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Days Cash on Hand

Days Cash on Hand = Cash // {(Total Operational Costs – Depreciation Expense) / Period Days}

This indicator provides a projected estimate of the number of days a Hospice could meet its operating expenditures if no additional revenues were received.

It is computed by taking the Total Operational Costs* (excluding Depreciation) divided by the Period Days. The total Cash (Petty Cash, Operating Accounts and Short-Term Investments) is then divided by the previous amount.

*Please note that Operational Costs do not include Extracurricular Programs, Interest or Development.

Measurement Average Acceptable Excellent
Days Cash on Hand 60 270

How much does a Hospice need? This is an important question! The answer is: A Hospice needs enough money to fund its Vision. This may sound like an easy, pat answer, but it is the truth. A Hospice that has cash in the bank can rapidly move on projects such as inpatient units, new programs, drive competition into the ground, etc. Not having cash reserves may eventually mean the end for many Hospices.

As a general rule, we recommend having 6-9 months of Operational Expenses in Cash on Hand.

The CFO should have a handle on cash and know your cash position. Shame on the CFO who blindsides a board or a CEO and walks in and says, “We can’t make payroll.” It’s inexcusable. It just doesn’t happen overnight. Know the cash position of the company.

That happened a while back and I was called in and 35 employees were let go. It’s no fun. And sometimes, you can do all of these cuts and it still isn’t enough. You’re out of cash and it’s over…

Running out of cash is Hospice Hell. When you run out of cash, your Hospice is out of business. Period. Cash is king. Cash is the lifeblood of business. Having cash means having time -- time to deal with problems. Running out of cash means that you don’t have time. Time is working against you. Problems must be fixed NOW or it’s over.

Suddenly, you realize that AP vendors are calling for their money, payroll cannot be met. You scramble for a credit line or a loan. Even if you get the financing, business operations must change. Usually, expenses have to be cut immediately! Payroll is the bulk of expense. You get rid of the weakest team members leaving the remaining to quickly adapt to workloads they have not been prepared to handle. There is a loss of confidence in the organization. People are uptight. Emotions run high. Some of your good people leave due to the instability. The people who could help you are reluctant because of the high probability of their not being paid. I know from experience. I do it because I’m a softy. Anyway, it’s a horrible situation.

Causes of cash flow problems can come from:

I have witnessed the demise of Hospices from each of these conditions. Here are things to do to help the situation:

One thing that I see happening in Hospice is the delay of payments to vendors in order to improve cash flow. Personally, I think this is bad business. Perhaps it is a great idea for the bean-counters and MBA types, but it does nothing for the relationships you need. Pay vendors and people when they request payment. Have they provided the service? Then you owe them payment. To delay payment for 60 or 90 days is a disservice and makes us just like any other flavor of healthcare. A World Class organization merits respect and seeks the favor of its vendors.

Multi-Pedia

ADC Average Length of Stay Benefits Percent Caseload Expectations Computed Caseloads Crisis Care Percent Served Days Cash on Hand Days in AP Days in AR Debt to Equity Development to Return Ratio Development Signature Programs Direct Labor % of All Labor Direct Labor NPR Direct Labor PD Direct Patient Related Expenses NPR Direct Patient Related Expenses PD Facility Mix Percentage Facility Related Facility Team Patient Days Percent Indirect Labor Marketing Incentive Median Length of Stay Mileage Rate Net Operational Income Net Revenue PD Operational Costs Organizational Net Income % of Hospice Homecare Net Revenue Revenue to Payroll Dollar Segment Indirect Percent Net Revenue Segment Net Income The Role of Financial Reserves Total Indirect Volunteer Level of Activity What is Net Patient Revenue What is The Model