Profit and loss is only part of the practice ownership picture

If you’re in business, your Profit & Loss (P&L) statement will tell you everything you need to know, right? Not exactly. It’s a helpful tool, but what you really need to focus on is your Statement of Cash Flows.

According to business mentoring group SCORE (Service Corps of Retired Executives), more than 80% of small business failures are linked to cash flow mismanagement. Many doctors of chiropractic, like other small business owners, mistakenly rely on the P&L statement as their primary financial metric, but this approach only tells part of the story and can be dangerously misleading. The real measure of a practice’s financial health is the Statement of Cash Flows, which reveals the sustainability and viability of a business beyond mere profitability.

What is the Statement of Cash Flows?

The Statement of Cash Flows provides the insights that truly determine whether a practice is financially viable. Without tracking cash flow, DCs risk making decisions based on misleading profit figures, rather than understanding whether their business can actually sustain itself, grow or weather financial challenges.

What is profit? It’s an accounting result, not a business outcome

Profit, as reported on the P&L statement, is merely an accounting construct. It reflects revenue recognition rules, non-cash expenses such as depreciation and timing differences in receivables and payables. It does not necessarily reflect more money coming in, the way cash flow does. Cash flow is real—it dictates whether a practice can meet payroll, pay rent and reinvest in new equipment.

A profitable business can still fail if it lacks the cash liquidity to fund operations. Relying solely on the P&L statement leaves DCs vulnerable to financial missteps because it fails to track the actual flow of money within their business.

Why the profit and loss statement misleads

The P&L statement measures performance—not financial health. It shows whether the practice was profitable on an accounting basis, but it does not reveal whether the business is sustainable, scalable or resilient under financial pressure.

Many DCs assume positive profit figures equal strong financial standing. However, without understanding cash flow, they may overextend spending, miscalculate reinvestment strategies or struggle with unexpected financial shortfalls.

The critical importance of cash flow

The Statement of Cash Flows is divided into three core components, each providing a critical view of financial viability:

1. Operating cash flow. Cash generated from core business activities, such as revenue from sales and expenses related to daily operations.
2. Investing cash flow. Funds used for or gained from investment activities, including the purchase or sale of assets.
3. Financing cash flow. Movements of cash related to funding sources, such as loans, equity financing or dividend payments.

Why DCs must prioritize cash flow analysis

By shifting their focus from the P&L statement to the Statement of Cash Flows, DCs gain a more realistic understanding of their financial health, allowing them to:

• Identify liquidity trends to avoid cash shortages
• Ensure sustainable reinvestment strategies for business growth
• Manage debt and financial commitments wisely to prevent instability
• Instead of being blindsided by financial missteps, DCs can proactively track cash movement, monitor business sustainability and strengthen their financial foundation.

Final thoughts

Financial intelligence is not optional for DCs running their own practices—it is essential. Without cash flow awareness, even the most profitable business will struggle to survive.

By shifting their focus to the Statement of Cash Flows, DCs can make better-informed financial decisions, ensuring long-term sustainability and a thriving, resilient practice.

Derrick D. Wallery, DC, MBA, is a seasoned doctor of chiropractic with more than 20 years of clinical and executive experience in the healthcare industry. He holds a master’s degree in business administration and has successfully owned and operated multiple multi-specialty clinics, an outpatient surgery center, a management services organization and a revenue cycle management company, among other healthcare-related ventures. Wallery has also provided consulting services, including business and healthcare operations, management and strategic development, to a wide range of healthcare providers and entities, including DCs, physical therapists, medical doctors, hospitals and surgery centers. For more information, call 779-251-1045 or email derrick@physiciansadminservices.com.