We touched on the profit-versus-cash gap earlier this month, when we talked about insurance reimbursement lag. This time, let's walk through what a cash flow forecast for a practice actually looks like and how to read one, because knowing the concept and knowing how to use the tool are two different things.

A cash flow forecast is different from a P&L in one important way. A P&L shows revenue and expenses when they're earned or incurred, following accounting rules that don't necessarily match when money actually moves. A cash flow forecast tracks when cash actually comes in and actually goes out, week by week or month by month, which is the number that determines whether you can cover rent and payroll on a given date.

The forecast starts with your current cash position, the real number sitting in your account today. From there, it adds expected cash inflows, meaning insurance reimbursements and patient payments you expect to actually collect, based on your practice's real payment timelines rather than optimistic assumptions about when a claim will get paid.

Then it subtracts expected cash outflows: payroll for staff and any associates, rent, insurance, loan payments, and planned purchases like supplies or equipment. What's left at the end of each period is your projected cash position, and watching that number move week to week or month to month is what actually tells you whether a crunch is coming before it arrives.

The forecasts we build for practice clients project 90 days forward and account specifically for insurance reimbursement timing, since that lag is one of the biggest differences between a practice's cash flow pattern and a typical small business. The forecast updates as actual numbers come in, so it stays a living tool rather than a one-time projection that goes stale after a month.

That rolling structure is what makes it useful for catching a problem while there's still time to do something about it, whether that means adjusting the timeline on a planned expense, pushing harder on aging insurance claims, or drawing on a line of credit before you're in a genuine bind.

Jeremy Brewer is the founder of 911 Bookkeepers LLC in Baton Rouge, Louisiana. 911 Bookkeepers partners with MBJA Accounting Service to give chiropractic and MDVIP practices clean, current financials. He is a Xero Certified Advisor.