Health Care, Life Sciences: Put Excess Cash to Work

Health care and life science (HCLS) organizations may have excess cash on hand. This can be a good sign that the entity is financially stable and has sufficient liquidity, but it can also be a source of untapped revenue potential for the organization.

Consider this: an important ratio in HCLS is Days Cash on Hand. It’s a measure of how many days the organization can operate using its available cash, without relying on additional revenue or financing sources.

A higher Days Cash on Hand ratio means that the organization has more cash reserves to cover expenses and cope with unexpected events. A lower Days Cash on Hand ratio means that the organization has less cash cushion and may face financial difficulties if revenue declines or costs increase.

When looking at the Days Cash on Hand ratio, different HCLS organizations may have different average ratio ranges:

• Nursing homes may want 150 – 180 Days Cash on Hand
• Hospitals may want 200 – 250 Days Cash on Hand
• Physicians may want 30 – 60 Days Cash on Hand
• Life sciences companies may want anywhere from 3 – 12 months of Days Cash on Hand, depending on stage of the company

Of course, the necessary Days Cash on Hand ratio will vary by organization, situation, risk tolerance, and segment — among other considerations.

It may be beneficial to redirect these dollars into options that could yield potentially higher profits, especially now when the current rate is high. Those can include money market mutual funds, brokerage accounts, or managed accounts with Treasuries or bonds.

For example, investing in money markets generally offers higher interest rates compared to standard bank accounts. This could be a way to earn potential income from excess cash, while preserving principal and maintaining access when needed. Money market funds can also diversify the portfolio of health care organizations and help reduce exposure to market fluctuations and credit risks.

How we can help

Cash is the lifeblood of any HCLS organization, and it requires careful planning and management to maintain its availability and profitability. Review your current approach to excess cash and see if your dollars are working hard enough for you.

CLA wealth advisors can help you execute on a cash management and investment plan to suit your individual situation and goals. Further, CLA’s digital team can help with implementing dashboards to easily track and report on these and other important metrics.

Read CLA’s boosting cash yields article for more details and reach out today.