MedEsthetics magazines offers business education and in-depth coverage of the latest noninvasive cosmetic procedures for physicians and practice managers working in the medical aesthetics industry.
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BUSINESS CONSULT | 18 MARCH 2015 | Med Esthetics By Cheyenne Brinson Managing Cash Flow It's not enough to make more than you spend—practices must also keep a close eye on cash flow. Managing cash fl ow is a challenge for all small-business owners. But with proper planning and insight, cash fl ow crunches can be avoided. Cash fl ow planning—or forecasting—starts with a budget. A surprising number of practices do not work with budgets, perhaps because the idea of creating one can seem overly complex. Yet budgeting does not need to be an extensive process. Existing practices can look at their historical data and use that to make a simple projection of revenue and expenses. Most expenses are known—or fi xed—and therefore easier to project. These include rent, salaries, malpractice insurance and website costs. Other expenses are variable based on production and sales. These include inventory such as fi llers, sutures and equipment disposables. Forecasting revenue is naturally more diffi cult than determining fi xed costs. A simple rule of thumb is to under-project revenue and over-project expenses. This conservative approach leads to far fewer headaches in managing cash fl ow. CREATING A CASH FLOW BUDGET A cash fl ow budget begins with projected revenue. An established practice can look back two or three years to get the best estimate of how it will perform going forward. All things being equal, it is advisable to project income at 5% to 10% less than the previous year. If the previous year was a "banner year," average the prior three years to project revenue. For physicians starting out in private practice, it is prudent to seek outside assistance from advi- sors with experience in your specialty when anticipating costs and revenue. Next, the practice must project expenses—start with last year's fi gures and determine if they should be adjusted. For example, salaries are based on the projected number of staff and include the cost of benefi ts; therefore, practition- ers should watch for increases in health insurance as those expenses generally increase annually. Rent, on the other hand, should be a known number. Variable expenses are tied to projected sales. Again, look at the practice's historical data for guidance. One strategy is to multiply the cost of a product by the projected number of units sold; another method to determine projected cost is to multiply the revenue by the markup amount. For example, if skincare products are marked up 50%, then multiply the projected revenue by 50% to estimate the cost. Don't forget to budget for planned, non-recurring expenses such as equipment purchases, upgrading the computer system and/or new carpet for the offi ce. PREPARING FOR GAPS IN CASH FLOW Anticipated seasonal variances must also be factored into the budget. Therefore, preparing a monthly budget is wise. If © GETTY IMAGES