Beyond profit and loss
Why veterinary clinics need to watch cash flow
Originally published in OVMA Focus Magazine November/December 2025
BY GREG TONER
Most veterinary practice owners are comfortable looking at a profit and loss (P&L) statement to see how their business is performing. On the surface, it seems straightforward: if revenue is higher than expenses, the practice is profitable. But profitability on paper doesn’t always mean cash in the bank. That’s where the cash flow statement comes in. This is a financial report that tells a deeper story about the health of your practice.
What is a cash flow statement?
The cash flow statement tracks how actual money moves into and out of your business over a given period. It’s typically divided into three sections:
OPERATING ACTIVITIES: Cash from the day-to-day running of the clinic, including client payments, payroll, rent, utilities, drugs and supplies.
INVESTING ACTIVITIES: Cash used for or earned from buying and selling long-term assets such as medical equipment, vehicles or renovations.
FINANCING ACTIVITIES: Cash movements related to debt and equity such as loan proceeds, loan repayments, or owner contributions and withdrawals.
While the P&L shows whether you’re “profitable,” the cash flow statement shows whether you have the liquidity to meet your obligations, pay staff and invest in growth.
Why cash flow matters in veterinary medicine
Veterinary practices often face unique challenges that make cash flow management critical. These include:
CLIENT PAYMENTS
Even when invoices are issued promptly, payments can lag. If clients delay payment, cash can tighten unexpectedly.
SEASONAL FLUCTUATIONS
Many clinics see peaks during parasite prevention season or dental health month, followed by quieter stretches. Without planning, these fluctuations can leave the practice cash-strapped between busy periods. Practice owners need to save the excess revenue from peak months to carry their businesses through slower times of the year.
BIG EQUIPMENT PURCHASES
Practices rely heavily on expensive technology. Upgrading to perform laparoscopic surgery or buying a new digital X-ray machine can be great for you and your staff to provide better care, but it also creates a sudden cash drain. To smooth out the cash flow from these bigger purchases, practice owners should consider financing these purchases with new debt or leasing the equipment.
DEBT SERVICING
Speaking of debt, many clinic owners carry loans from acquiring their practice, expanding facilities or purchasing equipment. Principal repayments don’t appear as expenses on a P&L, but they will still use part of the cash that your practice generates.
DELAYED BILLING
Most drug distribution companies offer delayed billing at certain times of the year. It’s great to have product to sell before you’ve paid for it, but it’s important to have the discipline to set the funds aside to cover the payment when the delayed bill is due.
HARMONIZED SALES TAX
One of the biggest issues that a practice can encounter is spending the harmonized sales tax (HST) it collects. HST collected isn’t on your P&L as income. It accumulates in the practice’s bank account, and it’s added as an offsetting liability to the balance sheet until it is paid off.
Isn’t a cash-basis P&L the same thing?
This is a common misconception. If your practice uses cash-based bookkeeping, your P&L does record revenue when it’s received and expenses when paid. In simple situations, such as a small clinic with no loans, no large purchases and minimal owner withdrawals, the cash-based P&L and the cash flow statement may look nearly identical. But as soon as you add debt, capital investments or owner activity, the two reports diverge. Here’s why:
A bank loan received won’t appear as income on your P&L.
Principal repayments won’t appear as expenses (only the interest portion does).
Large equipment purchases won’t appear as expenses either—they’re treated as assets.
This means your P&L might show a strong profit, while your bank balance is shrinking. The cash flow statement exposes these gaps, showing where the money really went.
Capital expenses
Capital expenses are one of the most significant reasons why cash flow statements matter. Consider a scenario with revenue of $120,000, operating expenses of $80,000 and a capital purchase of a $50,000 digital X-ray machine. On the cash-basis P&L, your clinic shows a profit of $40,000 ($120,000 minus $80,000). That looks like a good month. But the cash flow statement tells a different story, with operating cash flow of $40,000, investing cash flow of -$50,000 and net cash flow of -$10,000. In reality, your practice spent $10,000 more than it brought in. Without seeing this picture, you might mistakenly assume you had funds available for distributions or new hires.
For veterinary practice owners, the cash flow statement answers practical, day-to-day business questions such as:
Can I afford to hire another associate or technician?
Do I have enough of a buffer to replace an X-ray machine?
Is it safe to take a dividend this quarter?
If revenue dips for two months, will I still be able to cover payroll and rent?
These are the kinds of decisions that make or break the financial stability of a clinic. A healthy P&L alone doesn’t provide enough information to answer them.
Making cash flow work for you
Monitoring cash flow doesn’t have to be complicated. Many bookkeeping tools integrate with accounting systems to produce reports automatically. A few practical steps include reviewing cash flow monthly, building reserves during peak months and planning for capital purchases.
For veterinarians, the P&L shows profitability, but the cash flow statement shows sustainability. Cash pays staff, keeps the lights on and funds growth. Ignoring cash flow can lead to nasty surprises, even in a profitable practice.
By incorporating cash flow review into your regular financial routine, you gain a more accurate picture of your practice’s financial health. This clarity allows you to make better business decisions, reduce stress and focus on what really matters: providing excellent care to patients and clients.
Greg Toner, CPA, CA, TEP, CLU, is principal at VetCPA.
Reprinted from the Ontario Veterinary Medical Association’s Focus magazine www.ovma.org
