If you have ever been to the mall with a toddler, you know they require constant attention. The moment you take your attention off the child to look at some clothes or thumb through a magazine, there is a good chance they could be 100 yards away petting a stuffed animal or roaming around near the edge of an escalator because something caught their attention. It doesn’t mean you are a bad parent, it is simply the reality of what happens when you allow your attention to move off of something that does not like to remain static—in this case, a toddler.
I give you this example because your money is very similar to the child example I described above. When you take your attention off of your money it tends to scatter around—just like a 2-year-old in a toy store. Money is not a static thing, it is an energy that requires constant motion and strong control. Though it may seem static when you see the same $30,000 sitting in your business checking account, it is actually constantly being moved by expenses and replenished with new income coming in from sales and services delivered. The same dollars aren’t in your account for very long.
As a business owner, it is easy to take your attention off of your money. You are trying to juggle multiple priorities at the same time, and therefore you tend to concentrate on areas of your business that may seem to need your attention most. While this is perfectly understandable, you can NEVER FULLY TAKE YOUR ATTENTION OFF OF YOUR CASHFLOW. It is simply too important to the success of your business to be set aside.
So what can happen to your business if you, the owner, do fail to keep your attention on your money and cashflow? I have countless examples. I have seen business owners lose tens of thousands of dollars in uncollected fees, overpay for expenses, over-order unneeded supplies, fail to pay vendors, and have staff completely change the money collection process by not coding correctly or not submitting insurance claims.
You cannot be ignorant about your business finances. You cannot say, “Well someone else handles all that for me.” I am not suggesting you become a bookkeeping expert and manually enter in all of income and expenses into your QuickBooks every month. However, it does mean you have to consistently monitor the financial condition of your business to ensure it is moving towards an optimum state.
Now you need to know how to monitor your cashflow. Here are a few financial metrics you should track weekly and monthly to ensure the business finances are running smoothly:
- Make/Break Number. This the amount the business needs to bring in every month to ensure that solvency is being achieved. This means you have cash to pay for operating expenses, owner profits, business reserves, and taxes. Once you have established the number, communicate it to your staff. Track this weekly.
- Business Checking and Savings Accounts. At minimum, there should always be at least 1 to 2 months of business expenses readily available in the business checking and/or savings accounts, and the balance should be steadily increasing. Track this weekly.
- Profit Margin. While some months may be better than others because of the way expenses are paid, every practice owner’s profit margin should range between 20-30%. If you are struggling with this, you are likely not getting enough production from your associates, you don’t charge enough for your services, or you are allowing expenses to go out of control. Track this monthly.
- Business Credit Card Debt. There should never be a month where your business credit card balance is not paid off in full. Never. Never. Never. End of story. Track this monthly.
- Accounts Receivable. This balance can vary depending on what type of healthcare practice you own, but you should always have a report of exactly how much money the practice is owed and someone dedicated to getting the money in the business accounts. Track this monthly.
To help you further, I have created a Finance Checklist for the Business. This is a 27-point checklist of everything that should be in place in order to allow for a business to run extremely well financially. Keep your attention on your money and utilize the checklist every month as a way to manage your business finances. (If the hyperlink doesn’t work, you can type in: bit.ly/checklist4business)
For most of you, your practice is the main generator of income for your household. Until you have built sufficient wealth and created cashflow outside of your business through other income sources you must constantly pay attention to the financial condition of the business. As an advisor to over 200 business owners, I can tell you that it is very difficult to achieve to financial success for the household when the business cash is in a crunch.
You deserve to have a practice that is expanding and is allowing you to financially enjoy the fruits of your labor. Far too many practice owners struggle with their finances because it’s an area they think is too overwhelming or complex. This is a falsehood. You CAN be in better control of your finances. It just takes keeping your attention on your money and monitoring it to ensure you are moving towards achieving your financial goals.
We are experts in helping to ensure our clients’ attention is where it needs to be. EVERY practice owner needs a financial advisor who understands how important their business is to their household, stands by them when they have a bad week, holds them accountable, and guides them towards financial success.
We want to be your guide. It’s what we do for practice owners like you! Let us guide and advise you on your financial journey—no matter what phase of ownership you are in. Our goal is to empower you to make the best financial decisions which will lead to financial success, and we are experts in what we do.
Schedule an appointment today to learn more about how we can create a road map for you.