Three Financial Reports You Should Know

Profit & Loss, Balance Sheet, and Cash Flow Statement.

You hear about them regularly, so let’s highlight the insights these reports can bring.

Profit & Loss, Balance Sheet, and Cash Flow Statement are the three standard accounting reports that together make your business financial statements. They all look back and outline how your practice has performed financially in the past.

They won’t predict the future, but they provide useful clues on where your business is headed. Mainly, they tell you the financial health of your practice. That alone can give you a better grasp of your numbers and reduce the feeling of being in the dark.

Why One Report Isn’t Enough

Some financial activity shows up in one report but not another. That’s why reviewing only one can give a false sense of security.

• The Balance Sheet shows you where you stand overall. It summarizes what you possess, what you expect to receive, and what you owe. It tells you the overall financial strength of your business at a specific date.

• The Profit & Loss shows what happened during a specific period of time; it compares the revenue you earned with the expenses you incurred to generate that revenue. It tells you how your business performed over that period and whether it was profitable. 

• The Statement of Cash Flow shows how the money actually moved over a specific period of time, highlighting where cash came from and where it went. It tells you how your cash situation is trending and where potential liquidity issues might develop. 

Three Reports That Bring Some Clarity

Most of the financial information a business owner needs is sitting inside an accounting system, usually QuickBooks Online or something similar. If your bookkeeping is up to date, you can  pull these reports anytime and set the date range you want to review.

These three reports work together to help answer some of the questions that practice owners might grapple with:

• Will we have enough cash to cover payroll?

• Can we afford to hire another therapist?

• Is the clinic profitable overall?

• Are we carrying too much debt?

• Are we growing sustainably, or are we stretching too thin?

  
  

Each report shows your practice from a different angle, and you need all three to see the full picture. 

1. The Profit & Loss: Are We Truly Profitable?

The Profit & Loss report, often called the P&L, answers the question most owners care about first: Is the practice profitable? It shows:

• Revenue coming in

• Expenses going out

• What’s left over at the end

  
  

At first glance, it seems straightforward, but small changes can add up over time. If your revenue grows while your expenses stay controlled, profit improves. But if expenses rise faster than revenue, profit begins to shrink, even when calendars are full and the team feels busy. The P&L will help you spot these types of trends and see whether your clinic is profitable. Typically, you would review your P&L over a month, quarter, or year and compare it to the prior period. 

The P&L is an important tool because it will show whether your business model is sound and sustainable. Essentially indicating if your day to day operations are generating a surplus or losing money on therapy sessions. It helps you figure out whether your business can stand on its own, or if you need to rethink your fee structure or the expenses you are carrying.

That’s why we recommend reviewing this report with these questions in mind:

• Is serving our clients costing us more than we receive in therapy fees?

• Is this temporary? How long can we sustain this imbalance?

• Are we spending more than we had planned? What is the justification?

2. The Balance Sheet: Where Do We Stand?

If the Profit & Loss shows movement, the Balance Sheet shows position.

While the P&L shows the profit or the loss you generated over a specific period, the balance sheet shows what your business owns, owes, and what remains for the owner at a specific date. It includes the accumulation of all your profits and losses since you started the practice and gives a snapshot of your business’ financial position on a given day. This is often referred to as “owner’s equity", the business equivalent of personal “net worth”.

The Balance Sheet shows you the overall strength of your business and answers:

• What do we owe?

• What do we own?

• What are we owed?

  
  

In addition to seeing the accumulated net income from your P&L, this is the report where you see your assets, things like cash, equipment, and money owed to you—and your liabilities, such as loans or lines of credit.

Over time, we want to see assets grow faster than liabilities. That growth is what builds strength and resilience and puts your practice in a safer financial position, one where it can more easily absorb unexpected expenses or support slower months.

The Balance Sheet report becomes especially important if you ever consider selling your practice. It shows the results of years of effort, not just one good quarter. That’s because the Balance Sheet shows your accumulated wealth and the debt you’ve accumulated. But even if selling is far off, the Balance Sheet still gives something valuable: clarity and a record of what you’ve built over the years. 

A Number Worth Watching Closely: Accounts Receivable

One of the most important pieces of the Balance Sheet is Accounts Receivable, often called A/R. This is the money your practice is owed for services already provided. When A/R grows larger than expected, it usually signals an issue in your operations, things like:

• Billing delays

• Backlog of unsubmitted claims

• Insurance denials/Change in policy

• Claims errors

• Missed resubmissions

• Patient balances not being collected. 

  
  

When this happens, the work is being done, your practice might be busy and growing, but the cash is not coming in fast enough, which causes cash flow tension. You may feel it most during payroll week, when expenses are due but receipts are still in transit. This might force you to rely too heavily on expensive lines of credit and credit cards. Late receivables tend to have large effects as they are usually your practice's main source of cash. They might impact your ability to invest in your practice and delay renting a new office or hiring. This is why good billing oversight is so important, it protects your cash flow and reduces financial stress. 

Recording billed services as Accounts Receivable keeps your bookkeeping aligned with your clinical work. It also makes operational delays stand out clearly instead of being buried inside your EHR. Understanding how old your A/R balances are is also key, as it shows when you might need to take action to speed up collection. This aging information is typically found in your EHR. 

3. The Cash Flow Statement: Do We Have Enough Cash?

This report answers one of the toughest financial questions a practice may face:

Are we running out of cash? 

Many owners eventually face this tough reality: a practice might show a profit on paper but still be short on cash when expenses are due. 

Why? Because cash flow isn’t about profit. It’s about timing: when money actually arrives and when it actually leaves. The Cash Flow Statement explains how cash moved through your business during a period. Unlike the Profit & Loss, which records income and expenses at the time the service was performed, the Cash Flow Statement focuses on when cash actually entered and left the organization. A visit completed in June will appear in your June Profit & Loss but it won’t show up in your Cash Flow report until the payment is received. Similarly office furniture delivered in June will be included in your P&L, but won’t appear in your Cash Flow until you actually send the payment. 

Your Cash Flow Statement captures not only the cash movements from your regular operations (therapy sessions, payroll, software, etc.) but also investing and financing activities, such as furniture and equipment purchases, loan proceeds, and debt repayments. 

Cash gets tight when you have little or no cash reserves and insurance reimbursements arrive slowly, while payroll, rent, EHR fees, and other subscriptions auto‑debit early in the month. Loan payments also drain your cash even though loan principals don’t show up as expenses on the P&L. That’s why looking at the Cash Flow Statement gives a more comprehensive view of your liquidity. It will show over a set period:

• Money coming in

• Money going out

• Whether your cash cushion is growing or thinning out

• How owner draws, loan repayments, and large purchases impact your available cash.

Lenders will look at your Cash Flow statement to find out whether your therapy services are generating enough cash to cover your day-to-day operations. They’ll also use this report to assess your ability to make your loan payments. 

The Cash Flow Statement is not always the easiest report to read. It often needs context and explanation. But once you understand it, you start to anticipate tight months instead of being blindsided by them. And even a modest cash cushion (one to two months of expenses) can reduce the financial stress of an unexpected turnover or slow month. Your Cash Flow Statement is a great tool to start building this buffer.

Numbers Alone Aren’t Enough

If your bookkeeper sends these reports each month, that’s a good start, but the real value comes from understanding what the numbers really mean. We recommend asking questions such as:

“If the activity slows down, how much runway do we have?”

“Why is the cash position negative?”

“Are there significant changes from prior periods?” 

These reports become far more useful when they are viewed in comparison to another period (same month last year, previous months, previous quarters, etc.), especially when considering seasonal patterns and changes that have occurred in the business. So make sure to ask for comparative reports that show your results over time.

One report gives you a snapshot, but tracking the data over time and comparing it across periods helps you spot trends before they turn into problems. These patterns will give you useful clues about potential financial challenges. When you review these reports regularly, you can ask better questions and investigate anything that looks off. They’ll also help you understand your business and the financial drivers that matter most.

Financial Reports and Your EHR Work Together

Unfortunately there is no single source for all the data you need to make confident decisions about your practice. Your EHR includes some financial information, but anything not directly tied to a clinical session will typically not show up there. Think of intake and administrative staff, marketing, office expenses and all your monthly subscriptions. Essentially, all the other expenses required to keep your practice running are missing from the EHR. 

Your EHR highlights how your clinical work is performing. Your financial reports show you how your business is performing. The EHR helps you keep an eye on things like caseload, cancellation rates, client retention, scheduling patterns, and overall utilization. Your financial reports, on the other hand, help you understand profitability, debt position, cash stability, expense growth, and how well revenue is collected. 

Reviewed together, they give you a fuller picture.

The Power of Knowing Your Numbers

One of the biggest mistakes practice owners make isn’t overspending or hiring too quickly.

It’s usually not looking closely at their numbers until something feels wrong. By then, stress has already arrived. Making business decisions based on incomplete information can lead to costly mistakes. And when we act late, we have fewer options and end up backed into a corner. 

Don’t let issues become bigger than they need to be. Regular financial review will help you catch small issues early:

• Cash flow tightening

• Expenses creeping upward

• Billing slowdowns

• Missed recredentialing 

• Profit shrinking

• Inefficient client payment policies.

  
  

When you catch these early, solutions are simpler, you have choice, and you can carefully evaluate each option. Instead of feeling reactive or worrying, you make decisions more confidently.

Why This Matters 

Operating a group practice requires more than clinical expertise. It requires financial awareness. Poor financial management is one of the most common reasons small businesses fail—and cash flow problems are often at the center.

Not because owners aren't trying. Mostly because they don’t have clear visibility.

You don't need to become an accountant to run a financially healthy practice. But understanding these three reports gives you useful information to ask better questions, make better decisions, and build a practice that is sustainable for the long term.