If you’ve heard us say it once, you’re probably going to hear us say it a million times…Cash. Is. King. Sufficient cash flow in your business accounts is imperative. Running a business without managing your cash flow is a sure-fire way to set you on course for disaster. Why?

With a healthy cash flow, you’re able to meet all monthly business expenses, pay yourself, your contractors, or your employees on-time, and ensure that should the income you receive decrease, you are still able to continue your daily business operations until your revenue increases again.

There are two basic concepts to keep in mind regarding cash flow:

Accounts payable: what you owe your vendors (the companies or people you pay for something)

Accounts receivable: what your clients or insurance companies owe you

To help ensure your accounts align and your cash flow is kept in the positive, we’ve put together 5 tips to help re-align your thinking from a profit-based one to that of effective cash-flow:

1. Utilize a cash flow worksheet to help forecast, analyze and prepare you in various business scenarios. SCORE has a great, free 12-month template to get you started.
2. Maintain a cash reserves/rainy day fund: Every business owner understands the peaks and valleys of owning your own business. It is nearly inevitable that at some point, you may see a dip in income due to many factors; a pandemic, unsuspected personal leave, a lot more cancellations in one month than usual. By having a ‘Rainy Day Fund’ or ‘Business Reserves’ with extra cash in it will help ensure during that during those times of less income, you’ll still be able to maintain business operations as usual without stressing about how bills will be paid!
3. Set money aside for taxes: If you own your own private practice, your private practice is generating revenue, and your practice is profitable, chances are you’re going to owe taxes on that income earned. But unlike that W-2 job you worked or are still working, your business income doesn’t have taxes remitted from it. So as a business owner, you’re now responsible for omitting those taxes from your income and remitting them to the IRS or State. That said, the last thing you want to have happen is, you owe money for quarterly taxes and/or file your annual taxes, and BOOM, you owe quite a bit in taxes but have no tax savings set aside to pay those taxes owed. Where does the money come from?! Avoid this undue stress and set money aside for taxes so you’re prepared if you end up owing!
4. Collect and follow-up on Accounts Receivables. Keep track of outstanding invoices and follow-up on payment as required. If you accept insurance, diligently follow up on unprocessed or denied claims. If possible, reduce the number of ‘slow’ or ‘past-due’ paying clients. Or better yet, as part of your business operations, require payment methods be kept on file and charge at the time of session. By reducing terms and offering quick payment options, including credit cards on file that are automatically charged, you ensure the cash is continuing to flow in your practice.
5. Focus on cash flow management, not profit. Don’t get us wrong, generating revenue is absolutely critical to the health of your business. But you also need to understand at which point your business becomes profitable, also known as the “breakeven” point. Monitoring the ins and outs of your businesses financial reports let’s you keep a general pulse on the business itself, and you’ll feel confident in the decisions you need to make – either to increase revenue or decrease expenses accordingly.

Therapeutic Bookkeeping is a virtual accounting firm working exclusively with therapists all across the United States providing bookkeeping and accounting services! If you’re a private practice owner and need support with your bookkeeping, taxes, and finances, we’d love to help!