Is cashflow keeping you awake at night?
Most healthcare practices and clinics experience cashflow challenges at times, whether it’s because they’ve just started up, are expanding rapidly, or maybe it’s the holiday season with fewer patients but the same wage expenses. And then there are the day-to-day ups and downs of business.
Whatever the reason, we’ve put together some key cashflow management tips to get you on top of your cashflow rather than the other way around!
The difference between cashflow and profit
Knowing the difference between the two is key to putting you in charge.
Cash tends to be easier to understand, as inflows occur any time you receive cash. It comes in many forms - physical cash receipts, credit card payments, bank transfers, cheques etc. Outflows of cash occur whenever money is spent - when you hand the cash over.
Your profit, on the other hand, looks at revenues and expenses, regardless of whether a cash exchange has actually occurred.
A good example is when you purchase a piece of equipment for your practice. The money you pay the supplier is part of your cashflow. Whereas at the end of the following financial years, the depreciation on that equipment is an expense for your practice and reduces your bottom-line profit, but doesn’t involve cash changing hands.
Maximising inflows, managing outflows
Maximising your inflows ties in closely to maximising your revenue or money earned.
To illustrate, let’s take the example of when you take out a loan. This improves your cashflow in the short run. It does, though, create an obligation to repay at a later date, which will impact your future cashflow.
You can see that improving actual revenue is a more sustainable approach to managing your inflows.
Even when you receive cash that’s not an immediate revenue - maybe a pre-payment for a procedure or a block of classes - this still represents a cash increase. It also creates a liability for something you need to provide at a later date, and you need to plan for this. This doesn’t make these pre-payments bad, you just need to be considering the impact when managing your cashflow.
Minimising or managing your cash outflows comes down to examining your cash expenses and looking at where these can be reduced. A close look at your cashflow report or even just your bank statement and asking some questions/doing some investigation is a good place to start.
Are there utilities or services you can renegotiate? Are all the hours your team members are working necessary? Could your debt facility arrangements be reviewed? Even things as small as negotiating with suppliers to waive the delivery fee if you order over a minimum amount, will reduce your outflows; these little things can really add up.
You might also find the tips in this article helpful as you seek to optimise the use of your current resources - “Squeezing the Maximum from What You’ve Got”.
Timing matters!
The timing of your cash inflows versus outflows tends to be one of the biggest cash challenges businesses face, particularly when they provide services that are paid for after they have been provided. In healthcare, this applies particularly when there is a 3rd party payer, like Medicare, WorkCover or the NDIS, or you invoice after the procedure has been done. You still need to pay your wages and other bills, so careful planning is needed.
A few things we suggest to help you manage timing challenges are:
A ‘Pay on the Day of Service Policy’ – publicised on your website and displayed in your practice.
Staying really on top of processing and invoicing 3rd party accounts.
Paying your practitioner Associates based on receipts rather than billings.
Fully utilising payment deferral options, like credit cards with 55-day payment terms.
Reviewing figures from previous time periods, so you can anticipate the likely delay in receiving the cash inflow and budget accordingly.
Planning/budgeting
To optimise your cashflow and gain maximum benefit from the money coming into your practice, planning and budgeting are really important. It’s an objective and reliable way to make sure there’s enough cash there when you need it and allows you to manage your cashflow instead of the other way around.
Plus, good budgets that you’re confident in can really help you sleep at night!
Your budget doesn’t have to be really complex! How often you want to look at different figures will depend on what information you need to make decisions and potentially take action. If, for example, you really need to work on reducing your bad debts, you might want to set a budget and review the actual information weekly. Or, your wage expenses might not fluctuate much, so monthly or quarterly might be okay for these. And something like your website hosting fees will only need a review on an annual basis. On your regular reports, you might choose to group things that don’t change much together, like hosting fees, so you can focus your attention on the things that fluctuate.
To ensure your planning and budgeting are of the highest quality, download our free Financial Health Checklist.
Accessing cash
There are lots of methods of raising cash that have gained in popularity over the last 10 years, including crowdfunding or government/community grants. However, the key methods in most businesses we work with remain the same – debt or equity.
We mentioned one debt use option above in the form of deferred credit card payments. Others include leases or chattel mortgages for equipment or rolling different loans together for a better rate. Another that can often be put in place quite easily is requesting extended payment terms from your suppliers. These are all worth exploring.
Equity options can include injections of funds from the business owner, taking on a business partner/s, plus investment from a silent partner.
Finally, don’t hesitate to ask questions and get help. Many healthcare business owners have limited experience in managing finances, accounts, reports etc. Just as your patients and clients do their research and then come to you for your expertise, work out where you could do with some help, do your research and find advisors who can provide what you need.
We also have our Pulse Reporting product. It’s a subscription-based service providing you with regular reports and actions tailored to your business. You’ll have your finger on the pulse, know where to take action and what to do, and can achieve the results and goals you’re striving for.
The Augmentum team provides a broad range of consultancy and management services, supporting healthcare business owners and decision-makers in other key areas such as strategy development and action planning, building effective foundations and teams, keeping your finger on the pulse, and driving growth and success.
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