Plenty of therapists come to me with revenue that’s grown steadily, sometimes by a meaningful amount year over year.
And yet, they’re still watching their account balance closely before making a purchase. Almost the way they did back when they were paying off student loans on a resident’s salary.
When I dig into the books, revenue usually isn’t the main issue. The issue is cash flow. These two get treated as the same thing more often than they should. This complicates things for a therapy practice where billing, insurance, and timing all interact in ways that aren’t obvious from the outside.
Your P&L Isn’t Your Bank Account
Most practices run their books on an accrual basis, which means your profit and loss statement records income the moment a session is billed, not the moment you’re paid for it.
If a claim takes several weeks to process, gets denied and has to be resubmitted, or sits in a queue at the insurance company, that revenue has already been counted on your books well before the money reaches your account.
On paper, the practice looks profitable. But in reality, the cash to cover one month’s expenses might still be weeks away.
This is why I ask practice owners to compare their cash basis books against their accrual basis books periodically. When those two views tell different stories, that difference is very often where the cash-strapped feeling is coming from, even while the top-line revenue number looks perfectly healthy.
Most owners have simply never run this comparison, because they didn’t know to.
Ask Your Billing Company for a Billed vs. Collected Report
Billing companies differ more than most practice owners realize when they first sign a contract.
Some have strong internal processes to chase down denied or delayed claims until they get resolved. Others let things sit, sometimes for months, without the delay being identified.
Because a billed amount shows up as revenue on your books regardless of whether it was ever collected, a billing company that isn’t following up closely enough can make a practice look financially sound on paper while the corresponding cash simply never arrives.
The fix here is straightforward:
Ask your billing company for a report that compares what was billed against what was collected, broken out by payer if possible.
If you’ve never seen this report or don’t know whether your billing company can produce one, you should have that conversation with them.
In at least one case I’ve worked on, this kind of review revealed a rejected billing code that had gone unnoticed for months. Once it was corrected, collections improved noticeably within a matter of weeks.
Reimbursement Timing Is Built Into the System
Insurance companies and managed care organizations don’t pay claims the day they’re submitted, and the wait time varies significantly from payer to payer.
If a meaningful portion of your caseload is tied to insurance contracts with slower reimbursement cycles, that lag compounds across every client and every billing period. It’s easy to lose track of exactly how much revenue is sitting in that queue at any given moment.
This is part of why cash-based practices, or practices with a strong base of cash-paying clients, often feel more financially stable than insurance-heavy practices even when their total revenue is comparable or lower.
Payment arrives immediately rather than working its way through a reimbursement process. If your practice relies primarily on insurance, it’s worth estimating roughly how much of your revenue is tied up in unpaid claims at any point in time. Very few owners have ever calculated this number, and it usually comes out larger than expected.
Overhead Runs on Its Own Calendar
Rent is due on the first of the month regardless of whether last month’s claims have cleared, and payroll runs on schedule whether or not accounts receivable has caught up.
Practice management software, your EHR system, your telehealth platform, and your scheduling tools all bill according to their own terms, independent of how collections are going in any given month.
This mismatch between when expenses come due and when revenue converts to cash is a common reason therapy practices feel squeezed even during a strong year.
The annual numbers can look solid, while, month to month, expenses keep landing before the corresponding collections do. Building a cash reserve specifically to cover this timing gap, even a modest one equal to a month or two of fixed expenses, removes a significant amount of the pressure that comes from this mismatch.
Late Cancellations Cost More Than the Missed Session
A late cancellation or no-show doesn’t just cost the practice one session’s worth of income. It also costs income the practice had likely already accounted for when budgeting around fixed monthly expenses.
Without a cancellation policy that’s clearly explained during client onboarding and then consistently enforced, that becomes a recurring financial issue.
Practices that track cancellations and no-shows over the course of a year often find the total adds up to more unbilled clinical time than they expected. To address this, you have to review whatever policy is currently in place, make sure it’s communicated clearly from the first session onward, and follow through on it consistently.
Be Careful What You Read Into a Healthy Cash Balance
When there’s cash sitting in the business account, it’s natural to want to take more of it out.
Sometimes, that’s entirely appropriate. Other times, it creates a misleading picture of the practice’s financial health, particularly when part of that balance reflects loan proceeds or receivables that appear collected on the books but haven’t actually cleared.
A relevant example here involves EIDL loans, which many practices took out during COVID at low, fixed interest rates with repayment terms extending out for decades.
Some of these loans are still being repaid today. That money is debt, not profit, and treating it as profit by drawing it out for personal use can reduce the owner’s basis in the business and create unanticipated tax exposure.
More broadly, before increasing what’s drawn out of the practice, you should confirm whether the available cash truly represents profit or whether it’s present simply because expenses haven’t yet caught up with what’s been billed but not collected.
Habits That Prevent This From Becoming a Recurring Problem
A handful of consistent habits typically make the biggest difference here:
- Review the profit and loss statement and the balance sheet monthly, not just at tax time. The balance sheet in particular gives an accurate picture of cash position, outstanding debt, and what’s available.
- Track accounts receivable alongside revenue, and take note if receivables start growing faster than actual collections. That’s often an early signal.
- Reconcile the books every month instead of letting transactions accumulate.
- Maintain regular contact with an accountant throughout the year rather than only during tax season. A quick quarterly check-in is often enough to catch a developing problem while it’s still small and manageable.
Together, these determine the difference between a practice that feels financially stressed and one that doesn’t, even when their underlying numbers are fairly similar.
The Bottom Line
Revenue tells you how well your schedule is filled and how much clinical work is going out the door, while cash flow tells you whether the business underneath that work is healthy.
A therapy practice can look strong by every outward measure and still leave its owner feeling financially stretched, and in most cases the explanation traces back to timing, billing processes, or overhead rather than anything wrong with the clinical work itself. Fixing it requires a closer look at numbers that most practice owners have simply never had a reason to examine before.
If you want a second set of eyes on where your practice’s cash is going, I work specifically with mental health practice owners on exactly this.
Find out how we help mental health practices succeed with their financials.