Client trainingVisited 0 of 32 modulesCash and runway
Profitable clinics run out of cash. It happens because profit and cash are different things, because the year has a shape, and because the biggest bills do not arrive monthly. After this module you know why the bank balance moves the way it does, what runway is, and the five habits that keep a clinic out of trouble. The full forecast is in Advanced 2.
Why profit and cash are different
Finance 1 showed Harbor with $4,400 of profit and cash up $18,000 in the same month. Four things move cash without touching profit, and profit without touching cash:
| What happened | Profit | Cash |
|---|---|---|
| Patient prepays a $2,400 package | No change (earned as delivered) | Up $2,400 today |
| Loan payment: $1,800 interest, $2,200 principal | Down $1,800 | Down $4,000 |
| Buy $12,000 of neurotoxin for the shelf | No change (it is inventory until used) | Down $12,000 |
| Depreciation on the laser | Down $5,000 | No change (the cash left when it was bought) |
| Card processor holds Friday's deposits until Tuesday | No change | Down until Tuesday |
| Quarterly insurance, annual software renewal, estimated taxes | Spread across months | Out in one lump |
Runway
Cash on hand divided by average monthly operating cost. Harbor has $61,000 in the bank and spends about $85,000 a month running the clinic: runway is 0.7 months. That means one slow month, one late processor deposit, or one laser repair puts payroll at risk. Three months is the floor we work to. Getting there is a two year project for most clinics and the reason the scorecard shows the number every month.
Until runway passes two months: no new hires, no marketing increase, no new device. Every one of those is a bet, and a clinic with three weeks of cash cannot afford to lose one.
The shape of the year
Medspa cash follows a pattern: strong in the two months before the holidays and before summer, soft in January and late summer, with a lump of annual bills (insurance, software renewals, the medical director's annual fee, estimated taxes) that land whenever they land. Write the lumps on a twelve month calendar. The clinic that knows the $9,000 insurance premium hits in October does not discover it in October.
Five habits that keep a clinic liquid
- Separate the money you are holding. Move a share of package and membership sales to a second account each month, so deferred revenue is real cash, not a number.
- Order to par, monthly (Operations 3). Product on the shelf is cash on the shelf.
- Know your processor's deposit schedule and negotiate next day funding. A four day hold on a $150,000 month is $20,000 of cash sitting somewhere else.
- Pay yourself a salary, not whatever is left. A fixed owner salary makes cash predictable and is what a buyer expects (Advanced 4).
- Set a runway target and a date, and treat it like a bill. One percent of revenue a month into the cushion account until it holds three months.
When cash is short
In order: collect what is owed (the aging report), slow the product order to par, pause the marketing increase, delay the discretionary purchase, then talk to the bank before you need to, not after. A line of credit arranged in a good month is cheap; one requested in a bad month is expensive or unavailable. Never fund a shortfall from sales tax collected or payroll taxes withheld; those are not your money and the penalties are severe.
Try it yourself
Cash on hand $61,000, monthly operating cost $85,000. Runway is
1.4 months0.7 months3 monthsBuying $12,000 of neurotoxin for the shelf
Reduces profit by $12,000Reduces cash by $12,000 and profit by nothing until it is usedChanges neitherDeferred revenue from packages is best thought of as
ProfitCash you are holding for patientsA marketing expenseRunway is 1.5 months. Which is the right move?
Hire the second injector; revenue will followHold hires, marketing increases and devices until runway passes two monthsIncrease ad spend to grow out of itThe one source of cash never to use for a shortfall is
A line of creditSales tax collected and payroll taxes withheldDelaying a device purchase