Why Your P&L Looks Great While Your Checking Account Hyperventilates
On paper you’re crushing it. In June, your income statement shows a $71K profit.
At the bank? You’re sweating Friday payroll.
Welcome to the gap between recognized revenue (what you earned) and cash flow (what actually arrived).
Small caveat: depending on your accounting system, you may just rock cash based accounting. Meaning you only track actual cash movement. Both are great, and same principles apply. So keep on!
Payers now more than ever love to hold your money as long as possible. It makes their balance sheets and cash flow statements stronger while yours look about as different as the before an after picture of a President.
Here’s what you need to know.
The hard numbers behind the squeeze
You want your days in A/R to be less than 30. Most have days in A/R of about 45 days.
The longer your money is in A/R more anemic cash becomes, despite your income statement looking like it just got off a Ben and Jerry’s bender.
In numbers, if you have A/R at 45 days, that means you have about 12% of your revenue always at your finger tips but never able to grab. If your practice runs at $2M annually, that $240K always taunting you.
Here’s the equation you can apply to your practice to see how much cash is locked up in A/R:
Cash Locked = (Days in A/R) × (Annual Net Collections) / 365
The good news is you can calculate this equation in any order, just like Ms. Dempsey taught you in 5th grade math.
Add rising supply costs and a couple of slow‑pay plans and you’ve got the recipe for the “profitable‑but‑poor” paradox.
Meanwhile, expenses don’t wait. Payroll, rent, malpractice, and those skin subs you are on the hook for in 12 days. The mismatch is why a rosy profit line can coexist with an overdraft notice.
Five Moves to Turn Timing into Money (and a decent night’s sleep)
Same‑Day Charge Posting - get those encounters closed and charges posted people! And it’s not all on the clinicians. Ask how you can set up templates, how you can improve the processes, so everyone isn’t spending every waking hour charting and coding. Blech.
48‑Hour Claim Rule - Bill something everyday. Don’t wait, get the claims out!
21‑Day Payor Chase - Auto‑queue unpaid claims >21 days for staff follow‑up. If you want to be real fancy, map your payer timelines. And bug the you know what out of them.
Card‑on‑File + Text Pay - Practices using card‑on‑file platforms trim patient A/R by a significant amount and knock five phone calls off the front desk’s daily diet.
13‑Week Rolling Cash Forecast - A simple spreadsheet plotting weekly inflows (by payor) against fixed outflows will flag crunch weeks 30 days before they happen. Now you don’t have to write another Xanax script for your administrators.
Wrapping up
Revenue minus expense is profit.
Money hitting and leaving your bank account is cash flow.
The secret is speed. That’s the answer.
Disclaimer: The content provided is intended for educational purposes only and does not constitute financial or legal advice. This content is not intended to create, and receipt of the launch guide does not constitute, an attorney-client relationship. While efforts have been made to ensure the accuracy of the information presented, it may not necessarily reflect the most current legal developments or regulations and does not provide a complete representation of all associated legal and compliance considerations for any given topic. Therefore, readers are encouraged to seek professional legal advice or consult with appropriate professionals regarding specific legal issues or concerns related to their individual circumstances.