| What is the number one way to prevent failure in | | | | adjustment will decrease the payment time by as |
| business? Take a minute to really think about your | | | | much as 25 percent.Strategy #3: Collect Past Due |
| answer. What comes to mind? Increasing patients or | | | | AccountsDo you have a significant number of invoices |
| customers served? ... Effective marketing? ... Location, | | | | out more than 60 days? If so, is your staff doing |
| location, location? ... Improving patient or customer | | | | anything to shorten this timeframe? Call the clients |
| care? ... Being the best in your industry?Although these | | | | whose invoices have been out 30 days and inquire |
| are all essential aspects of business, the answer isn't | | | | about the invoice. Devoting a few hours a week to |
| any of the above. The number one way to prevent | | | | completing this task is money well spent if it ensures |
| business failure is to properly manage your working | | | | that even half of your outstanding invoices are paid a |
| capital.To ensure that we're all on the same page, | | | | couple of weeks earlier.Some delays in the healthcare |
| working capital is simply defined as the difference | | | | industry, for example, are intentional. Prolonging the |
| between your current assets and current liabilities. If | | | | turnaround for payment controls costs. In these cases, |
| this figure is positive, you have working capital available. | | | | you don't have any recourse. As any doctor can tell |
| This working capital may exist as inventory, accounts | | | | you, calling the insurance company to inquire about a |
| receivable, or cash on hand.Working capital | | | | claim can be a fruitless task.Homework: Review your |
| management is a critical management issue for | | | | collections procedures and tighten up your ship, if |
| growing businesses or medical practices. Take the | | | | needed. Assign one person to follow up on invoices |
| example of a growing doctor's office: As expenses | | | | outstanding for more than 30 days. Realize, though, |
| rise with patient-load increases, you accrue more | | | | that collections results fluctuate with your clients' |
| outstanding cash, particularly before receiving | | | | priorities. Don't count on this as your only means of |
| reimbursement from the health insurance payors. At | | | | improving your cash flow.Strategy #4: Turn Existing |
| this point, your incoming cash does not nearly offset | | | | Equipment Into CashAs we know, keeping current with |
| your costs going out. This may be manageable while | | | | technology improvements are constant and necessary |
| you work with payments for past services; however, | | | | to remain competitive. Leasing is a way to stay |
| eventually the time lag may become a significant | | | | up-to-date without incurring the charges of frequently |
| stress-point for your business.By adopting a few | | | | buying new equipment.But have you ever considered |
| working capital management strategies, you can make | | | | leasing equipment that you already own? One option is |
| your assets work for you, without becoming beholden | | | | selling your equipment to a leasing company, and |
| to banks.Strategy #1: Get Paid NowLet's take a look | | | | leasing it back from them. This way, you generate |
| at the most obvious area: accounts receivable. What | | | | some cash for your business. You will, of course, incur |
| do your receivables do for you when they are not | | | | the lease payments.Homework: Take stock of what |
| being paid? While your profit margins may look stellar if | | | | you own. If you need capital, contact a few leasing |
| you have a lot of orders, you have essentially loaned | | | | companies and gauge their interest in purchasing |
| all of your clients the amounts of your invoices-until | | | | equipment for you to lease back. Alternatively, a |
| they decide to pay you. Doctors, in particular, know the | | | | Certified Cash Flow Consultant will shop for you. Since |
| pain of this situation. Insurance payors are particularly | | | | they are independent consultants paid by the leasing |
| adept at prolonging the time for payment; they realize | | | | companies, you will avoid any additional |
| that the longer they take to pay, the greater their profit | | | | charges.Strategy #5: When In Doubt, |
| margins.Is this just another cost of doing business? | | | | OutsourceOutsourcing certain support areas of your |
| Well, not necessarily. Eighty percent of small business | | | | business, in which you are not an expert, is an |
| owners, medical practitioners, and small hospitals are | | | | excellent way to reduce payroll and insurance costs. |
| completely unaware of a resource Fortune 500 | | | | You will spend a higher dollar per hour for importing |
| companies have used for decades: accounts | | | | experts, but the reduced costs (no health or workers' |
| receivable funding.Banks often measure accounts | | | | compensation insurance) usually compensate for the |
| receivable at as low as 50 percent of their overall | | | | cost variance.Be sure to hire these experts with as |
| value as collateral for a traditional loan. In accounts | | | | much diligence as you would any in-house employee. |
| receivable funding, however, accounts receivable are | | | | As you'll typically retain this type of assistance through |
| calculated at full value. Plus, you accrue no debt for this | | | | specialty staffing houses, interview the individuals to be |
| financing, as you essentially sell your accounts | | | | assigned. As integral members of your team, they |
| receivable for payment against the full value.Perhaps | | | | must be as reliable as any employee on your |
| the idea of selling your revenue stream makes you | | | | payroll.Homework: Contact area firms that provide the |
| nervous. But consider this: You usually receive 80 | | | | kind of staffing you need. Compare the cost of those |
| percent of the entire amount of the invoice within one | | | | contracts against the cost of keeping these staff on |
| or two days-at least 28 to 118 days sooner than usual. | | | | payroll. Be careful: Consultants can get expensive, so |
| This cash injection allows you to make capital | | | | be sure to build cost controls (i.e., fixed fee for a |
| improvements for your business to generate more | | | | weekly basis or hourly with a 'not to exceed' clause) |
| revenue, leverage the cash for discounts on your | | | | into your contract. Be clear on their scope of work, to |
| inventory, cover operating costs, or provide bonuses to | | | | whom they report, and how you define satisfactory |
| your employees, for instance.As your invoices are paid, | | | | performance. In addition, you must directly approve any |
| your funder will repay the other 20 percent, minus the | | | | staff changes.Strategy #6: Inventory When You Need |
| negotiated fee (average four to five percent of the | | | | ItInventory that sits in the warehouse, not being sold for |
| invoiced amount). Don't get hung up on the 'cost' of the | | | | income, eats away at your available cash flow. It is an |
| funding. With proper management of those funds, you | | | | asset, sure, but it should not become a liability because |
| will more than make up for fees by the investments | | | | it is not quickly converted to cash. Over-ordering of |
| made in your business. Your day-to-day business | | | | inventory gets many businesses into trouble.Review |
| costs may stay the same, but the tremendous | | | | your inventory forecast all the time, and be aggressive. |
| increase in incoming cash will enable you to rest | | | | Know your options in times when you have shortfalls. |
| easy.Homework: Review your accounts receivable | | | | Fulfilling customer orders on time is a number one |
| aging report. Note the average payment time from | | | | priority, so don't take unnecessary risks. If you simply |
| one of your best clients or insurance payors. Assuming | | | | hoard inventory to offset any chance of being caught |
| payment of 80 percent of the invoice value in 48 | | | | off-guard, you lose the potential profits made by |
| hours, make a list of ways to use that money for your | | | | managing it more aggressively.Homework: Review |
| business:Cash discounts on inventory (estimate in dollar | | | | your current and projected inventory for the coming |
| amounts).Buying or leasing new equipment (anticipated | | | | months. Do you need to make changes, or is it all |
| return in additional sales).New marketing campaign | | | | under control? Make any necessary calls to your |
| (anticipated additional revenue).After you total the | | | | suppliers to negotiate better terms or better |
| increased income generated by implementing this | | | | understand their supply controls.Make Your Working |
| strategy, you can easily see the real benefit.Strategy | | | | Capital Work for YouWorking capital management is a |
| #2: Shorten Your Operating CycleYour operating cycle | | | | key element to business success and the number one |
| starts when you take cash out of your account to | | | | way to prevent business failure. By implementing |
| begin work for a client, and ends the day the client | | | | strategies such as accounts receivable funding, |
| pays you. If you complete a project on Tuesday, for | | | | outsourcing, or inventory management, your business |
| instance, but do not invoice until the following Friday-or | | | | can optimize the return on assets it already |
| even the end of the month-you lose days of income. | | | | possesses. Your company will then be well positioned |
| Since you need the cash in your account-not just in | | | | to handle future growth or economic |
| your profit margins-you must minimize the time | | | | downturns.*Reprinted from Create the Business |
| between service rendered and service | | | | Breakthrough You Want:Secrets and Strategies from |
| invoiced.Homework: Review how long you usually take | | | | the World*s Greatest Mentors© 2004 Mission |
| to invoice a client. If that period of time exceeds a | | | | Publishing, a division of The Mission MarketingMentors, |
| week, have your staff shorten that time. This | | | | Inc. |