5 ways to stay on top of cash management and ensure your practice stability.
For many veterinary practices, lack of cash is a bigger problem than lack of profits, says Tera Latham Nance, a financial consultant for Summit Veterinary Advisors.
“I’ve seen many large and very profitable practices close their doors because they couldn’t manage the cash from their profits,” she says. “Cash is truly the lifeblood of your practice.”
The most critical factor in cash management is timing, she says. That’s true whether you’re collecting payments, controlling cash disbursements from your bank account, covering shortfalls, forecasting your cash needs, investing idle funds or taking any other steps to avoid keeping too much cash in the bank at any one time.
Nance shared recommendations for staying on top of your cash management—which, she says, will both reduce your stress and help ensure your practice stability.
1. Manage receivables. Her general guidelines:
- Collect client payment as soon as possible.
- Require a deposit for voluntary surgeries.
- Accept all major credit cards.
- Collect payments if needed by making calls from the practice or using a collection agency.
2. Manage payables. Maximize your vendor payment terms. For instance, if a vendor gives you 30 days to pay an invoice, pay it on day 25. “This gives you time to sell the product and get money, so the product pays for itself and you don’t have to use excess cash,” Nance explains.
Additionally, pay off credit cards in full every month. Do your homework to see which card is best for your practice, and be aware of the credit card billing cycle. Set up auto-pay for regular monthly bills such as insurance premiums and loan payments. Encourage employees to be paid by direct deposit, or pay them with reloadable debit cards if they don’t have a checking account, Nance suggests. “It costs about 5 times less to pay electronically than to use paper checks,” she says.
3. Manage inventory. Reduce your inventory to increase your available cash, suggests Nance. Keep your pricing updated in your practice software. Price-shop when possible, but beware of “discount” bulk purchases of products that won’t be sold quickly.
4. Measure cash. Keep your books current and analyze your cash monthly, Nance advises. “Reconcile daily or weekly by checking to see what hit your bank account and compare that with what’s in your accounting software, so you know what’s outstanding,” she says. “Cash is a moving target. When you’re measuring it, you can manage it.”
5. Develop cash forecasts. Predict your cash needs in advance based on seasonal or cyclical patterns and trends. “Forecasting may be the most important part of your business plan, regardless of the life stage of your practice,” Nance says. If you’re in an exit strategy, forecasting will help you build practice value and plan for retirement. If you’re just starting out, it will help you grow at an appropriate rate. Keep 2 to 3 months’ worth of cash on hand for fixed costs, Nance recommends. That way if something happens, you will be able to get by for a short period of time.
PSIvet Education Modules
For more on managing your bottom line, check out PSIvet’s education module on gaining control of your variable expenses.