A Word on Budgeting and Cash Flow in the New Year

By Andrew Archer, Phymedco CEO

            By now, your practice should have its 2010 budget in place. This is a very important tool in the process of estimating cash flow and predicting potential shortfalls. The first quarter of the New Year, and in particular January, always seems to present significant cash flow challenges for many practices. In this article we’ll quickly talk about how to create a budget and then overlay cash flow projections to identify potential shortfalls. We’ll then offer a few suggestions to close those gaps to achieve a prosperous 2010.

            Here are the steps we normally take in our process:

Month by month total of expenses. Most accounting software can accomplish this task by running one or two reports. If you still keep a manual checkbook, simply create a spreadsheet listing each month across the top and each category of expense down the left side. Enter your expenses by month and category for the year. You may need to make some adjustments for 2010. If your employees are paid bi-weekly, there will be 2 months with 3 payrolls. Also factor in any planned raises or bonuses. Some other items to consider are rent escalation and new hires. It’s not important to be exact. It’s an estimate. You can always adjust it when needed.

Cash receipts estimate. The next step is to create a cash receipts spreadsheet or report by month for 2009. Estimate November and December either by using 2008 figures or, if your practice is fairly steady in terms of patient visits, use the average deposits from the previous 10 months. At this point you can create an estimate of 2010 cash receipts. We don’t yet know what Congress will do in response to Medicare’s projected 21% payment cut. Consensus seems to be some Congressional action will forestall these cuts. However, it appears this issue will not be solved until after the debate on healthcare reform finishes. So it may very well be into 2010 before the SGR 21% cut is resolved. Best bet in trying to estimate 2010 receipts is to use 2009 figures.

Create a Receipts and Expense Forecast. We’ve created estimates for 2010 receipts and expenses. Now we lay them side by side to try to identify those months were a cash flow shortfall might occur. The example table below illustrates what your final report will look like. The columns of this spreadsheet are Month, 2009 Deposits, 2010 Projected Deposits, 2010 Projected Expenses and Surplus (Deficit). The Surplus (Deficit) column is derived by subtracting 2010 Projected Expenses from 2010 Projected Deposits. Total all columns in the last row. From the example one can readily see January through March, and July through October will present challenges for this practice in meeting its cash requirements.

	2009 Deposits	2010 (P) Deposits	2010 (P)    Expenses	Surplus (Deficit)
January	$34,000	35,020	$56,894	($21,874)
February	40,500	41,715	45,634	($3,919)
March	43,000	44,290	46,134	($1,844)
April	45,500	46,865	46,134	$732
May	45,000	46,350	46,134	$217
June	53,000	54,590	46,134	$8,457
July	36,500	37,595	46,134	($8,539)
August	50,500	52,015	46,134	$5,882
September	41,500	42,745	46,134	($3,389)
October (P)	42,500	43,775	57,384	($13,609)
November (P)	45,000	46,350	46,134	$217
December (P)	4,750	48,925	47,138	$1,787
Total	$481,750	$540,235	$576,117	($35,882)

Act now. Now is the time to start formulating solutions. A three provider practice (1 M.D. and 2 NPs/PAs) could generate an additional $75,000 per year if each provider sees just 2 more patients per day. Are there services that your practice is referring out that you may be able to bring in-house? Don’t forget to have those services added to your fee schedule before you sign a lengthy equipment lease. Has a work flow study been completed? Many employees will state they don’t have the time to do more. In most cases that is absolutely true! They don’t have the time to do more the same way they’re doing it now. All the more reason they need to change the way they’re doing things! Other areas to consider include scheduling, provider utilization and patient feedback. Have you considered an EMR? Don’t approach this project as an expense. Consider it an opportunity to gain efficiency and reduce costs. There is a lot of stimulus and grant money that will become available to help you fund this project as well. Finally, work with your accounting firm and advisors to come up with other creative answers before there is a cash crunch. I believe it is always better in the long run to grow the revenues than it is to cut the expenses.

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