How to Review Plan Funding With Variable Practice Collections

Review defined benefit plan funding against the cash your practice expects to collect in each payment period, after payroll, taxes, debt, and an operating reserve. A strong annual profit can conceal a weak collections month. The practical test is whether the practice can meet its professionally determined funding schedule through that month without exhausting the cash it needs to operate.

About the accompanying video: This existing video by Financial Tech Lab by Clara CFO Group explains cash-flow forecasts, seasonal receipts, reserve floors and timing scenarios. It is a general forecasting accompaniment; it does not determine defined benefit plan contributions or payment deadlines. The practice-specific funding worksheet below is TaxBowl’s original illustration.

This guide gives dental and medical practice owners a monthly worksheet for that review. The IRS explains that an actuary determines the annual minimum contribution and employer contributions normally fluctuate. Here, hold the assumed plan payment constant and change collection timing to expose liquidity risk. For the reasons the funding estimate itself can change, read our funding estimate guide.

Start with a dated payment schedule

Ask the actuary and administrator for the amount, applicable payment dates, assumptions, and any remaining uncertainty. Label an early illustration as an estimate. Include administration costs separately, and identify whether employee benefits and other existing plans are already included in the adviser’s model. Gross collections, owner draws, or a desired deduction cannot establish the plan contribution.

IRS Publication 560, chapter 4, Minimum Funding Requirement, explains that plans generally must satisfy an annual minimum funding standard and that quarterly installments generally apply to defined benefit plans subject to those requirements. Have the adviser confirm your actual obligations, exceptions, and dates. Keep funding deadlines and deduction timing in separate worksheet columns; the publication addresses them separately. Do not move a required payment to a stronger month without professional confirmation.

Build one row for each month

Use a twelve-month view to see seasonality, then break the approaching payment period into weeks if payroll or a large deposit makes timing tight. Start with reconciled, unrestricted business cash. Exclude plan trust assets and money held for others. Record the following fields consistently:

• Beginning operating cash and the minimum reserve the owner wants to protect.
• Expected patient receipts and insurance collections, grouped by expected deposit month.
• Payroll, provider compensation, rent, supplies, debt, taxes, and other cash outflows.
• The plan payment from the adviser’s schedule and separate administration bills.
• Closing cash, headroom above the reserve, and the action owner for any shortfall.

Calculate closing cash as beginning cash plus expected receipts minus business outflows minus plan payments. Carry that closing amount into the next month. The reserve is a management assumption based on the practice’s needs, not a statutory funding limit. Document why the amount is appropriate and which costs it is meant to protect.

Forecast collections from deposits, not production

Use billing records and recent bank deposits to estimate when services turn into cash. Production reports identify work performed; they do not establish the deposit date. Separate patient payments, insurance claims, and other receipts so one optimistic collection assumption does not hide a slow payer group.

Review unresolved claims, denials, refunds, and unusually old receivables before assigning a collection month. Our dental insurance receivables reconciliation guide explains the records to compare. An outstanding balance should enter the forecast with a supportable timing assumption, not simply because it appears in the receivables total.

Compare the practice’s own prior monthly deposits with provider leave, office closures, billing changes, and scheduled treatment. Avoid assuming every practice shares the same seasonal pattern. Note which expected receipts depend on correcting a claim and which are supported by a normal payment history.

Illustrative three-month reserve test

Hypothetical assumptions, not a client result or plan calculation: an established practice begins with $120,000 of unrestricted cash and chooses an $80,000 operating reserve. For this example only, assume the advisers supplied a $40,000 payment in month two; the month labels are not legal due dates. Business outflows below include payroll, operating costs, debt, and taxes. No additional owner distributions or financing are assumed.

Cash item	Month 1	Month 2	Month 3
Beginning cash	$120,000	$135,000	$70,000
Collections	$130,000	$90,000	$160,000
Business outflows	$115,000	$115,000	$125,000
Plan payment	$0	$40,000	$0
Closing cash	$135,000	$70,000	$105,000
Above / below reserve	$55,000	−$10,000	$25,000

The three months produce $380,000 of receipts and $355,000 of business outflows. After the $40,000 plan payment, cash falls by $15,000 overall: $120,000 + $380,000 − $355,000 − $40,000 = $105,000. That ending balance exceeds the reserve, yet month two breaches it by $10,000. Looking only at the quarter’s ending cash would miss the operating pressure.

Test delay and lost revenue separately

First move $30,000 of month-three insurance receipts beyond the forecast horizon. Keep all other assumptions unchanged. Month three now ends at $75,000, or $5,000 below the reserve. Record the expected later receipt month rather than treating the delay as permanently lost revenue.

Then run a separate downside case with collections 10% below the original forecast in every month, without assuming a later recovery. Receipts become $117,000, $81,000, and $144,000. Closing cash becomes $122,000, $48,000, and $67,000. Month two is $32,000 below the reserve. This is a larger problem than the original timing gap, even though the assumed plan payment remains $40,000.

Turn a reserve breach into an adviser handoff

Flag the first weak period before committing cash elsewhere. Identify optional equipment purchases and distributions for review, verify doubtful receipts, and send the updated forecast to the CPA and actuary. Ask what lawful funding or plan-design options exist and what their consequences would be. A worksheet does not authorize underfunding, delayed payments, or reversing accrued benefits; the IRS overview describes minimum-funding consequences and limits on retroactive benefit reductions.

Assign someone to refresh actual deposits, payment assumptions, and reserve headroom each month. For plans covered by ERISA, provider oversight also remains relevant: DOL’s retirement-plan guide, chapter 7, describes prudent selection and monitoring of service providers. TaxBowl’s CFO services can help organize the forecast, while our tax team coordinates the accounting and tax inputs for the plan professionals’ review.

Physical therapy owners can test appointment capacity, owner treatment time and collection delays before requesting a defined benefit plan design.