Cash Flow Basics Every Medical Practice Owner Should Track

A profitable practice can still run short on cash. Production, collections, and deposits happen on different timelines, and the gap between them is where owners get surprised.

This article deals only with aggregate practice financial figures. It does not involve patient information of any kind.

Net collection rate

Net collection rate compares what you actually collected against what you were eligible to collect after contractual adjustments. A persistent gap usually points to denials, missed follow-up, or write-offs that were never reviewed.

Days in accounts receivable

Days in A/R tells you how long revenue sits before it becomes cash. Watching the trend matters more than the absolute number, because a rising trend often shows up months before a cash squeeze does.

Overhead as a percentage of collections

Staffing, occupancy, supplies, and equipment are the four categories that drive most practice overhead. Reviewing each as a percentage of collections makes it obvious which one moved when margin changes.

• Clinical and administrative payroll, including employer taxes and benefits
• Rent, utilities, and facility costs
• Clinical supplies and lab expenses
• Equipment payments, leases, and maintenance

Operating reserve

Most practices should hold a defined number of months of operating expenses in reserve. Setting that target explicitly, rather than leaving it to whatever happens to be in the account, is what makes hiring and equipment decisions calm instead of stressful.