Cash Flow Management in Crisis: What Physician Practices Need to do Now
Opal H. Greenway, Principal
At a time like now, many are focused on the clinical needs of our communities. However, given the current state of uncertainty under the COVID-19 pandemic, cash flow management is critical to preserve your practice’s ability to provide long-term. In our work with both hospital- and independently-owned physician practices, Stroudwater assists practices prepare disaster relief plans. These plans are mandatory under the Emergency Preparedness Requirements for Medicare and Medicaid Participating Providers and Suppliers Final Rule, but comprehensive plans also provide necessary guidance during times like these.
While I hope that you have a disaster recovery in place that you are activating, below are some key pieces for immediate management of your practice cash flow. Cash flow may be needed for additional medical supplies, temporary staffing, or to withstand changes in payer mix, cancellation of appointments or elective procedures, delays in patient payments, etc. Some of these may seem drastic, but with the immediate future unknown, preserving cash and maximizing your options for cash will help your practice be prepared for the unexpected.
1. Determine your cash needs. Based on your current cash position, how long can your practice last a disruption of standard service? Determine your days’ cash on hand and understand what expenses allow you the most flexibility.
2. Call your bank. You can request an extended line of credit or make interest-only payments for a set period of time. If you don’t have a line of credit in place, many banks will consider an emergency line of credit. If you have good credit but do not have a business line of credit, set one up immediately.
3. Contact your small business association (SBA) and understand their loan policies. These are often more flexible than a traditional bank loan and do not have a prepayment penalty if you need to refinance in the future.
4. Determine if you can halt any prepayments on existing loans and pause automatic funding to defined benefit and 401(k) plans. If you have a defined contribution plan with a SAFE Harbor, you may have specific time parameters for when payments have to be made. A physician often has greater ability to do this for his/her individual 401(k) plan rather than for their employees, but meet with your financial advisor to determine your flexibility. If you do not have a financial advisor, contact your plan liaison.
5. Reduce or discontinue payroll for physicians. Physician owners should limit their payroll draws to maximize cash availability in the coming months.
6. Re-evaluate your office supply purchases. Focus should be on clinical supplies. Any orders or payments that are automatically recurring should be evaluated based on true need.
7. Contact your credit card companies. If you have good credit, some credit card companies will allow you to skip a payment without penalties. They may also give you access to low interest cash advance options should they become necessary.
8. Stretch accounts payable. Work with your vendors to determine who will allow you to make your payments past its due date without penalties. Some landlords have been making rent allowances at this time.
9. Be aware of reliefs being granted. Relief efforts for COVID-19 are coming out several times a day, including key economic relief such as payroll tax suspension and others. Make sure someone in your practice is assigned to monitoring changes daily and is able to update your cash needs analysis.
Want to talk through your disaster relief plans? Schedule a time to talk.