The Only 7 Cash Management Numbers Every Dermatology Practice Owner Must Know

Managing cash in a dermatology practice can be challenging. We’ve found there’s often an opportunity to improve cash flow through better management. 

Here's why it matters: nine times out of ten when we ask practice owners for their numbers, they refer us to their accountants. This tells us two things: first, they don't know their numbers, and second, they're probably looking at the wrong numbers. 

Accounting is important in any practice, but accounting numbers don't provide an accurate management picture. They aren't supposed to. Accounting numbers are for taxes, keeping track of money, and standardized reporting—they aren't for practice management decisions. And they're too late: often once a year, maybe once a quarter, but always numbers about the past. 

Many practice owners are looking at old data, providing a view of what happened rather than what's happening. Since accounting numbers are complex and require effort to understand, they often pile up to be reviewed "later" rather than used to make decisions today. 

To effectively run your dermatology practice, you need to know your numbers. 

The good news is that this doesn't have to be an arduous task. To really understand what's going on in your practice, you need to pay attention to just seven numbers: 

The first four focus on revenue and profitability. We call them Practice Value Metrics: 

• Revenue Growth 
• Price/Fee Growth 
• Cost of Services Delivered (direct costs) 
• Overhead (indirect costs) 

The last three focus on cash management. We call them Cash Flow Metrics: 

• Inventory Days (supplies, equipment & products) 
• Accounts Receivable Days 
• Accounts Payable Days 

A Real Practice Example 

Here's an example from a well-run dermatology practice that came to us for help with growth capital. We'll call them SkinCare Partners. They had solid patient volume but needed cash to expand to a second location. 

SkinCare Partners is a textbook example of what we see in many practices. Some small adjustments and different focus areas allowed us to find just under $100,000 in cash and nearly $50,000 in additional profit. Money they could use to grow the practice. 

Here's the breakdown: 

Metric 

Improvement 

Cash Impact 

Revenue Growth 

0% 

$0 

Fee Increases 

2% 

$20,000 

Cost of Services 

-5% 

$25,000 

Overhead 

-2% 

$4,000 

Accounts Receivable 

5 days faster 

$13,699 

Accounts Payable 

5 days longer 

$9,589 

Supply Inventory 

10 days less 

$27,397 

Total Cash Impact 

 

$99,685 

Profit Impact 

 

$49,000 

Your situation will be different, but there will almost certainly be opportunity to increase your cash balance without increasing patient volume. We'll show you how. 

Practice Value Metrics 

Revenue Growth 

Your practice starts with revenue. If there's one number practice owners typically understand, it's revenue. Dermatology practices are generally focused on finding, managing, and treating patients, which is crucial. 

But beyond revenue as a number, it's important to understand revenue growth and how your income is changing over time. 

Negative and plateauing revenue growth need immediate attention. Here are several things dermatology practices can do to increase revenue: 

Create a strategy for patient acquisition and retention.

Often practices focus too heavily on marketing when there can be a lot of value in systematically improving patient experience and referrals. Patient retention should be 90% of your effort, while new patient acquisition should be 10%. 

Focus on high-value services and reduce focus on low-margin procedures.

Not all revenue is created equal. Cosmetic procedures, dermatopathology, and specialized treatments are often more valuable than basic visits. 

Expand service offerings based on patient needs.

Adding cosmetic dermatology, Mohs surgery, or dermatopathology can significantly increase revenue per patient. 

Price/Fee Growth 

Your fees are the most direct link between patient visits and profit. Any increase in fees goes directly to the bottom line, because pricing is independent of your costs. 

Here's the reality for dermatology practices: most of your medical dermatology fees are fixed by insurance carriers. You can't just raise the reimbursement rate for a skin cancer screening or eczema treatment. Insurance companies set those rates, and they're often decreasing, not increasing. 

But that doesn't mean you're stuck. The real opportunity for fee growth lies in services and products that aren't controlled by insurance: 

Cosmetic procedures (Botox, fillers, laser treatments, chemical peels) - these are typically cash-pay services where you set the price. 

Cash-pay medical services (mole mapping, advanced skin cancer screenings, same-day appointments) - patients will pay for convenience and enhanced care. 

Product sales (medical-grade skincare, sunscreens, specialized treatments) - retail margins can significantly boost revenue per patient. 

Specialized procedures that insurance covers but you can choose whether to accept insurance or offer as cash-pay services. 

The key is shifting your practice mix toward higher-margin services while maintaining excellent medical dermatology care. Most dermatology practices undervalue their cosmetic and cash-pay services, leaving significant money on the table. 

Here are some strategies for maximizing fee growth within insurance constraints: 

1. Optimize your cosmetic pricing annually. Research local market rates for Botox, fillers, and laser treatments. These cash-pay services should increase with inflation and market demand. 
2. Develop cash-pay medical services. Offer premium services like comprehensive skin exams, mole mapping, or same-day sick visits for patients willing to pay out-of-pocket. 
3. Add retail product sales. Medical-grade skincare products have excellent margins and provide ongoing revenue from existing patients. 
4. Bundle services strategically. Combine covered medical visits with cash-pay cosmetic consultations or product recommendations. 
5. Focus on high-reimbursement procedures. Within insurance limitations, prioritize procedures that reimburse well and consider whether some might be offered as cash-pay alternatives. 
6. Educate patients about value. Help patients understand the difference between basic care and premium services, making them more willing to pay for enhanced options. 

Cost of Services Delivered 

This is the direct cost of delivering care to your patients. Direct means those costs that are patient-related, not overhead like rent or administrative staff. 

For dermatology practices, this includes: 

• Medical supplies (syringes, gloves, gauze, medications) 
• Cosmetic products (Botox, fillers, lasers supplies) 
• Lab fees and pathology costs 
• Medical assistant time during procedures 
• Provider time for procedures 
• Equipment maintenance directly related to patient care 

Understanding these costs is critical because they vary with patient volume. See 10 more patients, and these costs increase proportionally. 

Six ways to reduce direct costs: 

1. Reduce waste. Track how much Botox gets discarded, how many supplies are wasted, and focus on reducing these losses. 
2. Standardize procedures. Defined protocols allow staff to work more efficiently and reduce the chance of errors that require rework. 
3. Negotiate with suppliers. Your relationships with pharmaceutical companies, medical supply vendors, and labs should be ongoing negotiations, not set-and-forget contracts. 
4. Improve efficiency. Look for time waste in procedures and patient flow. The more efficient your care delivery, the lower your costs. 
5. Track productivity. Monitor how long procedures actually take versus what you're billing for. Faster, quality care improves profitability. 
6. Evaluate low-profit services. Some procedures or patient types may not be profitable. Understanding which ones lose money helps you make better decisions. 

Overhead as a Percentage of Revenue 

Overhead includes all costs that aren't direct patient care costs: rent, administrative staff, marketing, insurance, utilities, and practice management expenses. 

These costs should grow with your practice, but they shouldn't grow lockstep with revenue. If they do, you have a problem. 

Total overhead matters, but overhead as a percentage of revenue is critical because it shows you the relationship between fixed costs and practice growth. 

Seven ways to manage overhead: 

1. Develop a budget and use it. A plan helps prioritize spending and keeps overhead focused on practice goals. 
2. Negotiate with vendors. From your practice management software to your lease, everything should be periodically renegotiated. 
3. Consider flexible space arrangements. Renting part-time procedure rooms or sharing space with other specialists can reduce fixed costs. 
4. Use technology strategically. Electronic health records, patient portals, and automated scheduling can reduce administrative costs. 
5. Standardize administrative processes. Efficient billing, scheduling, and patient communication reduce labor costs. 
6. Monitor spending carefully. Require approval for purchases over a certain amount and track where money is going. 
7. Evaluate low-value patients. Some patients cost more to serve than they generate in revenue. Sometimes it's better to refer them elsewhere. 

Cash Flow Metrics 

Supply Inventory Days 

This measures how many days of supplies you keep on hand—from medical supplies to cosmetic products. Inventory is cash in product form, waiting to be turned back into cash. 

Dermatology practices often over-inventory expensive items like Botox, fillers, and laser supplies. Anything you can do to reduce inventory frees up cash for practice growth. 

Six ways to manage inventory: 

1. Track inventory systematically. You can't improve what you don't measure. Know what you have, where it is, and when it expires. 
2. Reduce lead times. Order supplies for immediate use rather than stockpiling. Work with suppliers who can deliver quickly. 
3. Avoid bulk buying unless the savings are substantial. Buying extra Botox because it's "on sale" ties up cash you could use elsewhere. 
4. Plan for seasonal demand. If you do more cosmetic procedures before holidays, plan inventory accordingly rather than keeping high levels year-round. 
5. Eliminate slow-moving supplies. If certain products aren't selling, stop ordering them and focus on what patients actually want. 
6. Implement expiration date management. Expired products are pure waste. Use first-in-first-out inventory management. 

Accounts Receivable Days 

This measures how long it takes to collect payment after providing services. You've treated the patient and sent the bill, but you're waiting for payment from insurance or the patient. 

Many practices don't actively manage collections, leading to months of unnecessary payment delays. As your practice grows, monitoring receivables becomes critical. 

Six ways to improve collections: 

1. Collect copays and deductibles upfront. Don't provide services hoping to collect later. Get payment at the time of service whenever possible. 
2. Verify insurance before appointments. Know what's covered and what the patient owes before they arrive. 
3. Bill quickly and accurately. The collection clock doesn't start until you submit clean claims. Faster billing means faster payment. 
4. Follow up on unpaid claims. Designate someone to track and follow up on outstanding payments. This role pays for itself. 
5. Make payment easy. Online payment portals, payment plans, and multiple payment options improve collection rates. 
6. Maintain good patient relationships. Patients are more likely to pay providers they like and trust. 

Accounts Payable Days 

This measures how long you take to pay suppliers. Managing payables helps with cash flow, but you must honor your agreements. 

Five ways to optimize payables: 

1. Negotiate payment terms. When signing contracts, ask for 30-day terms instead of payment on delivery. 
2. Create a systematic payment process. Pay bills on time, but not early unless you get a discount. 
3. Use credit cards strategically. If you pay off balances monthly, credit cards provide an extra 30 days of free financing. 
4. Don't pay early without discounts. There's no reason to pay bills before they're due unless you save money. 
5. Maintain good vendor relationships. Good relationships with suppliers provide flexibility when you need it. 

Making It Work in Your Practice 

These seven numbers give you a complete picture of your practice's financial health. By monitoring them monthly, you'll spot problems early and identify opportunities for improvement. 

The goal isn't to obsess over numbers—it's to have the financial intelligence to make smart decisions about your practice's future. When you understand these metrics, you can grow confidently, knowing exactly where your money comes from and where it goes. 



Start tracking these seven numbers next month. We guarantee you'll find opportunities to improve your practice's profitability and cash flow.