Cash Flow Management¶

Profit is an opinion. Cash is a fact. You can be profitable on paper and still bounce checks. Cash flow management is the discipline of making sure the business always has enough money in the bank to meet its obligations.

The Core Idea¶

Cash flow is the movement of real dollars in and out of your bank account over time. It is different from profit, which is an accounting concept that can include money you haven't collected yet or exclude money you've already spent.

A practice can:

• Show a profit on its P&L while cash decreases (accounts receivable building up, loan payments, equipment purchases)
• Show a loss on its P&L while cash increases (a large annual pre-payment hitting the account, owner contribution)

Cash is what keeps the lights on. Profit is what the IRS taxes. Both matter — but in the short term, cash matters more.

Why DPC Has Unusual Cash Flow Dynamics¶

Direct Primary Care has some cash flow advantages most small businesses would kill for:

Advantages:

• Recurring revenue — membership dues arrive predictably, often monthly
• Prepayment — members may pay quarterly or annually up front, giving you cash up front
• No insurance lag — you don't wait 30–90 days for a third-party payer to reimburse you
• Low receivables — most of your revenue is collected automatically via credit card or ACH

Challenges:

• Churn is invisible until it hits — a member cancels today, you feel it for months
• Seasonality — employer contracts often renew in January, creating lumps
• Growth costs cash — onboarding a new member costs money before the dues arrive
• Annual prepayments can mislead — a huge January deposit for annual plans can look like a boom while disguising thin ongoing cash flow

The Runway Concept¶

"Runway" is a term borrowed from startups. It answers the question:

If revenue stopped today, how long could the business survive on what's in the bank?

Calculating runway¶

Runway (in months) = Cash on hand ÷ Monthly operating expenses

Example: Your business checking has $18,000. Your monthly operating expenses (rent, malpractice, software, etc., excluding your own draw) are $4,500.

$18,000 ÷ $4,500 = 4 months of runway

What's a healthy runway?¶

• 1 month: Dangerous. One bad month and you're out.
• 2–3 months: Minimum viable. Most practices start here.
• 3–6 months: Comfortable. Recommended target for established practices.
• 6–12 months: Bulletproof. Lets you weather illness, family emergencies, economic downturns.
• 12+ months: Possibly over-reserved; consider reinvesting or paying yourself more.

The single highest-leverage financial goal for a new DPC practice is reaching 3 months of runway. Once you're there, decisions get easier.

Forecasting Cash Flow¶

A "cash flow forecast" is a simple projection: what do you expect to come in and go out each week (or month) for the next few periods?

Minimum viable cash flow forecast¶

A single spreadsheet with:

It doesn't need to be fancy. Google Sheets works. The point is to see problems before they arrive.

What to forecast¶

• Inflows: expected membership dues, employer contracts, dispensing, ancillary services
• Outflows: recurring monthly bills, quarterly tax payments, known one-time expenses (CME trips, equipment purchases), owner draws

How far ahead?¶

• Weekly detail: next 4–8 weeks
• Monthly summary: next 6–12 months
• Annual totals: next 1–2 years (optional)

Update it weekly or biweekly. Ten minutes. Always know your next-four-weeks cash position.

Managing the Inflow Side¶

Collect reliably¶

• Automate billing. Credit card / ACH on file for every member. Never chase paper checks.
• Use a good processor. Stripe, Hint, Elation Billing — pick one and let it run.
• Set clear failure workflows. When a card declines, your software should email the member and you before it becomes an aged receivable.

Offer annual prepayment (carefully)¶

Some practices offer a small discount (1–2 months free) for annual prepayment. This is great for cash flow but:

• Record it as deferred revenue, not revenue, if you're on accrual
• Don't spend it all — you still owe the care
• Understand that a heavy annual-plan month creates a false "boom" on cash basis

Send employer invoices on time¶

Employer contracts are often your most reliable revenue — but only if you actually invoice. Automate or delegate.

Managing the Outflow Side¶

Know your fixed vs. variable costs¶

• Fixed: rent, malpractice, software subscriptions, loan payments. You owe these no matter what.
• Variable: supplies, dispensing inventory, marketing, CME, one-off purchases. You can flex these in lean months.

Know your monthly fixed cost floor. That's the number you must cover to stay in business.

Time big expenses¶

• Schedule large one-time purchases in strong cash months
• Delay non-urgent equipment purchases until the reserve is healthy
• Avoid stacking annual renewals in the same month

Negotiate terms¶

Most vendors will offer net-30 or net-60 payment terms if you ask. This is free cash flow flexibility. Ask.

Don't finance deprecating assets aggressively¶

Financing a $30,000 build-out at 9% when your practice generates $3,000/month in profit is how practices fail. Match financing to cash flow, not ambition.

The Tax Trap¶

The #1 cash flow killer for new practice owners: forgetting to save for taxes.

Revenue feels like money you have. It isn't. Roughly 25–35% of it belongs to the IRS and your state. If you spend all of it, then April arrives.

The fix¶

Every time money comes in, sweep a percentage (work with your CPA on the exact number) into a separate tax savings account. Treat it as untouchable. Pay quarterly estimates from it. See Understanding Business Taxes.

Warning Signs¶

Pay attention if you notice:

• Cash trending down even though revenue is stable
• Having to delay payments to vendors or landlord
• Putting recurring expenses on the business credit card and carrying a balance
• Relying on owner's personal savings to cover shortfalls
• Not knowing what's in the business checking right now
• Skipping tax savings transfers "just this once"

Each of these is an early warning. None of them are fatal. All of them should trigger a conversation with your CPA or bookkeeper.

Building a Cash Cushion¶

Starting from near-zero, here's a reasonable sequence:

1. Month 1–3: Minimum viable operations. Keep personal and business separate. Pay yourself as little as possible.
2. Month 3–6: Build to 1 month of runway. Start tax savings transfers.
3. Month 6–12: Build to 2–3 months of runway. Begin modest owner draws.
4. Year 2+: Push toward 3–6 months. Now you have options.

The cushion is the freedom. A healthy cash reserve lets you turn down a bad employer contract, weather a slow month, or take a vacation without panic.

What to Do Weekly¶

• Glance at the business checking balance
• Update your 4-week forecast (5 minutes)
• Sweep tax savings if applicable
• Note any anomalies

What to Do Monthly¶

• Reconcile accounts (via software)
• Review the P&L and cash position
• Compare actual to forecasted
• Adjust the forecast going forward

Key Takeaways¶

• Profit and cash are not the same thing. Track both.
• Runway = cash ÷ monthly operating expenses. Know this number at all times.
• A simple 4-week cash flow forecast prevents most emergencies.
• Taxes aren't revenue. Sweep them into a separate account.
• A cash cushion buys freedom — financial, clinical, and personal.

Next¶

• Understanding Business Taxes — the biggest outflow you can't forget
• Key Business Metrics for a DPC Practice — tracking churn, ARPU, and panel economics
• Reading Financial Statements — where cash flow shows up in your statements