How to Prepare for Times of Unexpectedly Low Cash Flow
Tackle an all-too common issue before it becomes a problem.
Your patient log, not to mention the long hours you put in, tells you that your practice is thriving and lots of people are eager for your services. So with all that traffic, how could your practice ever experience a cash flow crunch?
Actually, it's more common than you think, especially among businesses such as healthcare practices, which may lack the large cash reserves necessary to get over those humps when the bills keep coming and the receivables lag behind. According to a national survey by the Enterprise Council on Small Business, cash flow matters are the third leading cause of concerns for small business owners, after poor sales and regulations.1
If anything, success can create cash flow issues. The busier you get, the more likely you are to need additional space, new equipment and more employees--all of which create regular costs that can sap your cash reserves. As with most foreseeable problems, the best way to deal with a cash flow emergency is to prepare in advance.
Secure a Line of Credit
Unlike a loan, where you might receive a set amount for a specific purpose, such as renovating the office or buying a major new piece of equipment, a business line of credit gives you access to the money you need, at your convenience. Whereas a loan is a one-time event, a line of credit is ongoing, and it's there when (and only when) you need it. If you're not facing cash issues, the account rests. You don't pay any monthly payments until you actually use the line of credit and begin paying the money back.2
Of course, you want to use the line of credit judiciously. Lines of credit usually come with variable interest rates, so you'll want to borrow carefully and pay back as soon as you can. But when cash flow is a problem, it can keep you running smoothly.
Ramp Up Your Receivables
Hearing "the check's in the mail" from a patient won't do you much good when you've got bills that must be paid right now. Consult your attorney to see whether you might want to consider encouraging your paying patients with a nominal discount if they pay before the due date.3
Use Credit Cards Wisely
Credit cards can certainly help a practitioner get out of a cash flow jam with ready access to funds. But take care not to assume too much debt or to mess up your credit rating in the process. One vital step is to assiduously separate your personal and business cards, and avoid overextending your cards. Business credit builds slowly over time, based on your track record of paying off loans and lines of credit responsibly and promptly. The more you pay attention to such details, the better positioned you'll be to meet the next cash drought that comes your way.