You’ve probably heard the phrase “Cash is King.”
What does that mean for your Nurse Practitioner (NP) practice?
If you’re bringing in plenty of revenue, that should mean your practice is financially healthy, right?
Well, not necessarily.
Many business owners falsely assume their business is doing well if they bring in lots of money.
And so do NPs in their own practices. They assume that their business is safe as long as they see many patients and generate enough revenue.
But revenue alone doesn’t keep the lights on. Cash flow does.
Revenue vs. Cash Flow: Understanding the Difference
There are many business numbers to track and understand, including revenue and cash flow.
So now, let’s break down what the numbers tell you and how they work together.
Revenue
is the total income your practice generates from all business activities, including patient visits, procedures, product sales, rental income, and other services.
Note that revenue is not the same as profit. Unfortunately, frequently, the numbers are used interchangeably in casual conversation. However, profit is what is left after the business pays all expenses.
A business may be able to pay its expenses but not have anything left to record a profit.
Cash flow
measures the movement of money coming in and going out of your practice. It tells you how much cash is available at any given time to cover expenses like payroll, rent, and supplies.
Cash flow is either positive or negative, meaning there is money to pay the bills and then some (positive cash flow), or there is not enough money to pay the bills (negative cash flow).
A practice may show high revenue but has poor cash flow because the money may be tied up in unpaid insurance claims, slow patient payments, or high overhead costs.
However, you can’t pay your bills with revenue, only with cash. Hence the saying: Cash is King!
To some extent, cash is the most critical business asset.
It is readily available to pay expenses and take advantage of opportunities as they arise without waiting for outstanding payments or for other business assets to be sold to be converted to cash.
Common Cash Flow Issues in NP Practices
1. Delayed Insurance Reimbursements
If you accept insurance in your practice and rely on insurance reimbursements, you know firsthand how challenging it can be.
Some claims may take weeks to be processed or until reimbursements are issued. Other claims are kicked back, and additional information or documentation is requested from you. And there are those claims that are denied.
Meanwhile, you still have to make payroll, pay rent and taxes, purchase supplies, and pay utilities to keep the lights on.
And that’s why you must stay on top of your insurance billing and follow-up. Consider working with a qualified billing company to manage the billing process and speed up reimbursements.
No matter if you hire a company or do your own billing, make sure to:
- Verify insurance eligibility before each visit to avoid claim denials.
- Submit claims promptly after every visit.
- Follow up on outstanding, unpaid claims aggressively.
- Question or fight claims denials where appropriate.
- Educate yourself about the billing process… so you can manage it better.
2. High Accounts Receivable (A/R) Balances
It’s easy to underestimate how much money is sitting in unpaid accounts… aka AR, accounts receivable. However, ten dollars here and 30 dollars there add up to significant amounts quickly.
While it may be unintentional, patients with high deductibles, co-insurance, and co-pays may delay paying their portion, creating a cash flow bottleneck for your practice.
Don’t allow this to happen… a lax attitude toward patient balances can get very expensive for your practice or even put you out of business.
And that’s why you must create and implement financial policies in your practice… and follow them.
- Educate your patients and let them know that co-pays, co-insurance, and outstanding balances are due at the time of service.
- When making appointment reminders, inform patients of all balances due at the appointment.
- If there are outstanding balances, send out invoices promptly and follow up on overdue payments. If need be, turn over uncollectible balances to a collection agency.
- Work with patients and help them meet their financial obligations by offering multiple payment options, such as credit cards, online payments, or cash. If necessary, offer them a payment plan or refer them to a fiancé company that can help them.
3. Overspending on Equipment & Supplies
Only two numbers create the final number on the bottom line…
Revenue and expenses.
To grow your business and make more money, you can do three things:
- Make more money: increase your revenue
- Spend less money: decrease your expenses
- Do both: increase revenue and cut expenses
Option three is the optimal approach, in my opinion.
While it may be tempting to buy the latest medical equipment, new office furnishings, or computer systems, it may not be in the best interest of your business.
All purchases should be made to meet a business need, not because they would be “nice to have.”
Commit to closely monitoring your expenses:
- Only purchase equipment that will directly increase your patient volume or efficiency.
- Consider leasing expensive equipment instead of buying it outright.
- Consider buying used over new furnishings where possible.
- Review your vendor contracts. Could you negotiate better terms or discounts?
- Don’t be afraid to cut or decrease expenses if necessary.
Track Your Numbers
Generally, business owners know how they generate their revenue, but many don’t know where their money is going.
They don’t know or don’t track their cash flow, leaving them with surprise shortages.
However, you must know where you spend money in your business. How else can you manage the revenue/expense ratio to improve your bottom line?
Here are three simple steps to follow so you won’t get caught off guard:
- Build and maintain a cash reserve to cover at least 3 months (or more if you can) expenses.
- Plan for expected fluctuations in patient visits, including slow summer and holidays.
- Use a cash flow tracking tool and accounting software to monitor your cash.
- Know the financials of your business and look at the numbers regularly.
In Conclusion…
Building a successful NP practice involves more than seeing patients, performing procedures, and running tests.
It also takes managing practice finances, including cash flow, so your practice can stay healthy and grow.
By avoiding the common pitfalls and following proven cash flow strategies, you can ensure your practice will have the cash on hand to operate smoothly, pay all its bills, and grow over time.
Have you experienced cash flow challenges in your practice? How did you handle the situation? What strategies have worked for you?
Drop a comment below and let us know…