Today I want to cover some important financial terms for new private practice owners. There is a lot of jargon out there in the financial world that is a unfamiliar to those in the medical world. In our health training, very few of us get much, if any, business training. So when you enter the world of entrepreneurship and people are throwing words out you may not know, it can be a bit stressful and awkward. We are going to break down some of the more common terms. Stay tuned to learn some new vocabulary for the business world.
Hi, I am Dr. Annie DePasquale. I'm the founder and CEO of Collaborating Docs. We help NPs and PAs find fabulous collaborating physicians. Today is all about learning financial terms that may not be super familiar to you. When I started my first business, I had no idea what anyone was talking about and there was no ChatGPT back in the day.
The first term I want to go through is revenue versus profit. Revenue is all the money that you brought in. Profit is what you keep after you subtract expenses. People boast about their revenue being so high. My question is always what was the amount of profit? It's easy to make a lot of money if you spend a lot of money. All your expenses equal that huge amount. And in reality, you might actually be making no money, you're in the red. That's the real difference between revenue and profit.
The second term is cash flow. You may hear, “I you need to be cash flow positive.” It is money moving. Money you collect from patients or insurance companies, that's the cash coming in. And the cash flowing back is you paying your medical assistant and the EHR software. Good liquidity is another term of this money moving about in your business. You don't want money stuck somewhere that you can't get it, like a patient not paying their bills.
The third term is operating expenses: all the things you need to pay to operate run your practice from buying furniture, to securing your branding partner that does your social postings. You want to keep that as low as humanly possible. Getting an intern at a very low rate or asking family and friends to help you out are great ways to cut down on those expenses.
The fourth term is accounts receivable and payable. Accounts receivable is the money that you are owed and waiting to receive. That would be patients who haven't paid you. And then account payable are things that you still owe to others. You don't want either of those things very high because that goes back to cashflow. You want to set up payment policies to make sure that you do get paid in a timely manner. Ideally, at the time of service, you're collecting any copay or a cash pay.
The last term I want to go over is break even analysis. When will your business be profitable? You can really look at the overall revenue and subtract your operating expenses to see how your profit margin looks. There will be a point where finally you even it out and you're a break even analysis. The exciting thing is, what comes after that is money you keep in your pocket. You want your break even to be as soon as humanly possible. It is not going to be in the first days or weeks. A financial planner or a CFO could help you analyze the data if you have a very complex practice. But if it's a basic level type thing, I mean you can crunch the numbers yourself. You can use ChatGPT to help and really see when is that wonderful moment going to arrive for you.
I know this is a little bit of a dry topic, but hopefully you learn some terms and if someone asks, what is your cashflow looking like? You will know how many accounts payable do you have. Still outstanding. You know, those are the bills you owe. So you can talk the talk and keep up with everybody in the room. So I wish you all the best on your journey to entrepreneurship and I will see you next time.
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Dr. Annie DePasquale is a Board-certified Family Medicine physician and an ardent supporter of Nurse Practitioners looking to start their own practices.
Collaborating Docs was founded in 2020 by Dr. Annie because she first-hand saw an unmet need of her NP colleagues who needed a supervising physician to practice independently.
When Dr. Annie realized how hard it is for NPs to find a collaborating physician, she knew she had to do something. The hoops that nurse practitioners had to jump through to start practicing were too exhausting for anyone to handle alone.
Dr. Annie benefited greatly from the mentorship of NPs throughout her career, especially when she was a green new grad, so she is very committed to giving back to the community that helped her so much.