5 Tips To Improve Cash Flow for Independent Optometry
Independent Optometry is an essential part of community eye health. Owning and managing an Independent Optometry practice allows the opportunity to create wealth and leave a legacy for generations to come. To achieve success in both patient care and entrepreneurship, it is imperative to balance focus in both areas. It can be easy to fall out of balance, focusing more on patient care and less on business management as patient care is the purpose of the business. However, managing cash flow in your practice is essential to ensure the business itself is healthy and strong. The most important success factor for a healthy, sustainable business is the availability of cash and the ongoing balance of incoming and outgoing cash.
Here we will discuss 5 areas that will help improve sustainable cash flow for your practice.
1. Create and Manage a Cash Flow Forecast
A cash flow forecast is an estimate of the amount of money you expect to flow in and out of your practice in a specific period of time. It should include ALL estimated inflows (i.e., exam revenue, retail sales, online sales, additional product purchase and even investment interest) as well as all outflows such as rent, vendor payments and payroll. Creating and managing this tool weekly will help you manage current cash flow and plan for future cash needs, expected shortages or surpluses. This view of your cash situation will help in making important decisions such as expanding or shortening hours of operations, investment into marketing, promotions, inventory, or even new technology.
The best practice is to record your inputs weekly. Observe trends as well as peaks and dips. This information will help first and foremost to ensure that cash is always available for essentials (payroll and vendor payments) and can also illuminate excess cash that could be earmarked for a capital improvement or investment fund.
If you find yourself without a staff member qualified to manage this function, consider outsourcing to a trustworthy vendor or resource. Cash flow management MUST be a consistent priority as a business owner to ensure the sustainable success of your Independent Optometry practice.
2. Optimize Cash Inflow
Your cash inflow is simply an accounting of all the ways cash flows into your business. “Good” cash flow is the state of collecting money faster than spending it. For health care businesses, this can be tricky. Unlike many other industries, health care business owners typically get paid after a service is provided. As a practice owner, there are key areas that you can proactively control and influence to help ensure your cash inflow is as optimal as possible. Here are just a few examples:
- Maintain market competitive pricing. Be sure you are setting prices appropriately for your products.
- Up-sell to existing patients. Statistics show existing customers are 50% more likely to buy new products and spend 31% more! This activity alone can increase your revenue 10-30% on average. Training and incentivizing your staff to upsell that second pair of frames, sunglasses, or other products (all of which will help your patient) can make a big difference in your revenue.
- Encourage repeat business. It has been well established that it costs 5X as much to attract a new patient/customer than to keep an existing one. Nurturing existing patient relationships through loyalty programs, subscription purchase programs, online autopay, or others will find you spending less money to retain those whose revenue you can more confidently predict and influence. The recent pandemic has seen a huge impact on patients and consumer expectations. Call a staff meeting and brainstorm some proactive steps that make sense for your practice to ensure you are serving your patients well. Even small changes can create a big impact in the perception and experience of your patients.
- Fill up your schedule. Using your practice management system or an appointment scheduler, train your staff to proactively communicate to patients to set their next appointment before they leave or to remind them of their annual exam. Being consistently proactive in this area can fill your schedule up and will help positively influence your patient satisfaction as they see your consistency with them as part of the care and convenience you offer.
3. Optimize Cash Outflow
Keeping tabs on the expenses you can control is as important as finding ways to optimize revenue. This is another area where the pandemic elevated the need for tools and resources to help in this area. Below is a list of elements that collectively can make a big impact ensuring your cash outflow is controlled and optimized:
- Know your bills and their terms. There are often opportunities to negotiate better terms with suppliers and vendors. Taking the time to understand their current state and working with your vendors to create terms more optimal for your business can also help build important industry relationships and ensure your business is supported by your vendor and supplier partners. Things like prepay discounts, delayed payment terms, rebates and other vendor promotions can unlock significant savings to some of your higher bills or simply ensure your cash flow timing on bill payments is optimized. Joining a group or alliance enables you to leverage their buying power and negotiations on your behalf.
- Consolidate your bills. There are incredibly valuable programs such as CECOP USA’s consolidated billing which provides one bill for many vendors so that you don’t have to worry about being bombarded by twenty different vendor statements. All of this together can help drive significant management efficiency in paying one bill rather than multiple AND ensure you are on the most optimal terms with those key vendors.
- Maximize inventory. This can be one of the most challenging parts to manage. Identifying the right product mix and quantity is critical. Analyzing your mix by highest sales and margins can help you consider reducing or eliminating bad inventory. Be wary of discounting products or services, even when attempting to decrease bad inventory. It can feel good to make the sale, even at a reduced rate. However, too much of this activity can create an altered patient expectation in the long term (a hard habit or perception to break) and can have a devastating impact on your profit margins.
4. Manage A/R
For many Independent Optometry practices this can be a challenge. Big businesses often have qualified staff accountants and billing managers to manage this critically important part of your business. Unfortunately, small businesses like Independent Optometry practices, thrive on a small but mighty crew of staff who must wear multiple hats, including managing the finances of the practice.
When products and services are delivered now, but paid later, the practice is immediately put into the scenario of “footing the bill” (with their cash) for that product and/or staff members time well before full payment is received. Any slowdown in collecting payments due (insurance payments, patient payments or even vendor rebates) can have a significant impact on your cash flow. It is important to know and manage the timing of all these moving parts. The best practice is to regularly review your A/R aging report to flag payment delays and have a dedicated staff member or other resource proactively managing this to ensure your A/R is current. This is an easy way to ensure your cash flow remains healthy.
5. Put Idle Cash to Work
A frequently overlooked opportunity is to ensure any “idle cash” that your business has is also working for your business to earn income. Any balances you may have sitting in non-interest-bearing accounts should be redirected to a more lucrative home. Talk to your bank or seek competitive banking offers that could help your cash earn interest. It could also be an opportunity to consider investing your idle cash to pay off debts, low interest payments or invest in technology that could help your business grow. Making time to strategize the best use of your idle cash can help plan for future cash needs.
If you would like more information on surefire ways to improve your cash flow, please set up an appointment with a CECOP USA representative today.