. Keep only enough cash necessary to comfortably operate. The practice owner can always put money back into the practice if necessary.

How Much Is Enough?

To determine an appropriate level of minimum cash, start with one-month of practice expenditures. That amount is typically plenty to weather any storm. From there, the practice owner or manager can adjust that amount up or down depending on personal comfort, seasonality or other factors.

At various intervals during the year—monthly or quarterly—the practice should determine what to do with excess cash over the minimum. You have three options or any combination of the three—pay down current debt obligations, reinvest the money in the practice (new equipment, technology, furnishings, consulting), pay the partners (owners/shareholders). Whether you pay the owner as a bonus or dividend depends on the situation and should be discussed with your accountant.

by Trey Whitt, Partner, DentMoses, LLP, Birmingham, AL

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