By: Matthew Gillman, Business Finance Expert & SMB Compass Founder
Smart small business owners know money management is crucial to ensuring steady growth. If your cash flow regularly edges into the red, your healthcare company could lose its patients, sink into debt, or even close for good.
Cash flow problems are a leading cause of small business failure across all industries. According to Business Insider, 82% of failed business experience cash flow problems, while 29% run out of cash completely.
In this article, we’ve provided our top cash management tips to help you avoid cash flow pitfalls and keep your healthcare business or clinic operating smoothly.
Negotiate Your Payment Terms with Vendors and Suppliers
Any time you can cut your costs, it’s beneficial for your bottom line. One way to do this is negotiating better payment terms with your vendors or suppliers. If successful, you can put those savings towards everyday business expenses, purchasing new equipment or something bigger like opening up a new clinic.
If you have a long-standing relationship with a supplier and a proven track record of making your payments on time, they may be open to discussing purchasing bundles, lower prices and expedited delivery processes.
It’s most likely that the original terms you agreed upon with your vendor aren’t the greatest. Once you’ve established a relationship with them and proven you are reliable, don’t be afraid to communicate your need for new terms. As long as the arrangement remains beneficial to both sides, your vendor should be open to negotiating.
Use Accounting Solutions to Track Your Cash Flow
If you’re running a small clinic, you may not be able to afford an in-house accountant or bookkeeping expert to manage your cash flow. Luckily there are many digital accounting programs available that are designed specifically for small healthcare businesses.
Programs like FreshBooks take into account that not every small business owner is an accounting wiz. They’re designed to be straightforward and easy to learn. FreshBooks in particular has a “Bookkeeping Light” option that aids with time management, invoicing, payment tracking and seamless reporting – it actually disallows you from making the mistake of double-entry accounting.
As you implement an accounting solution into your small business operations, be sure to look for these important features: CMS billing, management of purchasing and disbursement of supplies, electronic claims submission, integration with electronic medical records, and appointment setting.
It’s also important that the accounting solution you choose is compliant with the Health Insurance Portability and Accountability Act (HIPAA), which ensures the security and privacy of patient information.
Using medical accounting software can help you keep an eye on your cash flow (no matter what device you’re using), and stay on top of your finances so you can remain operational for your patients.
Secure a Line of Credit with Reputable Lenders
A business line of credit is a great resource for unexpected expenses such as clinic or hospital renovations, hiring new personnel, or repairing medical equipment.
A line of credit is great because it allows small business owners to withdraw the money they need from a revolving fund. Once you repay what you’ve spent, the credit line is restored to the original amount. Plus, you only need to pay interest on the amount that you’ve used. If you don’t use your funds, no charges will be incurred and the money will stay in your account.
A line of credit provides spending flexibility and gives you a backup financial solution to help stabilize your business. When your capital is simply not enough to suffice your current needs, a line of credit will be useful for any cash flow volatility challenges.
Provide Online Payment Options for Patients
Not all patients are able to pay you for your services right away. That said, if you’re seeing that a lot of your invoices are being left unsettled, it may be time to change your business’ payment methods so that they’re simpler for your patients.
You want your payment methods to be as easy and convenient for your patients as possible. Allow them to pay online from their mobile devices so that they’re able to pay you any time from anywhere.
There are available online healthcare payment processing tools at your disposal. For example, BillingTree offers convenient and secure payment processing tools so you can increase patient satisfaction and improve revenue cycles–without putting their private information to risk.
Separate Personal and Business Accounts
If you’re managing your company all by yourself, it’s imperative that you keep your business accounts and personal accounts separate. Combining them is the easiest way to mismanage your funds. This means you should not use your personal credit card to make business purchases or take funds from a business line of credit and put them towards personal use.
Why is it risky to combine the two? Not only does it mess with your company’s financial reports, but it makes it much more difficult to calculate your company’s taxable income. The latter could result in hefty fines from the Internal Revenue Service (IRS).
Set up a Formal Credit Policy
Sometimes patients struggle to make payments, it comes with the territory of the business. That’s why it’s crucial to have a formal credit policy in place as this will keep a record of which patients or clients are eligible for credit from your company, as well as outline how you will collect their unpaid debts.
A good credit policy should meet the following objectives:
- Qualify or disqualify patients or clients
- Determine the credit payment terms
- Set maximum credit limits
- Outline how you will collect outstanding balances
Setting up a credit policy minimizes the likelihood of unpaid debts because it allows patients to pay their invoices through affordable monthly installments.
This installment option is beneficial to you and your patients. For the patients, they can pay in small installments instead of paying cash up front. For you, you’ll earn more with the interest charges or service fees.
Also, credit policies serve as your formal agreement with your patient that they are accountable to you. If a patient refuses to pay you what they owe, they may face a lawsuit.
Cut Back on Any Unnecessary Expenses
If your incoming sales aren’t performing well, you may want to consider cutting back on your outgoing expenses. Evaluate what your costs are and determine which are not absolutely necessary.
For example, if you’re spending hundreds of dollars on printing all your customer invoices, opt for paperless invoices instead. If you’re spending a lot on equipment repairs, it might be more logical to replace the older equipment with new and more advanced versions.
Reducing unnecessary expenses, especially when money is tight, can help you maximize the amount of money you receive in your business. Look closely at your existing cash flow statement to see where your money is coming in and going out. That way you can make the most strategic and informed financial decisions.
Great cash flow management will ensure that you have enough funds to pay for bills, debts, employees, and other expenses. It ensures that your healthcare business is in good shape and that you have available funds for future use. At the end of the day, you want your business to be self-sustaining so you don’t have to take on more debt.
When managing your cash flow, make sure there’s a balance between the money you have and the money you spend. Having too much cash in your business’ bank account points to a failure to take advantage of growth opportunities. On the other hand, an inadequate supply of cash indicates that your outgoing costs are exceeding your incoming earnings.
About the Author
Matthew Gillman is a business financing expert with more than a decade of experience in commercial lending. He is the founder and CEO of SMB Compass, a specialty finance company providing education and financing options for business owners.
The Editorial Team at Healthcare Business Today is made up of skilled healthcare writers and experts, led by our managing editor, Daniel Casciato, who has over 25 years of experience in healthcare writing. Since 1998, we have produced compelling and informative content for numerous publications, establishing ourselves as a trusted resource for health and wellness information. We offer readers access to fresh health, medicine, science, and technology developments and the latest in patient news, emphasizing how these developments affect our lives.