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Cash flow forecasting can be a successful tool in assessing a hospital’s profitability in the coming years. A cash flow forecast for a hospital could include both short term, a year, and long term, a few years. The cash flow forecast is an estimate of money expected to flow in and out of the hospital as well as any projected income expenses. It can also predict any upcoming cash surpluses or shortages.

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Having a good team in the finance department which uses a cash flow forecast can lead to a more disciplined accounting behavior that indicates inherent and control risk. A cash flow forecast may also provide the stakeholders with more information leading to the earnings of the hospital, leading to better monitoring of the companies financial accounting disclosures (Mao & Yu, 2015).

For a hospital, cash flow can be influenced by economic changes such as healthcare laws. If patients have no insurance or insurance with high deductibles, this could lead to a shortage of payments and cash flows. Physician demands can also play a role in the forecast. Physicians are not always employees of the hospital and may make demands in order to continue practicing at the location.

Healthcare technology is always improving and diagnostic technology needs to be maintained and repaired. Knowing the life span and estimated cost of repairs will influence the cash flow forecasting. Information technology, such as the requirement for an electronica health record system may not have been forecasted in a long term plan, but may have needed to be fit into the budget to adhere to laws and policies.

When creating a cash flow forecast, it is necessary to keep all of this in mind. Any potential changes due to changes in economics, industry dynamics, and growth prospects could increase or decrease cash flows. It is also a good practice to include multiple scenarios when creating a cash flow forecast.

Heidi

Reference:

Gerhard, C. (2012). Hitting the Target: The Challenges of Executing Cash Flow Forecasting. Global Finance, 26(12), 16-17.

Mao, M. Q., & Yu, Y. (2015). Analysts’ Cash Flow Forecasts, Audit Effort, and Audit Opinions on Internal Control. Journal Of Business Finance & Accounting, 42(5/6), 635-664. doi:10.1111/jbfa.1211

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