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RBA Finance

Managing cash flow for medical practices

Managing cash flow for medical practices is becoming increasingly important as cost pressures mount and revenue increases are limited

Overhead for professionals including doctors, dentists and allied health professionals continues to go up. The challenge is that your ability to raise prices is very limited. It seems like medical practices are facing an unprecedented challenge. Indeed one medical practitioner noted that “Never have we been as challenged as we are now in the changing world of health care.”

Given fixed Medicare rebates, it is difficult to move the dial on revenue. So doctors and other medical professionals looking to maintain profits often turn to controlling costs. A medical practice can become a cost-efficient machine if managers control human resource expenses, spread out fixed costs as much as possible, exploit information technology and carefully track business metrics.

Like many business owners, medical practices need to maintain equipment, technology and cash flow and bottom line profitability. These are affected by the business’s capacity to fund purchases. One Veterinary Surgeon need to upgrade equipment. Although the costs were not huge, management of cash flows is critical for all business owners and medical practices are no exception. There are conflicting needs always and those of the doctors’ own expenses are part of the equation. Drawings and salaries too need to be factored in.

In this illustration the Vet purchased a portascope for $14,000. It was financed over two years to save cash flow. This was done on a commercial hire purchase agreement. Without the support of an amenable bank or finance company the Vet may have needed to raise a personal loan which could have resulted in a much higher expense when total costs were factored in. Interestingly, this same customer also financed a horse float for $56,000 which was also done on a commercial hire purchase agreement with the same finance source, offering cash flow and potential tax benefits.