Free Cash Flow Tool
Find Your Cash Flow Gap
Profit and cash are not the same thing. Answer 4 quick questions and we'll estimate the minimum cash reserve your business needs to bridge the gap between delivering work and getting paid — for any business type.
Profit versus cash, answered
Why a profitable practice can be short of money, where the gap comes from in healthcare specifically, and what closes it.
Why is a profitable practice short on cash?
Because profit and cash measure different things. Four items routinely consume cash without reducing reported profit: receivables that have been earned but not collected, debt principal payments (only the interest is an expense), owner distributions, and equipment purchases capitalized rather than expensed. Add tax payments on profit already spent, and a practice can be genuinely profitable and genuinely unable to make payroll in the same month.
What creates the cash gap in healthcare specifically?
Payment timing asymmetry. Staff and clinicians are paid weekly or biweekly while payers — commercial insurers, Medicaid programs, the VA's community care network, long-term-care insurers — commonly settle in 30 to 60 days or longer. Every additional patient funded by a slow payer requires the practice to float several payroll cycles before the first dollar arrives, which means growth widens the gap even as profitability improves.
How much cash should a practice keep on hand?
Enough to cover the operating cycle plus the obligations that do not pause when collections slow — payroll being the largest. The right figure depends on how long the practice's own receivables actually take to convert, its fixed cost base, and whether the payer mix concentrates risk in a slow-paying contract. A practice with 60-day collections needs materially more cushion than one collecting largely at time of service, at identical revenue.
Why do taxes create a cash problem?
Because pass-through income is taxable to the owner whether or not it was distributed, and the cash it represents may already be sitting in receivables or equipment. Owners who take distributions against reported profit without reserving for the tax on it are financing a liability that will come due on a fixed schedule. Setting aside the estimated liability as income is earned, rather than when the payment is due, is what prevents the quarter from arriving as a shock.
What closes the gap fastest?
Almost always collections rather than cost cutting. Reducing days in receivables converts revenue already earned into cash without selling anything additional or reducing any service. After that: a disciplined tax reserve, matching distribution timing to actual cash rather than to reported profit, and reviewing payment terms with the slowest payers. Expense reduction helps, but it works on a smaller base and takes longer.