Why Is My Healthcare Practice Profitable but Has No Cash?

It is one of the most common and confusing situations practice owners face: the P&L shows a profit, the accountant says the year was solid, and yet the bank account feels permanently tight. This is not a contradiction. It is a cash flow problem.

What Is the Difference Between Profit and Cash Flow?

Profit is an accounting concept. Cash is what pays your payroll. Your P&L measures whether revenue exceeded expenses. Your bank account measures how much cash is available right now. In healthcare practices, the gap is almost always explained by four things: accounts receivable timing, owner draws, working capital, and tax payments.

How Does Accounts Receivable Affect Cash Flow in a Practice?

When you deliver a service in January and collect payment in March, your P&L records revenue in January. Your bank account sees the cash in March. For medical practices, the benchmark for Days in A/R is 30 to 40 days. At $2 million in annual collections, a 55-day A/R cycle traps roughly $300,000 in the billing system at any given time. That cash is real. It is earned. It is just not available.

What Is Working Capital and Why Does a Practice Need It?

Working capital is the cash available to fund day-to-day operations. The benchmark for cash reserves in a healthcare practice is three to six months of operating expenses in a liquid account. Many practices I see for the first time are running with one month or less

What is the "Lost in Translation" Problem?

The accountant hands over a P&L showing strong net income. The owner looks at the bank account and something does not add up. A monthly financial package should include three things: the P&L, the balance sheet, and a cash flow summary. Together, they tell the full story. The P&L alone tells only part of it.

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