Cashflow is oxygen for a business – when businesses run out of cash, they go broke.
There’s a distinct difference between profit and cashflow, in that a business won’t necessarily go broke when they run out of profit, but will when they run out of cash.
Our job as business owners is to maximise that cashflow.
Cashflow is created by turning assets into cash – your physical assets, database assets, patient base, team, intellectual property assets.
When it comes to maximising cashflow, we really only have five levers to work with. Two of these live on the profit/loss statement, while the other three lie on the balance sheet.
The two that live on the profit/loss statement include:
1. Your ability to increase revenue
And keep in mind, there are only three ways to maximise revenue; see more people, see them more often, or increase prices.
2. Decreasing your expenses
This can be done by doing a quick audit of your profit and loss statement, and identifying wants vs. needs – and being ruthless in your culling.
These are some of the most obvious options, but the balance sheet can be equally as useful and reveal a lot about the money story of your practice.
They give you three more options to work with, including:
3. Accounts receivable
Cashflow is about getting money in, but we often already have a lot of money floating around out there.
Chasing money is a painstaking task that takes time, effort, and resources – which means you’re spending money to get money.
It’s much easier and more preferable to get the money up front.
4. Reduce inventory days
Reducing the amount of stock we hold in the practice can free up a surprising amount of cashflow. Most practices have a variety of things in the storeroom that get turned over very, very slowly and take up valuable time, energy, money, and space.
It might interest you to know that Dell Computers inventory days are only 4 hours – making for a super efficient system. Streamline what you order, be careful about ordering in bulk, and reduce special items where possible. This allows you to save money upfront.
5. Increase accounts payable
We all get bills, and we need to be good to our vendors and pay them in a timely passion.
But if your terms say that you have 14 days or 30 days, it’s a good idea to make use of them.
Making sure you keep cash in your bank account for as long as possible allows you to have a bit of a buffer and improve your overall cash flow.
So, these are the five options you have when it comes to increasing cashflow in your business. It’s an important principle to understand and master – and your practice will thank you!