Cash Flow Forecasting for Veterinary Practices: Why It’s Your Secret Weapon

When it comes to veterinary practice management, understanding revenue and expenses is important, but it’s not enough. Many practice owners assume that if they are profitable on their P&L (profit and loss), they must have healthy cash flow, but unfortunately, this is not always true.

Cash flow forecasting is a vital tool that goes beyond the P&L statement. It gives you real insight into how money moves in and out of your practice and helps you prepare for growth, slow seasons, emergencies, or opportunities.

What Cash Flow Really Means

Cash inflow is money coming into your bank account. Sources include:

  • Payments from clients
  • Insurance reimbursements
  • CareCredit or other financing proceeds
  • Any other incoming cash such as grants, vendor rebates, new loans and investments

Cash outflow is money leaving your account, such as:

  • Payroll and benefits
  • Rent and utilities
  • Vendor payments for drugs, lab work, medical supplies
  • Equipment leases
  • Taxes
  • Owner distributions
  • Principal loan payments (interest expense is identified on the P&L)

Important: Cash flow is not just “revenue minus expenses.” As discussed in the previous blog about basis of accounting:

  • Revenue can be booked when services are performed, even if payment isn’t received yet (accounts receivable).
  • Expenses can include non-cash items like depreciation, which don’t affect your bank balance or can be recognized before paid (accounts payable).

In short: profit does not equal cash.

Without clear cash flow visibility, you might have a profitable year, but still struggle to make payroll.

Why Cash Flow Forecasting Matters

* Predict and Survive Slow Periods Veterinary practices often have seasonal slowdowns (post-holidays, mid-summer vacations). A forecast shows how much cash you’ll need to bridge those periods.

* Make Confident Decisions Thinking about hiring another associate? Buying new dental equipment? Expanding hours? A cash flow forecast helps you assess whether you can afford it before committing.

* Avoid Cash Crunch Surprises Unexpected tax bills, equipment repairs, or staff turnover costs can derail practices while cash forecasting helps build a buffer.

* Strengthen Your Relationship with Lenders Banks love borrowers who monitor cash well. Responsible cash management, including the use of a cash forecast, can help secure better loan terms when needed.

How to Build a Practical Cash Flow Forecast

Step 1: Map Your Inflows Estimate incoming cash, month by month, from all sources. Be conservative, don’t overestimate:

  • Revenues
  • Owner investments and new cash loans (not equipment loans). You may want to omit these until you see what the net cash flow calculation is.

Step 2: Map Your Outflows List all monthly expenses.  Better to overestimate:

  • Fixed expenses (rent, salaries, loan payments)
  • Variable expenses (supplies, labs, marketing)
  • Non-recurring expenses (insurance renewals, CE events, tax payments)
  • Loan payments and owner distributions

Step 3: Calculate Net Cash Flow For each month: Inflows − Outflows = Net Cash Flow. If it’s negative, you’ll need savings or a line of credit to cover it. If it’s positive, you can build reserves or plan investments.

Step 4: Identify Essential vs. Non-Essential Expenses During a revenue dip, some expenses could be reduced quickly such as marketing campaigns or discretionary bonuses while other expenses are fixed. Rent is an example and payroll MUST be paid timely, but a close eye should be kept on overtime or wasteful hours for hourly employees.  Fully utilizing salaried staff becomes paramount.

Knowing what you must cover helps you build a more accurate safety net.

How to Build a Smart Cash Reserve

1. Analyze “Minimum Operating Expenses” Identify your absolute must-pay expenses each month, even during a slowdown. Typically this includes:

  • Salaries for essential staff – optimizing salaried employees and minimizing overtime and wasted hours.
  • Fixed costs that do not fluctuate such as the mortgage, rent or utilities.
  • Basic supply inventory – identify what inventory purchases that can be delayed or eliminated.  Counting inventory periodically and tracking cost changes diligently can lead to more efficient purchases.
  • Insurance payments are relatively fixed but exploring payment of workers compensation insurance based upon actual payroll avoids traditional peaks and valleys of these expenses.

2. Determine Your Target Reserve A strong goal is 2-3 months of cash defined as the minimum operating expenses should be kept in reserve. For example, if your minimum expenses are $75,000/month, aim for $150,000 to $225,000 in a dedicated reserve account.

3. Set a Plan to Build It

  • Allocate a percentage of monthly profits to cash reserves.
  • Treat it like a “non-negotiable” bill you must pay.
  • Keep the reserve separate from operating accounts to avoid “accidental” spending.

Cash Flow is Confidence

Running a veterinary practice is stressful enough without worrying if you’ll make payroll or cover next month’s rent. Cash flow forecasting shifts you from reactive panic to proactive control. With a clear, realistic forecast and a healthy cash reserve (or available line of credit), you can navigate slow seasons with confidence, make smart investments when opportunities arise and sleep better knowing you’re prepared for whatever comes nextProfit is important. Cash is survival. Make cash flow forecasting part of your regular business planning to insure your practice’s lasting success. I heard a great adage:  Revenue is like food or water that you live without for a period of time.  Cash is like air, you die without it!