Cash flow is Queen
If you are running an Independent Optometry practice then you are among the 99.7% of businesses in the U.S. defined as a “small” business, or a business with fewer than 500 employees. As such you are also likely well in tune with a few realities of being a small business owner that are inescapable. One critically important reality: Cash matters. And if cash is King, then cash flow is Queen. Why? Because the harsh reality is that according to a 2020 report released by Fundera, 82% of businesses that failed cited cash flow problems as a factor in their failure. It’s not ONLY cash required to operate and grow, it’s the timing of the cash flowing into and out of your business. One doesn’t work well without the other.
Independent Optometry plays an important role not only in community eye health, but also to the economy. To open, sustain and even grow your practice in today’s competitive, disruptive world, you MUST have a well informed, consistent cash flow management plan. Steady cash flow is the engine that keeps your practice moving forward. Restricted cash flow is the roadblock that at best can be a detour and at worse can cause a fatal accident.
Risks vs. Benefits of cash flow management
It’s no secret that running an Independent Optometry practice requires attention to detail on many moving parts simultaneously. Cash flow management may feel like “one more” thing to do and depending on how comfortable you are as a business owner with financial management, you may or may not be naturally inclined to prioritize cash flow management as a critical element of managing your overall practice. Before you are tempted to delay or deprioritize this part of your business, let’s consider the risk vs. reward of cash flow management. What does effective cash flow management influence?
- Paying your bills on time
There are multiple reasons you may find yourself with not enough cash to pay all your bills on time. Delayed accounts receivable, period of “slow” business, a forced national shut down (i.e. COVID-19), equipment malfunction or other ‘surprise” expenses, massive inventory purchase, etc. As we all know, this can happen from time to time and is never desirable. The problem begins to grow if the negative cash flow position continues month over month. Commonly, small businesses begin to “rob Peter to pay Paul.” But if not corrected soon, over time businesses begin to incur fees and penalties, debt rises (along with stress). Credit worthiness slowly declines and there can even be a struggle to get necessary inventory or other material orders processed because vendors are owed money. What’s important here is that proper cash flow management will quickly illuminate WHAT the problem is, so that a timely intervention or change can happen to course correct.
- Sustaining your practice
If COVID-19 taught us all anything, we learned that the unexpected can and will happen. Practices were forced to shut their doors and in the slow re-opening of the economy, many had to make investments to support a new type of patient experience. Fortunately, many practices are back to near normal, and some are even thriving in the wake of the pandemic. It’s no secret that patient volume and sales alone can be deceiving. If your cash flow forecast didn’t account for new and different types of expenses and timing of expenses, even with customers coming through the door, your business could fail despite increased exams and product sales.
- Expanding your practice
For practices fortunate enough to be in a place of growth, cash flow management is particularly important. Growing or expanding requires cash on hand and credit worthiness. For those Independent Optometry practices with an eye on long term financial health, you could be considering strategies from adding locations, buying other practices, adding important staff, new equipment, expanding into new product or service lines, or perhaps investing in technology to help grow and sustain your practice for the long term. Growth strategy can only exist with the money or resources to fund it. Effective cash flow management is the engine that fuels it all. Even if cash on hand isn’t adequate, your credit-worthiness will be determined by the financial health of your cash flow. The benefit of being able to expand your practice is an advantage that cash-strapped competition may not have!
- Optimizing practice value
Any small business should always be aware of their overall market value. What price would someone else be willing to pay for the business you’ve spent so much time, energy, heart and money building? Or perhaps you are seeking investment into your business to help grow or expand. To ensure the highest output, any valuation activity will require certain inputs to determine that value, and free cash flows are one of them as they support the company’s operations and asset maintenance. They measure profitability and the overall health and financial well-being of a business.
The bottom line: cash flow impact to short and long term goals
At the end of the day, Independent Optometry owners come into this business because they desire Independence as an eye care practitioner and as an entrepreneur. Whether you are starting out, taking over or maintaining your business, cash flow management IS your plan to avoid failing AND to optimize your future.
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.
- SBA.gov. “The Small Business Advocate“
- SBA.gov. “Small Business Facts“
- Entrepreneur.com. “10 Critical Cash Flow Rules“
- Fundera.com “Small Business Revenue Statistics (2021): Annual Sales and Earnings
- SBA.gov. “Frequently Asked Questions“