Managing cash flow can improve your bottom line

When builders take on hundreds of thousands of dollars in short-term debt in order to build some new homes, it is obvious that they must generate positive cash flow in a hurry if they are to survive.

Of course, few cases are that dramatic, but generating and managing cash flow is critically important in every medical practice, from the solo practitioner to the largest professional corporation. Losing control of money has caused more grief for more physicians than temporary red figures on the bottom line. On the other hand, a sensible cash management system can provide a life-sustaining cushion during the financial ups and downs that are visited upon most practices at one time or another.

1. Never allow any of your money to lie idle. If you don't already have one, open a money market account at your bank and have it linked to your business checking account for telephone or online transfers. Deposit daily receipts into the money market account where they will immediately start drawing interest.

Never deposit receipts directly into your checking account. Keep a minimum balance in the checking account and transfer cash only as needed to cover checks written.

The interest generated by this simple procedure amounts to found money that will flow directly to your bottom line.

And never allow daily receipts to lie around in a desk drawer until you or your office manager can get to the bank. Use every cent of your money to make money. That's the hallmark of professional cash management.

2. Don't be timid about using other people's money. We have all heard stories about professionals who build large, successful practices without ever borrowing a cent, but they are clearly the exceptions. At today's extraordinarily low interest rates, careful use of credit is one of the most effective practice-building tools.

Many financial professionals are uncomfortable with extensive use of credit for personal affairs. When it comes to business, though, it is a different matter. To begin with, the costs of borrowing are legitimate tax deductions for professional practices. It makes more sense to spread out the cost of your capital purchases than to put stress on your cash flow by laying out large amounts of cash that you could use more profitably within your practice.

3. Consider leasing. Leasing products like cars for personal use is not a good idea. Most accountants agree that leasing is the most expensive way to maintain a personal car.

Again, business is a different animal entirely.

"The nature of business accounting is such that leasing can be the most sensible approach to many types of capital investment," said Thomas Normoyle, a certified public accountant. "It usually makes sense to lease if you will be able to use the cash in your practice or in your investments to earn a better return than the cost of leasing."

Not every medical practitioner agrees, of course. "I've never leased any equipment," says Robert Griffith, MD, a maxillofacial surgeon. "When I started out, I bought an existing practice that came fully equipped. Since then, I've always felt that if I'm going to keep a piece of equipment over the long term, it was better to buy it outright."

Still, most financial and tax advisors recommend that you consider leasing as one of your alternatives for capital purchases. Talk to your own tax advisor about this the next time you are considering a large capital purchase.