The world has apparently been instructed to take an extended 'time out' period....we all need to think about how to come back from this stronger than ever!
Your practice is vital to the long term health of our country and our world. By taking a proactive view of your practice's finances rather than waiting until the virus has hit them as well you can help yourselves and your staff weather this event with more confidence.
Take a very conservative look at projected charges and collections over the next 8-12 weeks. If you are still open run one scenario that includes closure at some point for at least 4 weeks.
Calculate your minimum Cash burn rate. Cash burn rate is the sum of your operating expenses, PLUS the principal you repay on your loans each month, PLUS the cash disbursement or salary that your provider(s)/shareholder(s) must get on a monthly basis to maintain their households (some are in a position to forgo current compensation).
Cash burn rate calculation: Start by taking your average monthly operating expenses. Then look at anything you know you can cut based on the volume of work you anticipate continuing during this slowdown/ shutdown period. Be conservative and don't over-estimate what you can cut as you need to be strong and ready to rock as soon as this passes.
Your staff is a huge resource and are scared, they also represent between 25-50% of your monthly expenses. Be cognizant in looking at the financial plan of what it will take to have them ready to rock and roll when things are back up to full speed. Look at your staffing costs, what level of staff you continue actually needing, and what programs are available (like some of the extended Unemployment and federal programs) that will allow you to mix some work and some program funds to keep your staff as whole as possible [more on staff in the next blog]. Knowing the options and how to set staff up to maintain income gives you power if you need to make a shift.
Once you have determined how much cash the practice will 'burn' (use up) per month then look at your resources coming in. Also look at your existing line of credit. If that line of credit could completely cover 2-3 months without any revenue coverage you are in a pretty good position. If not, talk with your banker and see what they can get in place for you.
You may be able to reduce your cash burn rate further by getting loan payment abatement, or at least principal abatement for 3-6 months. This alone will create enough ease for some practices to feel well covered.
Plan for the worst and think for the best. It will allow you to sleep at night...which they say is an important defense against Covid-19. Wishing you all the best in Health and Life!