By: Rose Zuknick
The most intense, anxious moments of your career as a practice owner typically won’t be about making a profit – they’ll be about being out of cash. You want to manage your practice to be profitable, but you have to operate it to maximize cash flow. To do that, you must be prepared for the cash peaks and valleys that all practices experience.
Take Stock of Your Cash Management Tools
The key to positive cash flow is to keep money coming into a practice faster than it’s going out. Regardless of whether you’re currently meeting that goal, it’s critical to analyze your cash flow cycle and devise a plan to ensure that you have the operating funds you need to support the successful operation of your practice.
To maximize your cash flow and make the most of your money, take stock of the cash management tools at your disposal. Here are a few things to consider:
Develop a Liquidity Plan – Liquidity doesn’t just happen; you need a plan in place to manage your cash on hand. By creating a simple cash forecast to predict when payments will come in and go out, you can anticipate disruptions to your cash flow. Consider maintaining a line of credit to avoid fluctuations. Also, if you have significant payments that occur on a regular basis – such as tax or insurance payments – consider creating a reserve fund to neutralize the disruptions that these disbursements may cause.
Revisit Your Receivables Strategy – The more efficiently you manage your receivables, the sooner you can put those funds to work for your practice. Enhancing your receivables management starts by giving patients multiple payment options at the point of sale. To help motivate patients to pay their invoices in a timely manner, you can offer a discount for early payments and assess a penalty for late payments. Finally, take advantage of remote deposit services that allow you deposit incoming checks as soon as you receive them.
Take Advantage of Payment Technologies – Various new technologies are available to help you improve cash flow by enhancing your payment processes. Online bill pay services allow you to reduce the time and costs involved with paying business bills, while online payroll services enable you to better manage your payroll processing. Also, consider using check cards, credit cards or purchasing cards to help you track business spending more effectively.
Re-Evaluate Inventory Practices – Assess your inventory needs carefully, evaluate your mix of suppliers and possibly renegotiate trade terms. Inventory represents a critical pressure point for cash flow, so constantly be on the lookout for opportunities to enhance your inventory practices.
Protect Your Practice through Good Times and Bad
Poor cash flow is one of the leading causes of small practice failures, while optimizing cash flow is one of the most important things you can do to help achieve your practice goals. By revisiting your contingency plans, leveraging your receivables and payments strategies and addressing the factors that create cash flow pressure, you are better able to manage the cash peaks and valleys that all practices inevitably face.
Rose Zuknick is a Vice President in the Healthcare Banking division of PNC Bank. She can be reached firstname.lastname@example.org
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