| What is the number one way to prevent failure in | | | | Homework: Review how long you usually take to |
| business? Take a minute to really think about | | | | invoice a client. If that period of time exceeds a |
| your answer. What comes to mind? Increasing | | | | week, have your staff shorten that time. This |
| patients or customers served? ... Effective | | | | adjustment will decrease the payment time by as |
| marketing? ... Location, location, location? ... | | | | much as 25 percent. |
| Improving patient or customer care? ... Being the | | | | Strategy No. 3: Collect Past Due Accounts |
| best in your industry? | | | | Do you have a significant number of invoices out |
| Although these are all essential aspects of | | | | more than 60 days? If so, is your staff doing |
| business, the answer isn't any of the above. The | | | | anything to shorten this timeframe? Call the |
| number one way to prevent business failure is to | | | | clients whose invoices have been out 30 days and |
| properly manage your working capital. | | | | inquire about the invoice. Devoting a few hours a |
| To ensure that we're all on the same page, | | | | week to completing this task is money well spent |
| working capital is simply defined as the difference | | | | if it ensures that even half of your outstanding |
| between your current assets and current liabilities. | | | | invoices are paid a couple of weeks earlier. |
| If this figure is positive, you have working capital | | | | Some delays in the healthcare industry, for |
| available. This working capital may exist as | | | | example, are intentional. Prolonging the turnaround |
| inventory, accounts receivable, or cash on hand. | | | | for payment controls costs. In these cases, you |
| Working capital management is a critical | | | | don't have any recourse. As any doctor can tell |
| management issue for growing businesses or | | | | you, calling the insurance company to inquire about |
| medical practices. Take the example of a growing | | | | a claim can be a fruitless task. |
| doctor's office: As expenses rise with patient-load | | | | Homework: Review your collections procedures |
| increases, you accrue more outstanding cash, | | | | and tighten up your ship, if needed. Assign one |
| particularly before receiving reimbursement from | | | | person to follow up on invoices outstanding for |
| the health insurance payors. At this point, your | | | | more than 30 days. Realize, though, that |
| incoming cash does not nearly offset your costs | | | | collections results fluctuate with your clients' |
| going out. This may be manageable while you | | | | priorities. Don't count on this as your only means |
| work with payments for past services; however, | | | | of improving your cash flow. |
| eventually the time lag may become a significant | | | | Strategy No. 4: Turn Existing Equipment Into Cash |
| stress-point for your business. | | | | As we know, keeping current with technology |
| By adopting a few working capital management | | | | improvements are constant and necessary to |
| strategies, you can make your assets work for | | | | remain competitive. Leasing is a way to stay |
| you, without becoming beholden to banks. | | | | up-to-date without incurring the charges of |
| Strategy No. 1: Get Paid Now | | | | frequently buying new equipment. |
| Let's take a look at the most obvious area: | | | | But have you ever considered leasing equipment |
| accounts receivable. What do your receivables do | | | | that you already own? One option is selling your |
| for you when they are not being paid? While your | | | | equipment to a leasing company, and leasing it |
| profit margins may look stellar if you have a lot | | | | back from them. This way, you generate some |
| of orders, you have essentially loaned all of your | | | | cash for your business. You will, of course, incur |
| clients the amounts of your invoices-until they | | | | the lease payments. |
| decide to pay you. Doctors, in particular, know the | | | | Homework: Take stock of what you own. If you |
| pain of this situation. Insurance payors are | | | | need capital, contact a few leasing companies and |
| particularly adept at prolonging the time for | | | | gauge their interest in purchasing equipment for |
| payment; they realize that the longer they take | | | | you to lease back. Alternatively, a Certified Cash |
| to pay, the greater their profit margins. | | | | Flow Consultant will shop for you. Since they are |
| Is this just another cost of doing business? Well, | | | | independent consultants paid by the leasing |
| not necessarily. Eighty percent of small business | | | | companies, you will avoid any additional charges. |
| owners, medical practitioners, and small hospitals | | | | Strategy No. 5: When In Doubt, Outsource |
| are completely unaware of a resource Fortune | | | | Outsourcing certain support areas of your |
| 500 companies have used for decades: accounts | | | | business, in which you are not an expert, is an |
| receivable funding. | | | | excellent way to reduce payroll and insurance |
| Banks often measure accounts receivable at as | | | | costs. You will spend a higher dollar per hour for |
| low as 50 percent of their overall value as | | | | importing experts, but the reduced costs (no |
| collateral for a traditional loan. In accounts | | | | health or workers' compensation insurance) usually |
| receivable funding, however, accounts receivable | | | | compensate for the cost variance. |
| are calculated at full value. Plus, you accrue no | | | | Be sure to hire these experts with as much |
| debt for this financing, as you essentially sell your | | | | diligence as you would any in-house employee. As |
| accounts receivable for payment against the full | | | | you'll typically retain this type of assistance |
| value. | | | | through specialty staffing houses, interview the |
| Perhaps the idea of selling your revenue stream | | | | individuals to be assigned. As integral members of |
| makes you nervous. But consider this: You usually | | | | your team, they must be as reliable as any |
| receive 80 percent of the entire amount of the | | | | employee on your payroll. |
| invoice within one or two days-at least 28 to 118 | | | | Homework: Contact area firms that provide the |
| days sooner than usual. This cash injection allows | | | | kind of staffing you need. Compare the cost of |
| you to make capital improvements for your | | | | those contracts against the cost of keeping these |
| business to generate more revenue, leverage the | | | | staff on payroll. Be careful: Consultants can get |
| cash for discounts on your inventory, cover | | | | expensive, so be sure to build cost controls (i.e., |
| operating costs, or provide bonuses to your | | | | fixed fee for a weekly basis or hourly with a "not |
| employees, for instance. | | | | to exceed" clause) into your contract. Be clear on |
| As your invoices are paid, your funder will repay | | | | their scope of work, to whom they report, and |
| the other 20 percent, minus the negotiated fee | | | | how you define satisfactory performance. In |
| (average four to five percent of the invoiced | | | | addition, you must directly approve any staff |
| amount). Don't get hung up on the "cost" of the | | | | changes. |
| funding. With proper management of those funds, | | | | Strategy No. 6: Inventory When You Need It |
| you will more than make up for fees by the | | | | Inventory that sits in the warehouse, not being |
| investments made in your business. Your | | | | sold for income, eats away at your available cash |
| day-to-day business costs may stay the same, | | | | flow. It is an asset, sure, but it should not become |
| but the tremendous increase in incoming cash will | | | | a liability because it is not quickly converted to |
| enable you to rest easy. | | | | cash. Over-ordering of inventory gets many |
| Homework: Review your accounts receivable | | | | businesses into trouble. |
| aging report. Note the average payment time | | | | Review your inventory forecast all the time, and |
| from one of your best clients or insurance payors. | | | | be aggressive. Know your options in times when |
| Assuming payment of 80 percent of the invoice | | | | you have shortfalls. Fulfilling customer orders on |
| value in 48 hours, make a list of ways to use | | | | time is a number one priority, so don't take |
| that money for your business: | | | | unnecessary risks. If you simply hoard inventory |
| - Cash discounts on inventory (estimate in dollar | | | | to offset any chance of being caught off-guard, |
| amounts). | | | | you lose the potential profits made by managing it |
| - Buying or leasing new equipment (anticipated | | | | more aggressively. |
| return in additional sales). | | | | Homework: Review your current and projected |
| - New marketing campaign (anticipated additional | | | | inventory for the coming months. Do you need to |
| revenue). | | | | make changes, or is it all under control? Make any |
| After you total the increased income generated | | | | necessary calls to your suppliers to negotiate |
| by implementing this strategy, you can easily see | | | | better terms or better understand their supply |
| the real benefit. | | | | controls. |
| Strategy No. 2: Shorten Your Operating Cycle | | | | Make Your Working Capital Work for You |
| Your operating cycle starts when you take cash | | | | Working capital management is a key element to |
| out of your account to begin work for a client, | | | | business success and the number one way to |
| and ends the day the client pays you. If you | | | | prevent business failure. By implementing |
| complete a project on Tuesday, for instance, but | | | | strategies such as accounts receivable funding, |
| do not invoice until the following Friday-or even | | | | outsourcing, or inventory management, your |
| the end of the month-you lose days of income. | | | | business can optimize the return on assets it |
| Since you need the cash in your account-not just | | | | already possesses. Your company will then be well |
| in your profit margins-you must minimize the time | | | | positioned to handle future growth or economic |
| between service rendered and service invoiced. | | | | downturns. |