MANAGEMENT ESSENTIALS

Financial forecasting can help your practice weather future storms

Develop an understanding of your practice’s expenses to prepare for any financial climate.

By Farrell C. “Toby” Tyson, MD, FACS

Farrell C. Tyson, MD, FACS, is a refractive cataract/glaucoma eye surgeon at the Cape Coral Eye Center in Florida. His e-mail is tysonfc@hotmail.com.

A storm is approaching, are you prepared? Financial forecasting allows your practice to anticipate financial strength and position in the future, which allows for flexibility and planning. Many practices are not aware which way the wind blows, much less the state of their ship. That’s where financial forecasting comes into play.

GAUGING THE CLIMATE

To forecast the future, first understand the past. Past practices usually predict future actions. Look at past revenue trends. Ask, “How is money flowing into the practice? Is it seasonal or monthly specific?” In addition, evaluate expenses. How often is payroll doled out and what does it cost? Are bills paid as they come in or are they paid opposite of payroll weeks? Are the practice’s expenses relatively stable or do they fluctuate on a pattern throughout the year? This knowledge allows for a basic forecasting of financial positions based on past practices.

ON THE HORIZON

To enhance forecasting, anticipate the future. Are any major purchases coming down the line? Evaluate your large future expenses such as facility modifications or repairs, infrastructure or IT maintenance and upgrades. This allows more precision to your financial position. The more data, the more accurate your forecasting.

90-DAY FORECAST

In forecasting, we need to pick appropriate time frames to monitor. Most businesses want to know where they will be in the next 90 days. In medicine, 90 days may sound like an eternity, but a good metric for accounts receivable is 15 days, and it is common for insurance companies to delay payments up to 60 days. Considering those factors, 90-day forecasting allows for a good moving average.

GEAR UP FOR TAX TIME

Forecasting for the end of the year can be beneficial. Many ophthalmology practices are S corporations. S corporations should zero out financial balances at year’s end to avoid paying extra taxes. By understanding the practice’s financial position at year’s end, you can determine distributions, asset acquisitions, and which bills to pay.

REVIEW YOUR RESULTS

In evaluating our 90-day forecast, we break down revenue into insurance collections, credit card collections, and cash collections. We track expenses such as rent, refunds, payables, corporate credit cards, and payroll. Add known distribution schedules and staff bonuses. How close did your forecast come to reality? If you are off, why were you off?

PREPAREDNESS

Once your forecasting models are in place, you will be able to prepare yourself for any weather. You can determine how much you need to set aside for when Medicare is going to delay payments at the beginning of the year. In addition, you can predict the practice’s finances to make strategic plans to advance and protect your practice. After all, if you can’t see a storm coming, you can’t avoid it. OM