Did you know that…
- 99.9% of businesses in the US are small businesses.
- There are 34,752,434 small businesses in the United States.
- Small businesses employ 45.9% of American workers, or about 59 million people.
- Small businesses are 43.5% of GDP.
These numbers are from the US Small Business Administration Office of Advocacy.
But before we address why this matters, let’s define what constitutes a Small Business.
According to the Small Business Administration (SBA), a small business is one with fewer than 500 employees, though industry-specific standards apply.
What’s important for our discussion is that Solopreneurs, mom-and-pop-type businesses, and other tiny businesses are included in that definition.
I don’t know about you, but I didn’t realize how much small businesses contribute to the US economy, which makes the next set of numbers even more critical.
“Estimates are that 20% to 24% of all new small businesses fail within the first year.”
Not only is this tragic for these small businesses, but it also represents a missed opportunity for the US economy.
Why Do Small Businesses Fail?
Now the question is, why do these businesses fail in the first place?
Unsurprisingly, the reasons are multifactorial.
The problem is rarely a lack of hard work or determination.
Even though small business owners, including practice owners, work hard and take good care of their customers and patients, they still may struggle financially.
No, the problem is not a lack of effort; more often, it’s a lack of financial visibility, meaning many lack a clear view of their company’s finances at any given time, making it challenging to be proactive or take appropriate corrective action.
And for Nurse Practitioners in private practice, this challenge may be even more pronounced.
NPs are trained to care for patients but get no training in managing cash flow, interpreting financial reports, or evaluating profitability.
Why Are Financial Blind Spots So Common?
Financial blind spots develop because business owners are:
- Busy delivering services to patients
- Focused on day-to-day operations
- Unfamiliar and uncomfortable with financial language
- Unaware of what they should be tracking
But without awareness and clear understanding, even successful practices can drift into financial stress.
7 Common Financial Blind Spots
1. Confusing Profit with Cash Flow
One of the most damaging misconceptions in business is believing that profit equals cash. It’s an easy mistake to make when cash flow and profit are not explicitly tracked.
Profit measures success over time, whereas cash flow is about timing. Cash is king when you need enough money to pay the bills – today.
Hence, a practice may appear profitable on a Profit & Loss statement but still struggles to pay the bills due to:
- Delayed reimbursements leading to delayed payments
- Higher than expected overhead
- Loan repayments
- Tax obligations
Why are profit and cash flow confused or used interchangeably?
Here are a few reasons why:
- Revenue is recorded before it’s collected
- Expenses appear on the P&L even if cash has not left yet
- Bank balances don’t match profit
This disconnect is prevalent in service-based businesses and healthcare practices where payments are routinely delayed.
2. Not Knowing the Business’s True Numbers
Many rely on their bank balance as a proxy for the business’s financial health. Unfortunately, the bank balance tells only part of the story.
Commonly overlooked metrics include:
- Monthly fixed and variable expenses
- Reimbursements stuck in A/R (Accounts Receivable)
- Break-even revenue
- Revenue per visit or service
- Month-over-month trends
Without these numbers, decision-making becomes reactive instead of strategic.
3. Underpricing Services
Service-based businesses frequently underprice due to:
- Fear of losing customers or patients
- Comparison to competitors
- Wanting to be more “affordable”
What’s often missing from pricing decisions:
- Administrative time
- Documentation and follow-up
- Staffing costs
- Taxes and benefits
The result may be a business that stays busy but is financially strained.
4. Treating Owner Pay as an Afterthought
It’s not uncommon for small business owners to pay themselves only after everything else is paid… if anything is left.
This is a counterproductive practice that creates:
- Financial instability for the owner
- Burnout and resentment
- Difficulty planning personally or professionally
Compensating yourself, as the owner of the business, should not be an afterthought and is not optional. Owner compensation is a core business expense and must be included in all planning.
5. Operating Without a Cash Buffer
All businesses will experience cash flow problems at one time or another. If there are no cash reserves to fall back on, every unexpected expense can quickly turn into a crisis.
Problems that may trigger a “crisis” include:
- Seasonal slowdowns
- Business disruptions due to illness
- Unexpected repairs
- Unexpected tax bill
To ensure business viability even through difficult times, anticipate uneven cash flow and prepare accordingly.
6. Mixing Personal and Business Finances
It is never a good idea to mix personal with business funds, particularly if the business is organized as an LLC or Corporation.
Blurring the lines erodes liability protection, complicates tax reporting, and is unprofessional.
The clear separation of personal vs business assets and expenses improves clarity, maintains compliance, and increases confidence.
7. Avoiding Tax Planning
Last but not least…
For many, taxes are often treated as a once-a-year event rather than an ongoing responsibility.
And I understand… you are busy running your business. However, taxes should not be the last item on the list.
When they are, it may lead to:
- Surprise tax bills
- Cash shortages
- Missed planning opportunities
Practicing proactive tax planning increases profitability, improves cash flow predictability, and reduces stress.
Financial Blind Spots Unique to Nurse Practitioners
While the issues above affect many small businesses, Nurse Practitioners in private practice may face additional challenges.
Underestimating the Cost of Running a Practice
NPs transitioning from employment to ownership often underestimate:
- Administrative costs
- Costs to maintain compliance across various areas
- The expense of staying up to date with technology
- Staffing needs
These costs add up and can erode profitability quickly if not planned for.
Overreliance on Insurance Reimbursement
While some practices are cash-based, not everyone wants to follow that model, nor is it always an option. However, when insurance enters the picture, it comes with its own challenges, including:
- Delayed payments
- Denials and write-offs
- Flat reimbursement rates
- High administrative overhead
Increasing patient volume alone rarely solves reimbursement problems due to insurance. Hence, it is advisable to limit reliance on any single insurance carrier or on insurance overall.
If at all possible, add a cash-based service to limit the dependence on insurance and thereby flatten the cash flow roller coaster.
Treating Your Practice Like a Job, Not Like a Business
Without strategic planning, a practice will always depend on the owner’s presence and hands-on input, making it more like a job than a business.
However, when a practice is treated as a business, the focus can shift to growing the practice, increasing its value, and building a sellable asset that may eventually be sold for profit.
Why Identifying & Addressing Financial Blind Spots Matters
Having financial clarity allows NPs and small business owners:
- Make informed financial decisions
- Reduce small business stress and burnout
- Improve the overall patient experience
- Reclaim control over their time and income
- Build a real asset along with long-term stability
Here’s the Takeaway
Understanding and managing finances is not about prioritizing money over care; it’s about ensuring the practice can continue to provide consistent care for patients and maintain adequate income for the owner.
Financial blind spots are not personal failures. They are simply gaps in financial education that can be easily closed with the right training and information.
When Nurse Practitioners and small business owners develop basic financial awareness, they move from:
- Reactive to proactive
- Chaos to strategy
- Struggle to growth
And a financially healthy practice benefits everyone: patients, staff, and the provider owner.
We’d love to hear from you… tell us what you think by leaving your comment below!
By Johanna Hofmann, MBA, MAc., EAMP; regular contributor to the NPBusiness blog and author of “Smart Business Planning for Clinicians.”