Three Ways Your Veterinary Hospital Can Effectively Use Excess Cash
Veterinary hospitals continue to deal with high demand and full appointment books, and many hospital owners are seeing that their business’s bank account balance has grown quite large. While having a strong cash balance can be helpful to a hospital, excess funds can also become a liability if the hospital became involved in a lawsuit.
It is recommended that hospitals retain a minimum cash balance of 4% of the previous 12 months’ gross revenue. Any funds in excess of this amount can then be distributed out of the business. But before large amounts of funds are simply distributed to the owners for personal use, consider these options to ensure that the excess cash is being used effectively:
- Saving for business needs: Many hospital owners have a wish list of building improvements or equipment purchases. Once excess cash is distributed, it can be placed into an account in the owner’s personal name to save for large, future expenditures. Once the savings goal is reached, the funds can then be recontributed to the business to be used for these projects.
- Preparing for tax liabilities: Since hospitals have been having record years, owners should remember that larger income results in larger tax liabilities. Therefore, we recommend working with your tax advisor to determine your projected tax liability for the year. If a full tax projection is not done, a simple strategy could be to save 40% of the hospital’s net income for potential tax payments.
- Planning for future growth: Regardless of whether the funds are being saved for business or personal use, it is important to work with a trusted financial advisor to develop an investment strategy and ensure the cash is being invested properly. This advisor can help to determine which type of investments should be used so that the cash is readily available when needed.
For more tips and strategies for putting your hospital’s cash balance to good use, please contact KSM’s veterinary consulting team.
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