Business
A busy medical practice can still be short of cash
Understand what sits between a full appointment book, a healthy practice and the income you can confidently take home.
Medical & Dental
A medical practice can have steady billings and still leave its owners watching the bank balance. The useful starting point is to separate money collected for practitioners, income retained by the practice, operating costs and owner withdrawals. Those amounts answer different questions.
If you own a practice and also see patients, your personal clinical income can make the picture harder to read. You may be earning well as a doctor while the business supporting that work has very little room to move.
Start with the income the practice actually earns
A report showing total patient billings can look reassuring. But in a service entity arrangement, some collections may belong to practitioners rather than the entity providing rooms, staff and administration. The agreements and the way money moves need to be understood before those figures are used to judge the practice.
Ask your accountant to present the income and costs consistently with the actual arrangements. You want to see what the practice retains for providing its services, what it costs to run, and what remains after a sensible allowance for management.
A practice owner doing administration on Sunday evenings is contributing something valuable. If the accounts do not reflect the cost of replacing that work, the apparent return on ownership can be overstated.
Look at the week in which money leaves
An annual profit figure says little about whether next month's commitments are covered. A fit-out payment, equipment deposit, insurance renewal and tax bill can fall close together.
The Australian Government's cash flow statement guidance separates cash coming in from cash going out and encourages forecasting future movements. For a practice, the useful detail is the timing of specific commitments.
A rolling 13-week view is a practical management tool. Update it with actual collections and payments each week. Include payroll and superannuation on their required payment dates, rent, supplier accounts, tax obligations, debt repayments and planned owner withdrawals. Avoid treating an available loan limit as income.
Then ask one simple question: in which week is cash lowest, and what causes it?
Measure the cost of adding capacity
Another practitioner or an extra consulting room may bring more revenue. It can also require reception cover, nursing support, software licences, recruitment and equipment before the new capacity is fully used.
Consider a deliberately simplified example. A new room is expected to contribute A$18,000 a month to practice income once established. Direct additional operating costs are A$12,000, leaving A$6,000 before other overheads, finance and tax. If income reaches only A$9,000 during the early months, the same costs create an A$3,000 monthly gap. These figures illustrate timing; they are not industry benchmarks.
The decision should account for that early gap as well as the eventual return. It should also allow for your own time training staff or managing the change.
Give owner payments a clear basis
Moving whatever is left in the bank to your personal account makes it difficult to distinguish an ordinary payment from a withdrawal that weakens the practice.
Agree a payment approach with your adviser that suits the ownership structure and tax position. Separate remuneration for clinical or management work from returns on ownership. Record loans and other transfers correctly.
From there, connect the practice forecast to your household commitments. School fees, a home loan or an investment purchase should not depend on a strong month repeating itself indefinitely.
This is where business advice and private wealth advice need to work together. The practice needs enough capital to function; you also need a considered plan for wealth outside it.
Keep the tax questions on the same page
GST treatment depends on the service and arrangements involved. It is unsafe to treat every receipt connected with a medical practice as automatically GST-free. The ATO explains the conditions in its medical services guidance.
Practitioner agreements, payroll tax and the treatment of payments also deserve specific advice for the state and structure concerned. A cash forecast should reflect the obligations that apply to your practice, rather than assumptions carried over from another owner's experience.
A useful first conversation
Bring your recent management accounts, practitioner agreements, debt schedule and the next few months of major commitments. Those documents can help distinguish an underlying margin problem from a timing problem.
Should we increase fees or add another doctor? Neither decision should come first automatically. Understand the existing practice's costs, available capacity and patient service commitments, then model the options.
How much cash should the practice retain? There is no single amount that suits every practice. The low point in your forecast, the reliability of receipts and the commitments you cannot readily change are more useful starting points.
If the practice is busy but your financial position still feels unclear, speak with EFS. Our Medical & Dental advice brings the practice, your tax position and your wider financial plans into one conversation.
General information only. Seek professional advice that considers your circumstances before acting.
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