What a Physical Therapy Practice Should Ask About Plan Design

A physical therapy practice should bring a visit-capacity and collections scenario to a defined benefit plan discussion. Show what happens when the owner reduces treatment hours, a therapist joins, or payer receipts arrive later. Ask the actuary and administrator to model the actual workforce and compensation facts against that operating picture.

This guide focuses on the connection between treatment capacity and a sustained employer commitment. A generic annual profit figure misses the timing of therapist payroll and collections. The related optometry practice guide addresses stock and supplier cash; this packet follows completed visits, staffing capacity, and the owner's planned clinical schedule.

Start with completed visits and a reconciled receipts base

Separate scheduled appointments, completed visits, billed charges, contractual adjustments, and cash collected. Define what each report measures and reconcile the management revenue view to the books. A booked appointment is not a completed visit, and a billed charge is not a forecast bank deposit.

Build receipts assumptions from the practice's own payer and patient history. Identify unresolved denials, authorization issues, recoupments, and amounts awaiting patient payment. Give the billing lead a short list of specific balances to investigate. Avoid using gross billed charges as expected receipts simply because those numbers are readily available.

For an accrual management report, review the revenue recognition and allowance policies with the accountant. For a cash report, identify collections from prior service periods. IRS Publication 538 describes general cash and accrual timing; tax treatment involves additional rules and exceptions. This operating model does not change a tax accounting method.

Measure capacity using explicit assumptions

Original hypothetical example: Assume three therapists each have 120 available treatment slots in a month, including the owner. Total capacity is 3 × 120 = 360 slots. At an assumed 85% completion rate, completed visits are 360 × 85% = 306. Assume expected net eventual collections average $105 per completed visit.

The associated eventual receipts estimate is 306 × $105 = $32,130. It is not necessarily this month's cash and it is not a reimbursement benchmark. Replace both assumptions with the practice's own history. If visits differ substantially in reimbursement or service mix, calculate separate groups rather than relying on one average.

Now assume the owner removes 40 monthly slots to spend more time managing. Capacity becomes 320 slots; at the same 85% completion rate, visits become 272. Expected eventual receipts are 272 × $105 = $28,560. The isolated reduction is $32,130 − $28,560 = $3,570 per month before any offsetting change in cost or demand.

That model does not assume another therapist can absorb every displaced visit. Check available appointment times, referral demand, and actual capacity. If the owner hires coverage, add the specific incremental payroll and benefit costs, then test whether the associated collections justify them.

Convert the operating case into dated cash needs

Map therapist payroll, rent, debt payments, and other obligations into a weekly cash forecast. Split anticipated receipts between service periods so delayed collections do not vanish in an annual average. Include a separate downside case for payer delay rather than assuming every completed visit converts promptly to cash.

For a second invented calculation, suppose the practice has $90,000 cash before a forecast period. Expected receipts are $150,000 and operating payments are $130,000. Before additional commitments, closing cash would be $90,000 + $150,000 − $130,000 = $110,000. Assume the owner requires a $70,000 operating floor.

Headroom above that floor is $40,000. A $25,000 delay in payer receipts reduces closing cash to $85,000 and headroom to $15,000. No prospective plan funding or administration costs appear in either case. A plan illustration must be added with its actual payment timing before this forecast can support a decision.

Do not treat delayed receipts as permanently lost revenue unless evidence supports that conclusion. Conversely, do not assume the delayed cash can fund an obligation due before collection. Record who will monitor the affected payer balances and what operational action follows if the delay persists.

Give the administrator a complete employment picture

Include therapists, assistants, aides, front-desk staff, owners, and other workers for review. Show compensation, birth dates, employment dates, service records, related businesses, and existing plans. Explain coverage arrangements and contractor uncertainty rather than inferring plan treatment from a provider's title or billing identifier.

The IRS participation guidance describes the relevance of plan requirements and service. Ask the administrator to identify which facts need clarification and to document the census used in each scenario. Include a planned reduction in owner clinical work as an explicit assumption.

Request a design discussion with a downside case

The IRS defined benefit plan overview describes an actuarially funded benefit formula. Ask for funding, employee costs, administration fees, and timing under the base and reduced-owner-capacity cases. Ask which results are estimates and what could change at the next valuation.

Publication 560 explains the general annual minimum funding requirement. Have the professionals explain how a weak collections period affects the practice's obligations. Keep the cash forecast, actuarial work, and tax review coordinated rather than treating operating headroom as an authorized contribution.

TaxBowl's CFO services can organize the capacity and receipts scenarios. Bring those scenarios to TaxBowl's tax team for coordination with the actuary and administrator, along with the reconciled workforce packet and a clear owner schedule.

The accompanying Clara CFO Group video demonstrates general receipts-and-payments forecasting, including inventory, owner transfers, minimum cash and timing scenarios. Its monthly illustration can be adapted to weekly periods; use the dates and assumptions in your own records. It provides cash-planning background and does not determine retirement plan eligibility, contributions or tax treatment.