How to Salvage Your Business When You Are in a Cash Flow Crunch - ECONOLOGICS FINANCIAL ADVISORS

While it is an unfortunate reality, at some point in practice ownership you will experience times where your business cash flow is insufficient. This not only feels like a contraction of your business but can also cause you to feel anxious, fearful, and sink you straight into a mindset of scarcity. I have seen this experience cause panic with an owner, causing them to feel like they have to “economize” immediately – however, this is exactly the WRONG thing to do!

By definition, solvency means there is MORE money coming in than going out in expenses. Being able to just “pay your bills” or having enough revenue to “cover payroll” is not solvency. Solvency would be a condition where ALL of business expenses are covered, your business reserves are being put aside, your compensation as an owner is secured, and your taxes are accounted for. Anything less than that and you are technically insolvent.

Maintaining business solvency is a mindset. It’s something you simply cannot ignore and you should definitely NOT assume it is going just happen on its own. You MUST CONSTANTLY PAY ATTENTION TO YOUR CASH FLOW LINES IN THE BUSINESS! Does this mean you need to check your bank accounts 24 hours a day? No. But it DOES mean that you should be updated each and every week on the financial condition of your practice. There are key financial indicators you and your financial team must review consistently to ensure you you are maintaining business solvency. Becoming insolvent does NOT happen overnight. It occurs because you failed to identify and address key indicators which were signaling the sinking of the ship.

If you are in a position where your business is insolvent or on the verge of becoming so, know that you CAN DO SOMETHING ABOUT IT. There are immediate actions you can take to help restore solvency to your practice – however you must be willing to confront your current situation, and act quickly, decisively.
Practice owners have three distinct roles they play in their business. The owner role, the executive role, and the practitioner role. Their solvency (aka cash flow) issues are dependent upon how well these roles and responsibilities are being executed by them or others in the organization. Each of the “positions” has specific duties and responsibilities as it relates to salvaging and preventing a cash flow crunch. You must know these roles in order to truly understand how to effect the bottom line.

If your business is in a state of insolvency and in a cash flow crunch, here are a list of steps you can take to address and remedy your current situation. Pay close attention to the accompanying “role” that you are playing when you execute them as indicated next to the action step.

  1. Reestablishing the purpose, vision, and mission of the organization (OWNER ROLE): Your solvency depends upon how well you can rally your staff to BELIEVE in the purpose and vision of the organization. Every practice owner started their organization based upon some belief or conviction that they wanted to help patients, relieve them from pain or discomfort, and allow them to enjoy their lives. Whatever YOUR purpose for starting the organization was, you must memorialize it and reinvigorate your staff into believing they are there for something more than a paycheck. This the MOST important action you can take first!
  2. Setting the correct income targets (EXECUTIVE ROLE): Operating on a wing and prayer won’t cut it when you are facing insolvency. You need to define your correct income targets and hit those numbers! By and large, most companies become insolvent because they simply were underestimating the actual amount of income they need to make to maintain a solvent business – you must know your make/break number. This would include your basic operating expenses, plus reserves, plus your back bills. YES – this number will be more than what you are bringing in now, and that is the point! Once you know your target you will then be able to estimate the effort and demand needed to get this income.
  3.  Increase your promotional activities, don’t decrease it (EXECUTIVE ROLE): Patients and people make you money. This is not the time to decrease your promotional activities. It may seem counterintuitive, but you must increase your promotional activities and get new patients in the door to get cash flowing.
  4. Get staff to do their jobs (EXECUTIVE ROLE): When faced with insolvency, you must get back to business fundamentals. This means everyone in the organization is doing their jobs and doing them with intention and SPEED. Patients are getting scheduled and keeping their appointments. Marketing programs are being executed. Associates and doctors are delivering high quality medicine to patients. Billing and collections departments are aggressively collecting money from patients and insurance companies. And maybe most importantly, your client success stories are being promoted and referrals are asked for. If you are missing any one of these systems – create them now!
  5. Promote highly profitable and easily executed services (EXECUTIVE & PRACTITIONER ROLE): Every business has those services which can be delivered really fast and have the highest profit margins. When you are experiencing cash flow issues, these are the services you want to get delivered IMMEDIATELY. Whether they are surgeries, wellness packages, advanced procedures, or unique alternative treatments, you must promote these FIRST. In addition, in times of cash flow distress, you must REIGNITE your patient reactivation line. It not only will help resurrect the company cash flow, but it’s just a “best practice”.
  6. Directly inspect your business cash flow lines (OWNER & EXECUTIVE ROLE): Positive cash flow is the life blood of company. Money flows on certain lines in the organization. Money flows because it is an energy, and energy is controlled by individuals. If money is not coming into your organization, it means there is something obstructing the “flow” – you NEED to investigate this! Most practices have someone or a team in charge of the collection of money into the organization. These people must have a bulldog mentality when it comes to ensuring that the goods and services you provide are exchanged for MONEY. If money is not flowing into the organization, you can bet that the individuals responsible for collecting have either massive personal problems, are too sympathetic to “hard luck” clients, or simply have a disdain for money. For whatever reason, THEY ARE MONEY REPELLENT. The sooner you get these type of people OFF your business cash flow lines, the faster you will see money begin to flow into the company accounts.
  7. Find sources of lost income and get it corrected (EXECUTIVE & PRACTITIONER ROLE): Your largest expense is not taxes or payroll, it is money that you should have made but did not. These were missed opportunities to offer a product or service – maybe it just wasn’t promoted at all to the patients or the person selling the service failed to get the patient to agree. No one-person is always going to bat 1000, win the Oscar every year, or hit every green light on the way to work, but if you add up all the lost income in services and sales it will certainly open your eyes to what needs to be corrected.
    So how do you correct this one? Immediate training! Get your associate doctors to follow the protocols you set forth as the lead practitioner. Teach them how to overcome patient objections and that will immediately boost production with almost no added expense. In addition, look at billing and coding opportunities for your services. See if your staff are maximizing billing opportunities or perhaps costing you money because they don’t even know correct and best procedural codes for the services and procedures they can offer. Another option is to increase business hours so you can deliver more services during this time. All of these actions will help to stop the bleeding in a crunch.
  8. Eliminate all negative influences immediately (OWNER ROLE): As the owner, you are responsible for the overall morale and culture of the organization. When you root out the toxicity of an organization, it will flourish. We have seen this happen so many times it could be considered a natural law. If you are on the brink of insolvency, there is no doubt you probably have negative sources at work in your business. To fix this, find the areas where production is “not up to par” – negative people will very likely be there covertly lurking. Get rid of them fast! The two best days for your business are: the first day you open and a patient shows up, and the day when you eliminate a toxic person from your staff. You’ll see amazing things happen to your bottom line!
  9. Increase prices (OWNER ROLE): Inflation goes up every year by at least 3% to 5%. So wouldn’t it make sense to increase your prices by at least that amount each year? If you don’t, then the expenses of your organization will gradually eat up all of your profit over time. If you are having extreme cash flow issues, you must consider raising your prices. It will cost you nothing and will help with your cash flow immediately! You want to raise prices to the point where you may get a little resistance from a few clients. Pay attention to your staff’s reaction though: If you get push back from certain staff members, you may be uncovering someone who does not actually have you or the organization’s best interest at heart.
  10. Cut needless expenses (OWNER & EXECUTIVE ROLE): THIS IS THE LAST AREA TO EXAMINE! You may be surprised that cutting unnecessary expenses is very low on the list of actions to take when you are on the brink of insolvency. However, this area is everyone’s first impulse to cut back on expenses thinking that will solve the cash flow problem. Cutting expenses first is a perfect example of the incredible negative emotional impact a cash flow crisis has on the mental well-being of a practice owner. Without fail, when you are stressed you will begin to make very bad decisions because you feel that everything is crashing down around you and you attack the very area that could save you. You do need to be mindful of NEEDLESS EXPENSES, but you should NEVER CUT business expenses such as consulting, marketing, or anything else that helps keep you and the business stable. If anything you should consider spending more on these services to boost income. If business is slow, you can send certain staff home and put your most productive employees who can output what you would normally pay two people to do. When your cash flow rebounds I suggest you increase compensation for these people who stepped it up. Just remember, cutting back on “spending” should not be the immediate knee-jerk reaction when you find your business insolvent. Look to the first nine steps in this list before you cut this area.
    Continue to repeat the above actions until you are completely solvent and caught up on all back bills.
    There is nothing more vital to long term business survival than maintaining a high cash flow where income exponentially exceeds expenses. Far too many practice owners do not pay enough attention to cash flow areas and end up in financial trouble when in fact, insolvency is a completely avoidable situation. Executing the above action steps will bring about a positive change to your business cash flow and will allow for expansion and personal financial success. Be sure to take on the “role” that is necessary with each step and lead your practice on a successful financial path.

EVERY practice owner needs a financial advisor who understands how important their business is to their household, stands by them when times get tough, holds them accountable, and guides them towards financial success.
We have worked with hundreds of private practice owners helping them improve their personal and business wealth through a Results Based Financial Planning® system built specifically for them.

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Do well!
Eric Miller