This article starts our series on financial aspects of a podiatry practice.

The most important financial skill of a successful podiatry practice is managing net working capital. Net working capital is defined as the sum of cash and assets that convert to cash within your operating cycle (current assets) minus rent, payroll and other cash requirements within that same cycle (current liabilities). In other words, having the cash to pay your obligations when they are due.

There are three reasons to hold more cash than is required by current liabilities. The first is to enable you to conduct your ordinary business such as payroll or rent. The second is cushion your practice against unforeseen or emergency expenses such as hiring a new nurse or an unexpected repair to your office. The third is to allow you to take advantage of profit-making opportunities that present themselves such as discounts on supplies or adding a new podiatrist to your practice.

Meeting financial obligations also have advantages on the personal level. It helps one to reduce stress and thus reduce the risks of burn-out. It can save you money by obtaining trade credit. It will boost your credit score and enable you to get lower cost credit in the future.

The last term that needs to be examined is float. Float is the time you have funds owed you held up between the time you see a patient and when you are paid by either the insurance company or patient for your services. The more that one reduces float the less net working capital is required to operate your practice and the more financial secure your podiatry practice becomes.

Our next article will discuss how to calculate net working capital for a podiatry practice.