What 8
What is the number one way to prevent failure in business? Take a minute to really think about your answer. What comes to mind? Increasing patients or customers served? … Effective marketing? … Location, location, location? … Improving patient or customer care? … Being the best in your industry?
Although these are all essential aspects of business, the answer isn’t any of the above. The number one way to prevent business failure is to properly manage your working capital.
To ensure that we’re all on the same page, working capital is simply defined as the difference between your current assets and current liabilities. If this figure is positive, you have working capital available. This working capital may exist as inventory, accounts receivable, or cash on hand.
Working capital management is a critical management issue for growing businesses or medical practices. Take the example of a growing doctor’s office: As expenses rise with patient-load increases, you accrue more outstanding cash, particularly before receiving reimbursement from the health insurance payors. At this point, your incoming cash does not nearly offset your costs going out. This may be manageable while you work with payments for past services; however, eventually the time lag may become a significant stress-point for your business.
By adopting a few working capital management strategies, you can make your assets work for you, without becoming beholden to banks.
Strategy No. 1: Get Paid Now
Let’s take a look at the most obvious area: accounts receivable. What do your receivables do for you when they are not being paid? While your profit margins may look stellar if you have a lot of orders, you have essentially loaned all of your clients the amounts of your invoices—until they decide to pay you. Doctors, in particular, know the pain of this situation. Insurance payors are particularly adept at prolonging the time for payment; they realize that the longer they take to pay, the greater their profit margins.
Is this just another cost of doing business? Well, not necessarily. Eighty percent of small business owners, medical practitioners, and small hospitals are completely unaware of a resource Fortune 500 companies have used for decades: accounts receivable funding.
Banks often measure accounts receivable at as low as 50 percent of their overall value as collateral for a traditional loan. In accounts receivable funding, however, accounts receivable are calculated at full value. Plus, you accrue no debt for this financing, as you essentially sell your accounts receivable for payment against the full value.
Perhaps the idea of selling your revenue stream makes you nervous. But consider this: You usually receive 80 percent of the entire amount of the invoice within one or two days—at least 28 to 118 days sooner than usual. This cash injection allows you to make capital improvements for your business to generate more revenue, leverage the cash for discounts on your inventory, cover operating costs, or provide bonuses to your employees, for instance.
As your invoices are paid, your funder will repay the other 20 percent, minus the negotiated fee (average four to five percent of the invoiced amount). Don’t get hung up on the “cost” of the funding. With proper management of those funds, you will more than make up for fees by the investments made in your business. Your day-to-day business costs may stay the same, but the tremendous increase in incoming cash will enable you to rest easy.
Homework: Review your accounts receivable aging report. Note the average payment time from one of your best clients or insurance payors. Assuming payment of 80 percent of the invoice value in 48 hours, make a list of ways to use that money for your business:
- Cash discounts on inventory (estimate in dollar amounts).
- Buying or leasing new equipment (anticipated return in additional sales).
- New marketing campaign (anticipated additional revenue).
After you total the increased income generated by implementing this strategy, you can easily see the real benefit.
Strategy No. 2: Shorten Your Operating Cycle
Your operating cycle starts when you take cash out of your account to begin work for a client, and ends the day the client pays you. If you complete a project on Tuesday, for instance, but do not invoice until the following Friday—or even the end of the month—you lose days of income. Since you need the cash in your account—not just in your profit margins—you must minimize the time between service rendered and service invoiced.
Homework: Review how long you usually take to invoice a client. If that period of time exceeds a week, have your staff shorten that time. This adjustment will decrease the payment time by as much as 25 percent.
Strategy No. 3: Collect Past Due Accounts
Do you have a significant number of invoices out more than 60 days? If so, is your staff doing anything to shorten this timeframe? Call the clients whose invoices have been out 30 days and inquire about the invoice. Devoting a few hours a week to completing this task is money well spent if it ensures that even half of your outstanding invoices are paid a couple of weeks earlier.
Some delays in the healthcare industry, for example, are intentional. Prolonging the turnaround for payment controls costs. In these cases, you don’t have any recourse. As any doctor can tell you, calling the insurance company to inquire about a claim can be a fruitless task.
Homework: Review your collections procedures and tighten up your ship, if needed. Assign one person to follow up on invoices outstanding for more than 30 days. Realize, though, that collections results fluctuate with your clients’ priorities. Don’t count on this as your only means of improving your cash flow.
Strategy No. 4: Turn Existing Equipment Into Cash
As we know, keeping current with technology improvements are constant and necessary to remain competitive. Leasing is a way to stay up-to-date without incurring the charges of frequently buying new equipment.
But have you ever considered leasing equipment that you already own? One option is selling your equipment to a leasing company, and leasing it back from them. This way, you generate some cash for your business. You will, of course, incur the lease payments.
Homework: Take stock of what you own. If you need capital, contact a few leasing companies and gauge their interest in purchasing equipment for you to lease back. Alternatively, a Certified Cash Flow Consultant will shop for you. Since they are independent consultants paid by the leasing companies, you will avoid any additional charges.
Strategy No. 5: When In Doubt, Outsource
Outsourcing certain support areas of your business, in which you are not an expert, is an excellent way to reduce payroll and insurance costs. You will spend a higher dollar per hour for importing experts, but the reduced costs (no health or workers’ compensation insurance) usually compensate for the cost variance.
Be sure to hire these experts with as much diligence as you would any in-house employee. As you’ll typically retain this type of assistance through specialty staffing houses, interview the individuals to be assigned. As integral members of your team, they must be as reliable as any employee on your payroll.
Homework: Contact area firms that provide the kind of staffing you need. Compare the cost of those contracts against the cost of keeping these staff on payroll. Be careful: Consultants can get expensive, so be sure to build cost controls (i.e., fixed fee for a weekly basis or hourly with a “not to exceed” clause) into your contract. Be clear on their scope of work, to whom they report, and how you define satisfactory performance. In addition, you must directly approve any staff changes.
Strategy No. 6: Inventory When You Need It
Inventory that sits in the warehouse, not being sold for income, eats away at your available cash flow. It is an asset, sure, but it should not become a liability because it is not quickly converted to cash. Over-ordering of inventory gets many businesses into trouble.
Review your inventory forecast all the time, and be aggressive. Know your options in times when you have shortfalls. Fulfilling customer orders on time is a number one priority, so don’t take unnecessary risks. If you simply hoard inventory to offset any chance of being caught off-guard, you lose the potential profits made by managing it more aggressively.
Homework: Review your current and projected inventory for the coming months. Do you need to make changes, or is it all under control? Make any necessary calls to your suppliers to negotiate better terms or better understand their supply controls.
Make Your Working Capital Work for You
Working capital management is a key element to business success and the number one way to prevent business failure. By implementing strategies such as accounts receivable funding, outsourcing, or inventory management, your business can optimize the return on assets it already possesses. Your company will then be well positioned to handle future growth or economic downturns.
Reprinted from “Create the Business Breakthrough You Want: Secrets and Strategies from the World’s Greatest Mentors” © 2004 Mission Publishing, a division of The Mission Marketing Mentors, Inc., www.missionpublishing.net, or www.missionmarketingmentors.com.
Ms. Anindya Kar, Certified Cash Flow Consultant, specializes in helping small businesses and medical providers with business financing. Her company, AKSF Funding Group (www.aksffunding.com), is based in Oakland, California, and works with clients nationwide. You may contact her for more information at 800.406.1399 or akar@aksffunding.com.
Previous Articles Highlighter:
What Is A Secured Loan (1)
The added security that this type of loan gives the lender means that even those with a less than perfect credit history can get hold of a secured loan with relative ease.
Where Is Our Largest Technological Plan (2)
TV telephony 11. e-Police 12. e-Government (all between the government and the Citizens) 13. e-Theater 14. e-Conferences 15. e-Libraries 16. e-Sciences 17. e-Polls 18.
Never Get Lost Again - Map Reading Is A Thing Of The Past By Niall Kennedy (3)
And if I'm going to be going to that destination again I can save it in the memory for future use.It offers 4 modes - the first time I tested it out I chose "shortest route" from home to office, and it displayed almost exactly the route I'd have chosen.You get yard by yard voice instructions (so you don't have to look at the screen as you drive) and it corrects directions immediately if you take a wrong turning, and there's a handy "Repeat" button to get an instant repeat if you didn't hear an instruction.If you need a visual representation of where you are, there is a useful "3-d" view, down to lamp-posts and garbage cans.
BOOK REVIEW Performance Of Financial Institutions Efficiency Innovation Regulation By Patrick T Harker And Stavros A Zenios (4)
Zenios) is a Professor at the University of Cyprus.The aim of the book is to examine whether financial intermediaries operate efficiently on a worldwide basis. Due to the fact that the book is written by two academics, it is a well-researched book with many real life examples involving financial institutions in various countries.The book is dividend into various sections such as: What drives the performance of financial institutions; Drivers of performance: Identification, Specification & Measurement; Environmental drivers of performance and finally, performance and risk management.Though the book is well written it is more geared towards persons involved in research in the financial management sector rather than your ordinary layman.
Virtual Assistance Higher Productivity (5)
To most, it isn't simply a 9 to 5 job, but a career choice that they take great pride in. Most VA's have local client lists, but are also able to assist 'from afar'.
The Art Of Being Specific Encourages Focus (6)
However, it took me a while to focus on the specifics. Fortunately, I had the help and advice of my parents, siblings, and spouse. I wanted Rothline Entertainment to start out big; offering video games, movies on DVD, card and board games, and anything remotely related to entertainment.
5 Things You Must Do To Fail In Business (7)
Isn’t it great to hear about some new product becoming an instant hit? Realistically, most overnight success stories take a lot more than one night of work. Think of any popular brand and think how long it took to create it.
Why And How To Work With A Consultant (8)
Our clients benefit from strategies, tools, and creative concepts developed to clarify their needs, make use of their resources, and help them achieve their goals. We specialize in promotions, online communication, distribution and the creation of multimedia and Internet tools.
Tips For FirstTime Homebuyers (9)
For example, the ability to skip a payment or suspend payments for a few months can help you manage your monthly cash flow in an unexpected emergency.View your home as an investment.
9 Things You Must Do To Maximize Your Chances Of Obtaining A Small Business Loan (10)
Principals financial statements. – Particularly required if some form of security is necessary.If you are a new company, the emphasis is going to be on your business plan , and the security (also called collateral) you or your business can provide against the loan.You must take the time to practice presenting your case to the bank or lender to iron out any glitches.
High Interest Rate Auto Loans (11)
Anyway, I read your email and I do indeed have a suggestion or two that I'm happy to share. A COUPLE THINGS INITIALLY: 1. First, you’re paying a very high interest rate at 16.4% APR for an auto loan!
Are You Set Up For Success (12)
There is another intangible, YOU! Add your own personality to your business and let it grow.Here’s to you and your success. Today, not tomorrow!2004 © Born-Again Bargainshttp://www.bornagainbargains.comCraig Binkley – husband, father and home business owner assisting in the restoration of the “traditional” family through home business ownership.http://www.bornagainbargains.com
Show Your Prospects How Much Enthusiasm You Have For Your Product And Business (13)
You could publish an article, write an ebook, etc.Over 40,000 Free eBooks & Web Books when you visit: http://www.ldpublishing.com As a bonus, Bob Osgoodby publishes the free weekly "Your Business" Newsletter - visit his web site to subscribe and place a FREE Ad!
Internet Provides Wealth Of Information On Car Maintenance By ARA Content (14)
"On the Internet, auto owners can research the advantages of various products, compare prices and make decisions in the comfort of their own home," says White. Sears also offers a wide variety of merchandise and services through its Web site, www.sears.com.
Business Partners Marital Partners Will The Marriage Survive Part 2 (15)
Be sure your office space is located in a separate room or area of your home that offers the least distractions. A separate office is best, especially if you are meeting with clients.
Why Choose A Secured Loan (16)
You can borrow any amount from £5,000 to £75,000 and repay it over any period from 5 to 25 years. You simply select a monthly payment that fits in your current circumstances.
Avoiding Credit Card Traps (17)
Hmmm, spend 37 cents on postage and mail my payment five days before the due date or pay now and get charged an additional $14.95 fee? I’ll bet you can guess which choice I made.Taking the time to carefully read and understand your credit card agreement now will help you save money by avoiding unnecessary fees or climbing interest rates later down the road.© 2004, http://www.yourfreecreditreportnow.comJames H.
3 Tips For A Great Summer Developing Life Business While Having A Blast (18)
She coaches busy business people to develop the life and business they keep thinking about. For free resources, assessments, articles, classes, and ezines to help you upgrade your life and business visit www.startingnowcoaching.comstartingnow@houston.rr.com
How To Write A Business Plan In Five Steps (19)
If you "have a winner", step four is:4. Write the plan. Obviously, you need to be able to use good grammar and spelling. You should be clear, concise and complete.
Brand Your Consulting Brilliance (20)
Start by articulating your 'unique marketing proposition,' a statement of all of the qualities and characteristics that set your services apart in the marketplace. Analyze your services: What skills and services do we provide that are distinctive, measurable, and add value?
Newer Articles Highlighter:
How To Change Your Car39s Motor Oil By Stephen Bucaro (1)
I've seen newbies pour motor oil in everything from the master brake cylinder to the radiator cap. Make sure you have located the the oil filler cap. Remove the oil filler cap.
Multiple Channels Multiple Times (2)
I've just been reading about the frustrations of a Human Resources manager. He's tired of having to answer the same questions about benefits over and over again.I understand that, having been on both sides of the issue, both as a consumer of benefits and in communicating about them on behalf of corporate clients.
The Best Things In Life Are Rarely Things (3)
Imagine the free time we’d have in our minds, dreaming of what inspires us...rather than wasting time attempting to please everyone else.I suppose the lesson to be learned here is that this freedom can be ours.
Drivers Of SUVs Saving Big Money With Diesel Engines By ARA Content (4)
There is an alternative, however, for drivers of big vehicles to consider: diesel engines. Diesel engines like the Power Stroke Diesel in Ford F-Series Super Duty pickups are specifically made to provide better mileage -- 30 percent in most cases -- and have more pulling power than gas engines, which is why they are especially popular among those hauling camping gear or towing boats, RVs and horse trailers.
Bankruptcy Basics (5)
Exempt property may include automobiles, some household furnishings, and property needed for work-related use; for example if you were a mechanic the tools you use to perform your work would be exempt from the bankruptcy settlement.
Retreads The Highest And Best Use For A Worn Tire By ARA Content (6)
Retreaded tires have one of the highest post-consumer contents of all recycled products, and are responsible for saving North Americans more than 400 million gallons of oil every year. Most people don't know that tires contain a very large percentage of synthetic rubber, which is petroleum based.
South Beach Diet Effects On Sales (7)
Florida is the second world oranges producer after Brazil and most of the production is transformed into juice. With the South Beach Diet book advising people against the consumption of orange juice because of its high fructose levels, the State Department of Citrus, Florida’s $9 billion industry, has every reason to be concerned.
After The Sale By Kevin Schappell (8)
Accessorize! It's your car and it should make a statement about you. There are plenty of aftermarket items to make your new car unique like yourself. Wheels, bug guards, window visors and more are all available at part houses like CarParts.comKevin Schappell maintains http://www.carbuyersclub.com where he gives advice on car maintenance, buying, selling, insurance, and financing.
Smart Choices How To Hire The Best (9)
Don’t just advertise in your local newspaper - cast your net even further! Look at what works. What personality traits make someone a good fit for your culture?
Your Administration TeamLook After Them (10)
He just assumed that's what she should do. He never considered her needs. She was a single parent and therefore had major responsibilities. She had a life too.
Writing One Or Two Line Ads (11)
Doesn't it make sense that you have more room on your web site to tell them about your offer and explain it to them? If you can get them there, you might make a sale, even if they already have a cell phone.
Are Mortgages A Risky Business (12)
In my short experience since I started at university fourteen years ago, I have seen deposit rates vary from 14.5% down to 1.5%.Is a bank safe?There is also a common belief among lenders that their capital is safe.
The 8 Biggest Mistakes When Designing Portfolios And How To Avoid Them (13)
NEGLECTING THE EFFECTS OF PORTFOLIO MANAGEMENT EXPENSES. Over time, the compounding effect of portfolio management expenses can be quite large, thus depriving you of better returns. For this reason, you should focus on minimizing portfolio management expenses, specifically trading costs, advisory fees and taxes.5.
New Energy Bill Reducing Our Dependence On Foreign Oil (14)
economy added a mere 32,000 to the non-farm payrolls, the lowest monthly addition this year. The rate of employment growth is slowing as business confidence appears to be undermined by rising oil prices.
Your Worst Enemy To Successful Investing The Media (15)
But they don't and they aren't. Oh sure, each one of them can make a good case for their pick. But so can the next "expert." And usually both of them won't be right (if either of them is).
Networking Tips Getting An 8 (16)
Remember to contact a customer after giving a referral to insure that they received the information/product they needed and were satisfied, and if not ask why. A referral network is used to increase business.
Workplace Fitness A Gym Full Of Useful Advice For Continual Learning (17)
Go to a class and you'll see the double-stepping, dance-twirling footwork of some double-jointed exerciser. If you try that move, you'll twist your knee and land in surgery. We are not built alike.
Business After The Iraqi War (18)
But now that it’s over and coalition forces have taken control of Iraq, should we expect to return to business as usual? Unfortunately, this is easier said than done.The facts are that the underlying and axiomatic problems are still present in the global economy.
18 Tips For Saving Money On Gasoline By Fisher Swanson (19)
Turn it on until the car gets cool, then turn it off and let the fan circulate the cool air. Never run your air conditioner with your windows open!
Ten Tips To Get Started Writing Your Book (20)
Write the back cover material before you write your book. This "outline" helps give your book direction and helps you focus only on what's important to your thesis or theme.