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