Cash Flow: How to Keep Those Wheels Turnin’
By Ivan Delman, DC

Rich or poor, it’s good to have money.” That simple statement illustrates how essential money is for the survival of any chiropractic practice - big or small, new or established, low overhead or high overhead.

To put it another way, cash flow is the fuel that runs the engine of your chiropractic operations.

Illustrating this point further, there’s an old story that relates to making profits and the relationship to your cash flow:
“A manufacturer was complaining he was losing $3 on every widget he manufactured. His brilliant solution was to increase production and sell more widgets. Hey! Wait a minute....”

The manufacturer’s losses increased proportionately with his cash flow. Obviously, this businessman was not the sharpest pencil in the box. All he did was dig a deeper financial hole.

Before you start laughing, realize that too many of our chiropractic colleagues are, unfortunately, rowing in the same boat as the widget manufacturer.

Staying Afloat
Sutton Landry is director of the Small Business Development Center at Northern Kentucky University. He published a paper describing his research findings regarding the constant difficulty in keeping a small business financially afloat.

Here area couple of excerpts from Landry’s paper:
“... In 1997, 69% of all U.S. business had annual gross revenues of less than $50,000. 78% had annual gross revenues of less than $100,000. These are virtually identical percentages to a decade earlier.”

Landry also reported: “...Given the kind of static revenue that most small businesses are generating, it is little surprise that two-thirds of all new businesses fail within five years and most surviving small businesses don’t even show a profit for three to five years.”

Landry’s article concluded the road to solving cash flow problems is to avoid getting in debt through borrowing, raising money by selling assets, or similar weak solutions. Cash flow problems are best resolved by getting to the root cause of the problems. This is almost always related to lack of profitability.

Cash Flow Problems
The most common cash flow problems in chiropractic practices can usually be traced to several operational weaknesses.

You are probably experiencing cash flow problems if:
• The collections department is unaware of their job responsibilities or is just goofing off. This can be happening at either at the front desk or in the billing area.
• You’re spending too much on expenses that can be controlled. These costs may even be non-essential to your current operations.
• You are making payments on equipment that is producing minimal or no profit.
• You have excessive or non-productive office space. In other words, your office may have a lot of wasted space. A huge office may be great for our egos, but it sure is hard on cash flow. Take a close look at all the space in your office. How much is wasted or being used for storing items you don’t need? Note: Storage space is not always wasted space. It can still be considered productive if your alternative is to drive 30 minutes to a storage area in order to review current records or X-rays. Just be practical about what you define as “important” when you earmark items for storage.

• Your cash is tied up in excessive inventory.
So what are some ways you can improve cash flow? First, meet with your financial advisor (CPA, CFP, fellow DC, mentor, dad, or whomever) and crunch your overhead numbers. The goal here is to arrive at a monthly break-even figure. In other words, how much do you have to collect to cover all your monthly expenses?

Then translate those break-even figures into the necessary number of patient visits that will result in the needed collections. That will be the starting point for your plans to positively affect your cash flow.

More Ideas
What follows are additional areas to consider when looking at operating overhead.

They are in no particular order of importance, and properly implementing any one of these ideas can help increase your profit margins:

• Connect with a mentor or advisor. Your new mentor can offer you fresh ideas gleaned from a proven background of success.
• Make phone calls - or have your staff make phone calls - to people who owe you money, no matter whom they are (friends, business contacts, etc.). Instead of sending constant streams of circular-file paperwork, make a phone call directly to the people who owe you the money. Be straightforward and ask why they are not paying you. This is a much stronger plea for payment than inundating them with collection notices.

• Build a good credit rating with your local bank when you don’t need funds. To do this, about every quarter, borrow a sum of money that you are absolutely certain you can easily repay. Place the borrowed money into an account so you can collect some interest. Then, before the note comes due, pay it back. Later, if you are in a real financial pinch, it will be much easier to borrow money to carry you through any lean period.

• Watch your cash trends by creating monthly graphs of your statistics. This will give you advance notice of impending financial valleys.

• Plan your financial goals. Know your short- and long-term goals. Then, plan the necessary strategies and objectives to reach those goals.

• Set small, easy-to-reach financial goals as well as the large, go-for-the-moon goals. It is much easier to move that money mountain into your back yard a stone at a time rather than trying to shove it there all at once.

• Examine all your office purchases to determine if they are less expensive when purchased in bulk. Check out some of the “wholesale clubs” that offer business and individual memberships. If you can keep your business local, though, that’s always the better option. It’s usually a bit easier to get wholesale-type discounts from local businesses if you tell them comparably priced purchasing options would take your money out of the community.

Be aware that making a profit due to increasing your cash flow does not hinge on just one or two details. You must apply as a many elements as possible to move into a strong cash position. s

Dr. Delman is the author of “The Business of Chiropractic: How to Prosper AFTER Startup.” He has degrees in both business and chiropractic. His experience includes 20 years in business management, and then 20 years as a chiropractor before retiring to write and travel. He can be reached at ivan@businessofchiropractic.com; or sign on to his website at www.businessofchiropractic.com.