05/18/2026 Bret M. Ribotsky, DPM
Understanding Financial Statements
Dr. Hultman’s recent contribution to Podiatry
Management on physician financial literacy is a
commendable starting point, yet it necessarily
sacrifices depth for accessibility. For the
physician genuinely committed to understanding the
financial architecture of a private practice —
rather than merely its surface appearance — a more
rigorous framework is warranted.
My perspective is informed by direct involvement
in the mergers and acquisitions space, having
evaluated and facilitated the consolidation of
multiple dermatology practices into private equity
platforms. In that context, one learns quickly
that sophisticated acquirers are largely
indifferent to top-line revenue or a conventional
profit-and-loss statement in isolation. Their
analytical focus falls on normalized earnings,
operational efficiency, scalability, and — above
all — the consistency of operating cash flow
across reporting periods.
The most consequential error physicians make when
reviewing their own financials is anchoring to
discrete numbers rather than ratios and
longitudinal trends. A practice can report an
accounting profit on its income statement while
remaining functionally insolvent. The more
meaningful indicator of practice health is
operating cash flow: the actual cash generated
from operations after satisfying payroll,
occupancy costs, supply expenditures, and overhead
obligations.
Experienced healthcare investors, lenders, and
private equity firms have largely moved beyond net
income as a primary metric. They are far more
attentive to EBITDA margin, operating cash flow
margin, days in accounts receivable, provider
productivity ratios, and days cash on hand — each
of which illuminates a different dimension of
operational and financial performance.
To make this concrete, consider what the published
benchmarking literature actually shows for a
small, one-to-three physician practice — the model
most representative of independent podiatric
medicine.
Staff Expense as a Percentage of Net Collections
should fall between 24% and 32%. According to MGMA
DataDive survey data, support staff salaries and
benefits alone typically represent approximately
25% of total practice revenue in well-managed
physician-owned practices. Practices exceeding 35%
should treat that figure as an operational
warning, not a footnote. For podiatric practices
with a heavy Medicare and managed care payer mix —
the norm across most Florida markets — staffing
costs predictably trend toward the upper boundary
of this range, driven by the administrative
demands of eligibility verification, bilateral
modifier management, and routine foot care
documentation requirements unique to our
specialty.
Days in Accounts Receivable is the metric most
likely to reveal what a P&L conceals. The
benchmark for a well-performing small practice is
30 to 45 days. Days in A/R exceeding 50 to 55
signals collection inefficiency, payer mix
deterioration, or billing process failure — any of
which will suppress operating cash flow regardless
of what the income statement reports. Equally
important is the aging composition: a healthy
practice should have 65% to 70% of total A/R
within the 0-to-30-day bucket. MGMA’s Better
Performers data consistently demonstrates that
top-quartile practices collect a
disproportionately larger share of receivables
within the first 30 days — a discipline that
translates directly into cash flow predictability.
For podiatric practices specifically, A/R aging
above 50 days almost invariably reflects a coding
or billing workflow deficiency rather than a
volume problem, given the specialty’s well-
documented exposure to payer-specific
documentation complexity.
Total Operating Overhead as a Percentage of Net
Collections — excluding physician compensation —
should fall between 45% and 55% for a lean,
physician-owned procedural practice. Primary care
and multispecialty practices routinely operate at
55% to 60%, with hospital-owned practices
reporting even higher figures. MGMA data from 2023
confirms that physician-owned surgical and
procedural practices have meaningfully
outperformed their hospital-affiliated
counterparts in overhead containment, largely
through leaner staffing structures. A discrete
line item within this overhead category that is
consistently underestimated is billing and revenue
cycle management, which industry benchmarks place
at approximately 5% of net collections — a cost
that solo practitioners frequently misclassify by
absorbing billing functions into general staff
expense without discrete tracking.
Liquid Cash Reserves Relative to Fixed Monthly
Obligations is perhaps the least discussed yet
most operationally critical metric. The standard
target is 60 to 90 days of fixed operating
expenses held in liquid or near-liquid form. For a
small podiatric practice carrying monthly fixed
obligations in the range of $25,000 to $40,000,
that translates to a reserve target of
approximately $50,000 to $120,000. Practices
operating below 30 days of reserve coverage are
structurally fragile — a condition that an annual
profit-and-loss statement will rarely surface but
that a cash flow statement and balance sheet will
expose immediately. This is the first liquidity
metric that healthcare lenders and private equity
acquirers examine when evaluating a practice, and
it is the one most likely to determine whether a
practice survives an unexpected payer delay, a
billing disruption, or a revenue shortfall.
The paradigm shift required of our profession is
this: physicians must learn to think less as
clinicians interpreting discrete findings and more
as business principals analyzing ratios,
operational leverage, and cash conversion
efficiency. That is precisely the lens through
which the most sophisticated participants in the
practice acquisition market evaluate the
businesses we have spent careers building — and it
is the standard of financial literacy our
professional journals should be equipping us to
meet.
Bret M. Ribotsky, DPM, Fort Lauderdale, FL
