How to Assess the Financial Health of Your Chiropractic Practice

Running a successful chiropractic practice requires a clear understanding of your financial position. While concentrating on patient care and daily operations is essential, neglecting your chiropractic practice’s financial health can result in stagnation, missed opportunities for cost-reduction strategies, and less revenue.

As of 2023, the U.S. is home to nearly 70,000 chiropractic practices, with projections indicating a 9% growth in the industry by 2032. Strong financial management is a must for competitive advantage in this fast-growing market.

Start boosting your practice’s financial performance in 2024 by closely examining these key chiropractic financial metrics.

Monitor Your Cash Flow

Cash flow represents the money flowing into and out of your business during a specific period and is a crucial indicator of operational financial health. Monitoring your cash flow helps gauge your practice’s liquidity — its capacity to handle expenses and invest in growth opportunities.

Effective cash flow management entails the following steps:

• Checking how much money you receive daily from patient appointments, insurance claims, wellness products, or other revenue streams.
• Tracking daily expenses, including rent, utilities, staff salaries, medical supplies like adjustment tables, and office supplies.
• Using software designed for chiropractic practices that manage billing, insurance, and payment processes for simplified cash flow management and at-a-glance data.
• Comparing your transaction records in the software to your bank statements weekly to catch errors or discrepancies early.
• Estimating the following week’s incoming and outgoing cash to plan and ensure you have enough to cover upcoming expenses.

Identify Revenue Sources

After organizing your cash flow, identify your current revenue sources. These are the areas where you earn money from your services or products.

Revenue streams vary based on your clinic’s offerings and may include:

• Patient payments. Fees collected for chiropractic treatments.
• Insurance claims. Reimbursements received from health insurance providers.
• Wellness programs. Income from classes or programs focused on health, like yoga or nutrition counseling.
• Product sales. Revenue from selling health-related products, such as supplements or orthopedic supports.

Healthy chiropractic revenue management helps you optimize and diversify your practice’s income streams and identify areas for change or growth.

Analyze Your Expenses

Next, it’s important to understand your practice’s expenses. These can be categorized into fixed costs, which are consistent each month, and variable costs, which fluctuate. Properly categorizing expenses improves financial planning for chiropractors, allowing you to forecast monthly costs and make adjustments to maintain fiscal stability.

Chiropractic practices generally have the following expenses:

Fixed Expenses

• Monthly payments for rent or mortgage on your clinic space
• Regular premiums for liability and property insurance
• Wages that can make up nearly 34% of your costs
• Recurring costs for services like accounting or legal advice
• Structured payments for loans taken out for start-up costs or equipment

Variable Expenses

• Costs for electricity, water, and heating
• Expenses for medical supplies, office materials, and maintenance of equipment
• Investment in chiropractic marketing activities, which change based on campaigns
• Costs for training and seminars that occur sporadically
• Credit card or line of credit payments that change depending on purchases made that month

Assess Accounts Receivable

Days in Accounts Receivable (DAR) measures how quickly your practice can convert receivables — money owed by patients and insurance companies — into cash. A lower DAR can boost your chiropractic business profitability.

The formula to calculate your DAR is:

DAR = (Accounts Receivable/Total Credit Sales) x Number of Days

For example, if your practice has $40,000 in AR and $50,000 in total credit sales in a 30-day month, using the formula, you’d get a DAR of 24 days. These numbers can vary based on your practice’s specific billing procedures, the efficiency of your billing team, and the type of insurance companies you deal with.

Practices should keep this number as low as possible to ensure healthy cash flow and reduce the burden of carrying costs associated with uncollected revenues.

Here are some DAR guidelines for chiropractors:

• Under 30 days. This is considered excellent and indicates efficient billing and collections processes.
• 30 to 45 days. This range is generally acceptable and common in many healthcare practices.
• Over 45 days. If the DAR exceeds this, it may signal issues in the billing process or problems with payer reimbursements and impact cash flow. Implementing chiropractic billing strategies, such as working with an outsourced revenue cycle management team, can help you reduce this number.

Use Accounting Ratios for Comprehensive Data

Profitability analysis using accounting ratios offers a comprehensive view of your chiropractic practice’s fiscal health and helps evaluate its overall performance, including profitability, liquidity, and solvency.

These ratios provide critical data for identifying strengths and weaknesses within your financial structure and operational strategies. By monitoring these metrics over time, you can observe trends and assess whether your practice is progressing, regressing, or maintaining stability. Additionally, comparing these ratios against industry standards or competitors helps with benchmarking, which can highlight areas for improvement.

Focus on these three common accounting ratios to power your practice’s strategic planning and financial management:

• Operating margin. This metric reflects your practice’s operational efficiency by showing the profit earned from each dollar of revenue after covering variable and certain fixed costs.

Operating Margin = (Operating Income / Total Revenue) X 100

• A higher operating margin means your practice is doing well financially and managing costs effectively. A low or negative margin suggests that your practice is having trouble making enough money to keep going. An operating margin of about 14% is often considered healthy in medical practices.

• Working capital. This figure represents the net operational liquidity available to your practice, indicating financial health and the capacity to finance daily operations.

Working Capital = Current Assets – Current Liabilities

A larger number means more working capital, providing a bigger financial cushion to withstand challenges and invest in growth opportunities.

Although normal working capital varies between industries, here are some general benchmarks:

• • A ratio of 1.0: This is considered the minimum acceptable level to ensure liquidity, meaning a company has exactly enough assets to meet its short-term liabilities without any surplus.
  • A ratio between 1.2 and 2.0: This is often seen as healthy. It indicates that a company has a good buffer of assets over liabilities, which can be crucial for handling unexpected expenses or downturns.
  • A ratio below 1.0: This suggests that a company might struggle to meet its short-term liabilities as they come due, potentially leading to cash flow problems and a need for better debt management.
  • A ratio above 2.0: While this might indicate strong liquidity, it can also suggest that a company is not using its assets efficiently or could be over-capitalized.
• Return on investment. This ratio helps you evaluate the profitability of investments you make for the practice, such as marketing efforts, equipment, or hiring new staff. Calculate this number using the following formula:

ROI = (Net Profit/Initial Investment Cost) X 100

• A low ROI can mean you need to put your funds elsewhere, while a high ROI means you’re getting back more than you put in. There’s no absolute ceiling for ROI percentages — but your specific ROI could vary based on what you’re measuring.

• For instance, a desirable ROI for marketing is 5:1 or 500%. Let’s say you spend $200 on a chiropractic email marketing campaign, including the cost of your software and time spent composing the content. As a result of the email, you see $1,500 in revenue that month. That means you have an ROI of 750%, well above the desirable baseline.

• Using the ROI formula can help you decide how to improve your chiropractic practice. It gives you concrete data that shows the profitability of an investment and whether you should continue your efforts or move in another direction.

Patient Satisfaction

While patient satisfaction isn’t strictly a financial metric, it’s crucial not to overlook it when evaluating your practice’s performance. High satisfaction levels can lead to repeat visits, glowing reviews, and referrals, increasing revenue.

You can gauge satisfaction using patient-centric strategies such as sending automated surveys post-appointment. This provides immediate feedback and testimonials, which can strengthen your online presence and improve patient experiences based on their responses.

Additionally, consider implementing a chiropractic patient referral program. Monitoring the program can identify which clients are most satisfied with your services and are more likely to refer you to their friends and family.

Boost Your Chiropractic Practice’s Financial Health With ChiroTouch

Using manual or fragmented practice management systems can make it hard to keep your financial tracking accurate and up to date. An all-in-one platform like ChiroTouch offers features that simplify billing, insurance, and financial reporting, helping to improve your practice’s performance.

• Integrated billing and coding. With integrated billing and automatic coding and synching, your claims are accurate and submitted on time, reducing rejections and delays to secure faster payments.
• Real-time financial reporting. ChiroTouch allows you to monitor your clinic’s financial performance with detailed, easy-to-understand reports, helping you make data-driven decisions quickly.
• Electronic payment processing. With the system’s integrated payment system, you can process payments quickly and conveniently for a healthier cash flow.
• CTProBill services. With CTProBill, a team of dedicated billing specialists manages your revenue cycle, allowing you to focus on patient care while they optimize your financial returns.
• Customizable financial analytics. ChiroTouch allows you to tailor financial analytics to highlight the metrics that matter most to your practice. Display these on personalized dashboards to help you make targeted improvements and meet performance goals.