3 Simple Secrets to Smart Financial Decisions in Private Practice

How I unleashed my inner CFO and learned how to master the financials of a million dollar medical practice even without an MBA.

Being in control of your finances is a great stress reliever.

It’s amazing how effortlessly we become enslaved to a certain pattern of thinking.

Especially around money and finances. Like an ominous wave of fear and anticipation. A pattern of the same push-pull of denial and obsession just as we wake up.

Like that compulsion that drives you to want to check your email or phone first thing in the morning.

It’s that nasty habit you have acquired over time of searching for validation of who you are or the work you have done. You search for a definitive purpose in the threads of emails to drive the rest of the day. Like some mailbox sweepstakes, hoping the email version of Ed MacMahon will magically arrive in your inbox and award you a giant sum of money solving all problems. Then day after day it creates the habit of discouragement…

It’s strange how creating healthy habits are so difficult, yet the unhealthy ones seem to be ironclad, like the habit of worry.

We see a low bank balance, knowing what bills are looming and react with fear and start feeling guilty for the financial decisions that have led us there. Either we freeze up, go straight into denial mode and let our bills go ignored and delinquent, or over analyze every purchase and make unrealistic restrictions about how we will cut back on spending or be more frugal, more disciplined.

One of most difficult parts of running a medical practice is tending to numbers that need crunching and financials that need managing. It is particularly complex because dealing with the mix of insurance company payments, patient balances, and time of visit payments makes it hard to know how much you will have in the bank and when.

How I Unleashed My Inner CFO

The practice was growing fast. But still there was still an income barrier that seemed impossible to bust through.

We thought that we just needed to work harder. Hustle harder. This is what delivered results in the early stages of the practice. But years later, brute force was wearing everyone out faster than it was moving the practice forward.

Being the one responsible for the money management of our primary care practice (and household, and kids, and vacations, and retirement, and healthcare), I would wake up in a frenzy creating elaborate purchase order processes just so that the Medical Assistants had to get approvals from me to get supplies that I knew were necessary to the daily patient operations.

I would wake up in a frenzy creating elaborate purchase order processes just so that the Medical Assistants had to get approvals from me to get supplies that I knew were necessary to the daily patient operations.

Tactics like this did little more than infuriate the staff and the doctors. But I was the one who knew what we had in the bank and what was coming in (kind of). Someone had to be responsible.

Of course, the staff and doctors were burnt out. They were overworked and treading water just to keep up. If we didn’t have the money to cover the basic necessities, how could they feel like all their hard work was valued? What was the practice failing?

I learned the answer. The hard way.

Unpredictable and declining insurance payments, delinquent patient balances, growing expenses, burnt-out physicians, and bitter staff in danger of not getting paid was the real cause of my anxiety.

I came to call this “the Plateau”.

Without knowing how to manage the financials of your practice, you could be headed for the dreaded “Plateau”.

I was no finance expert.

So I was forced to find a way to simplify the way I managed the cash flow. For 15 months I poured over EOB’s, created tracking tools for reimbursements, denials, patient payments, and expenses.

Finally developing a system to simplify the financial management this rapidly growing medical practice helped to change everything.

Here is a secret.

You don’t need an MBA to build and manage a million dollar medical practice.

All you need is a basic understanding of financial management and to KNOW WHERE YOU WANT TO GO.

Think of cash as the fuel driving the engine of the practice in the direction you want to go.

The act of tracking your cash flow every month takes time, is not the most pressing priority (unless the bank balance says zero), and is stressful if you can’t be sure you will have enough money in the bank to cover the bills.

Medical Practice Cash Flow Basics

What is cash flow? It’s basically the movement of money in and out of your business.  There are essentially two kinds of cash flows.

Positive Cash Flow: This occurs when the cash funneling into your business from patient services, accounts receivable, or any revenue source, is more than the amount of the cash leaving your businesses through accounts payable, monthly expenses, salaries, etc.

Negative Cash Flow: This occurs when your outflow of cash is greater than your incoming cash. This generally spells trouble for a business, but there are steps you can take to remedy the situation and generate or collect more cash while maintaining or cutting expenses.

Achieving a positive cash flow in your practice does not come by chance nor does it come overnight. You have to work at it. You need to analyze and manage your cash flow to more effectively control the inflow and outflow of cash.

The best way to do this is to gain AWARENESS of your financials.

Financial Awareness: Why You Need to Create a Budget

I know. I know. People hate talking about budgets because it’s the thing that everyone knows they should do but don’t.

As we just learned, cash flow is the fuel that drives the practice. It’s what keeps the doors open and the lights on.

Having a budget is like your fuel gauge. It tells you how much is left in the tank. 

A budget is simply your way of tracking and estimating money coming in and money going out (expenses) for a specific period of time – today, tomorrow, next week, next month, and so on.

Not having a budget leaves you playing the guessing game and reacting to financial strain by making EMOTIONAL DECISIONS.

Why most people fail at budgeting. (But you will succeed)

A budget is designed to be an observation tool and a guide that helps you track and stay on top of your financial goals.

Having a budget is about being empowered with critical financial information about your practice, yet most people see it as a restriction or a punishment for not making enough money.

Creating a budget for your practice involves the simple process of gathering information and tracking money flow over time.

Most people fail because they try to be too specific or too vague with the numbers and they get frustrated, file it away in a drawer, and never look at to again.

Remember that our goal is to use a budget as a tool to create awareness, not perfection.

How to create a budget for your practice:

Creating a budget involves 2 simple steps.
1. Looking into the past and
2. Looking into the future

You are looking into the past to understand how much money you spend, what you spend it on, and how much you are are keeping. Looking into the future to predict how much revenue you will bring in month over month.

  1. Collect the Data: Collect at least 12 months of transaction reports from bank statements or accounting software (QuickBooks). This is where you observe where you money is going.
  2. Create Your Expense Categories: Break out each expenditure into categories that are relevant to the operations of your practice (or not). Account for everything.
  3. Create an Income Starting Point: Take the average amount of monthly income before fees and deductions (what you deposit in the bank each month) and use that as a starting point.

Financial Planning: Turn Your Budget into a Psychic Partner

Once you have your budget in good shape, you are ready to put on your fortune teller hat.

A Pro-Forma is a simple projection of what your cash flow will be in the coming months and even years.

How to Create Your Pro-Forma

  1. Take the budget that you created and add 11 more months to the column with the same data you used for the budget, one representing each month in the year.
  2. Add a row at the end of your spreadsheet that calculates the sum of the columns in that row. This gives you your annual totals.
  3. Finally, step back and look at the entire year and ask yourself a few questions.
  • In some months do we see more or less patients?
  • Are there any big events coming that will affect income or expenses? Vacations? New staff, new providers, malpractice insurance payments?
  • Are there any industry trends you see coming that will affect you? ICD-10? EHR Transition? ACA?

Let’s say that Medicare decides to implement one of its notorious sequesters ( spontaneous reduction of fee reimbursements across the board). Do you know how it will impact your practice?

Now we are really using financial awareness to be empowered about your practice’s financial performance and decisions.

You have created your budget and you have shaped that into a pro-forma so you can get a snap shot of what your year will look like.

Bringing it All Together: How To Unleash Your Inner CFO

The changing environment of healthcare, healthcare reform and new payment models are significantly impacting the ability of independent practices to thrive.

Solo practitioners and small to mid-size groups are reporting that they feel they do not have the training and expertise for the business aspects, specifically the new financial management, of providing healthcare.

Many of the most successful businesses in the world find the keys to their success in simple common sense financial systems, consistent tracking and visibility into financial health.

Demystifying basic financial concepts will help give you the attitude shift necessary to feel empowered about managing the finances of your medical practice.

That shift in mindset to Master CFO — isn’t something that happens overnight. Like with anything, it takes time. But if you work at it, you will be able to make significantly more without sacrificing care quality.

How to be true to yourself and your mission.

Your mission is to lead a particular patient population to better health.

In order to achieve any of that mission, you have to get a mastery of the financial management of your practice.

The 3 secrets to medical practice financial mastery.

1. Perseverance: The perseverance to stay aware.

Take the time to learn the basic financial concepts that impact your business and personal financial health.

2. Discipline: The discipline to make smart decisions.

Make business decisions based on what the “numbers” are telling you, not on what your emotions are telling you.

3. Vigilance: The vigilance to succeed.

Design a system to consistently stay aware of what is influencing the flow of money into your practice and your life.

Ready to get control of your finances?

Unleash Your Inner CFO Financial Training Guide

How You Will Unleash Your Inner CFO

Many of the most successful businesses in the world find the keys to their success in simple common sense financial systems, consistent tracking and visibility into financial health.

Demystifying basic financial concepts will help give you the confidence necessary to feel empowered about managing the finances of your medical practice.

In this 25 page guide you will learn:

  • How to Create a Bulletproof Revenue Cycle
  • How to Compare Payers and not be Bullied By Underpayments, Denials, and Audits
  • How to Control Cash Flow and Money Planning
  • How to Create a Super Tight Practice Budget
  • What a Balance Sheet Tells you
  • How to Best Balance Growth and Lower Your Costs (more Profit)


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About The Author

James Riviezzo

Over the past decade, I have served over 50,000 (mostly) satisfied patients. I have tracked measured and documented what makes a successful practice inside (and outside) the third party payer and oversight system of medicine.