This brings us to the most important financial statement that we can keep in the business, the Cash Budget. You will be pleased to hear that this is also one of the most simple statements to prepare, but unlike the income statement and balance sheet which are historical statements, the Cash Budget is a forecasted statement usually prepared monthly for the upcoming month, 6 months or year.

To prepare a cash budget you simply write down your opening cash balance, add all the cash you expect to have coming in from whatever source, and subtract all the cash you expect to spend. It is important to note that you cannot run out of cash! To put it another way, you cannot spend cash you don’t have. Most accounting packages constantly flag the amount of cash in the top right hand corner of the screen.

Some ways to raise cash include:

  • getting more customers
  • charging more
  • reducing expenses
  • collecting money owed to you (accounts receivable)
  • selling inventory and not replacing it
  • selling long term assets (just be aware that some long term assets like leasehold improvements are notoriously hard to sell except on a “going concern” basis)
  • paying your bills more slowly (but this will probably cost you exorbitant interest in the form of foregone discounts or late payment charges)
  • borrowing money
  • investing more of your own money or finding another person to invest their money
All this is much easier to do when the company is doing well, than when it is in trouble.


On January 1, 20x1 we might have prepared the following cash budget for January. Are the assumptions reasonable based on what actually happened over the year?

Red Apple Naturopathic Clinic
Cash Budget
For the months January to April 20x1

Month January February March April
Opening cash
Owner’s investment
Bank loan
Total cash available
Less leasehold improvements
Less rent
Less salaries
Less other
Total cash out
Ending cash (cash available-cash out)
(Try filling in an estimate of the next three months on your own.)
At the end of January it is a good idea to go back and see how accurate your forecast was. Again don’t forget you can never go into a negative cash balance. If you forecast a negative balance, you must arrange financing first or not spend the money. If you start bouncing cheques you are probably on the road to bankruptcy!


Analysis of the Income Statement, Balance Sheet and Cash Budget
Now comes the interesting part. Rather than just getting your statements from your accountant, looking them over with glassy eyes and filing them away, take a little time to go over them:

  • Cash balance Watch your cash balance like a hawk! Cash is the lifeblood of your business. Collect your bills and pay your staff and suppliers promptly. Don’t try to expand too fast and be careful what you buy. Put some time in on your cash budget every month. One more time, you cannot spend cash you don’t have.
  • Revenue analysis A most important figure is gross revenue. This is the total amount the business brought in from helping patients. $270,000 looks pretty good. It is $1,080/dy assuming 250 working days per year and assuming you are seeing patients for 6 hours per day it represents an average billing of $180/hr. Assuming the practice has 1,000 patients it represents an average billing of $270/patient/yr. It looks like this practice has been able to use some leverage to increase average patient billing –perhaps by having some group sessions or perhaps by renting space to other doctors. What is the revenue trend, month by month and year to year?
  • Sales Sale of supplements is an important source of revenue for some NDs. Be careful to avoid any possible conflict of interest, and provide this as a service to your patients. Never make them feel “pressured” to buy from you. In this case the sales are about $30/patient on average. The clinic is marking them up by only a very minimal 20% which seems low, although it may be part of the strategy of the clinic to give a very good deal to their patients. Also the inventory of 25,000 seems high versus sales last year of 30,000. The inventory represents 304 days of sales 25,000/30,000X 365, whereas 30 to 60 days would be normal, especially as supplements usually expire within 1-2 years. On the other hand, this may be OK if the clinic is expecting a large growth in this area, or they got an especially good price for the inventory. There are often no answers in financial statements, but lots of questions.
  • Expenses Look carefully at all your expenses. Do we really need it? Can we get a better price? For example cell phone and business phone plans are notoriously complex and can offer significant savings to the persistent customer. On the other side, are there expenses that we should be spending money on that we are not? Advertising and promotion are obvious expenses to analyze.
  • Bank charges Bank charges are the largest source of bank profits. Watch them like a hawk and be very careful about making loan and credit card payments on time. Fees for even simple mistakes in this area can be huge, and don’t be afraid to complain if you feel you have been charged incorrectly. Go over bank and credit charge statements very carefully. Mistakes are made. Never, never use your credit card for “borrowing” for your business. The interest charges are way too high. Pay off the balance in full every month with a standing order at the bank. If you need to borrow, set up a line of credit at the bank.
  • Taxes Whether you like it or not the government is in partnership with you and will take a third to half of your “profits.” Sadly they will not be in a big rush to help you out with your losses. Hire a good tax accountant so that you can structure your business efficiently and legally for tax purposes. Again pay your taxes on time, especially employee withholding taxes. Fines for late payments can be staggering. Carefully record any expenses incurred in running your business and save all receipts.
  • Debt Neither a borrower nor a lender be said Shakespeare in Hamlet, and while borrowing seems very accepted today, be aware of the risks and try to pay down your loans as soon as possible. Try to have no more than half your assets financed by debt.
  • Keep proper books Hire a good bookkeeper and keep track of your finances carefully. Accounting packages like QuickBooks or AccPac are quite cheap and actually make bookkeeping rather fun. Avoid doing barter or cash deals and record all revenues. You want to sleep at night, and the tax authorities will sometimes go after very small businesses to set an example.
  • Know your patient base You would be surprised how many NDs don’t even know how many patients they have. Who are your 10 most important patients by revenues? You should also know how many new patients you have had over the past 12 months. How did your new patients hear about you? How many have you lost? What is the trend? Expect seasonality in your business. The summer months and December will probably be slower than other times of the year.
  • Have some fun We spend about half of our life at work, and life is very short so make it fun. As Eckhart Tolle reminds us: The past is over and the future unsure, so live every day in the “now.” Don’t be afraid to try something original in your business. What’s the worst that can happen? And take some time for yourself. Geshe Roach in his great book The Diamond Cutter recommends 2 weeks alone by yourself every year, and while this might seem extreme I’d love to try it.