Cashflow and Capital Management for Allied Health Organisations

Allied Health and related organisations in Australia are diverse and complex businesses. While there is growing demand for services in a range of healthcare settings, there are also restraints and challenges which exist. One of the key challenges for the office of finance is managing cashflow to support operations and capital position to support strategic growth. 

Funding management challenges in Allied Health 

Allied Health organisations, particularly ones that are government funded, often have limited access to funding or resources which can restrict the ability to provide high quality care, invest in new technology and equipment, and keep up with the latest research and practices.  

The funding itself can be often fragmented, with different funding models across different settings, from state, federal and other sources. This not only creates uncertainty, it can also be difficult to administer. 

Unique challenges also exist within certain subsectors. For example, aged care facilities must grapple with the cashflow implications of managing refundable accommodation deposits (RADs).  

Furthermore, reimbursement for services in the health space can be complex and inconsistent. Managing insurance reimbursements, government reimbursement and patient payment requires effective management of the revenue cycle, which is often distinct from the cashflow receipt cycle.  

team working planning

Effective disciplines and processes to manage cashflow 

Whether it is dealing with operational cashflow or long-term structural funding challenges, it is important to have the right disciplines and processes in place to forecast cashflow.  

This is where a comprehensive strategic 3-way financial model incorporating income statement, balance sheet and cashflow is vitally important in projecting financial performance, analysing trends and making strategic financing and investment decisions.  

For private operators, key liquidity ratios and banking covenants can be monitored on both a short term and long-term horizon. This will help optimise the treasury management function within the finance team and ensure liquidity is available when needed and financing costs are minimised.  

Importantly, the strategic 3-way financial model must be integrated within current planning processes and be a key output from the regular forecast cycle. 

How to integrate and model financial plans 

Even the most complex spreadsheet models have limitations and are inherently risky to manage, with the threat of errors always present.  

Beyond spreadsheets, a technology solution will have the smarts to integrate granular level plans easily and quickly, enabling the finance team to collaborate, update drivers and analyse various scenarios at speed.  

From a modelling perspective, defining the rules to ensure the cash receipt cycle is tightly predictable based on what are often complex revenue drivers is a key benefit of such technology.  Moreover, this operational view can be incorporated into the strategic 3-way model where big-ticket funding sources in terms of size, timing and probability are appropriately managed. 

This ultimately means that from a profitability, capex and financing perspective, a high performing finance leader can compare and analyse scenarios, not only within the current fiscal year at a granular level, but also on a two to five year strategic view.  

Being able to review various strategic initiatives in line with the organisation’s goals, but to also understand how they can work within known capital constraints, is imperative for today’s finance leaders in the health sector. 

How one organisation has their finger on the pulse 

cohealth is a not-for-profit community health organisation that delivers low cost, high quality, accessible health care and community programmes across Melbourne.  

cohealth staff

They had a tedious budgeting and planning process but wanted to change this, while also improving their understanding and management of the organisation. Working with QMetrix to implement the planning solution, Workday Adaptive Planning, they now have the ability to:  

  • Use actuals to understand their position and plan forward with insights: Now, cohealth have a constant 12 month rolling forecast which helps them understand where they are going to be each Financial Year and in 12 months’ time. This means they have a better understanding their current revenue and cashflow at any time. 
  • Understand key drivers and outcomes impacted: They have linked financial and non-financial metrics to help the business understand how activities that deliver services link to financials, and how these lead to important strategic decisions and outcomes for each department and the overall business. cohealth can also track funding obligations – for example, ensuring they have resources to keep on track to achieve a certain number of service hours to receive certain funding. 
  • Scenario analysis to make calculated decisions: They can easily create different scenarios to view potential outcomes and make strategic investments and decisions that could impact them in the short and long term. 

Manage your funds and thrive 

Having sufficient funding and good cashflow management is crucial to an organisation’s success and its ability to hit goals and thrive well into the future.  

In order to better manage and plan cashflow, the office of finance needs to consider the disciplines, processes and technology that can give them the ability to integrate plans, analyse scenarios, manage risk, and work within capital constraints – and be more efficient in doing so. 

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