October 2002

How to Improve Your Cash Mileage
By Ivan Delman, DC

Cash is the fuel that runs the engine of your chiropractic practice. If that’s the case, doesn’t it make sense to have a well-tuned carburetor... er, cash management program?

According to statistics from the U.S. Small Business Administration (SBA), six out of 10 chiropractors are unhappy with the current level of their practices, or worse than that; some of those doctors’ practices are in danger of closing their doors mainly due to cash flow problems. Money, as well as your services, are essential elements of successful practice operations.

Let’s take a look at cash flow management from three different perspectives:
• increasing cash inflow;
• decreasing cash outflow; and
• cutting expenditures.

As we discuss these issues, keep in mind this troubling statistic from the SBA: “Of 25 million small businesses in the United States, only 25% formally manage their cash.”

We can conclude from those numbers that 18 million small business mangers handle the cash generated by their business by using the infamous “By Gosh-By Golly” accounting system.

It’s a lot like you holding up your checkbook and saying, “Well, I have checks in my book, therefore, I must have money in the bank.”

If you know people who manage their businesses that way, they haven’t gotten the message because their receiver is off the hook. They are headed for failure.

To help you stay away from the influence of this type of flawed thinking, here are three areas to consider when you’re planning how to manage your cash flow :

1. Speeding up your incoming. One of the first things we look at when we are short of cash is our accounts receivable (A/R). We know we invested our unique talents to help a patient, and we often end up awaiting the return on that investment. And waiting. And waiting. And waiting.

When you study your A/R report, you may notice that 20% of the people or companies on that report hold 80% of the money owed to you. Therefore, instead of diluting your collection efforts over the entire list, it is more effective to concentrate on collecting from that 20% group you have just identified.

Insurance Department
Since it’s much easier to send out bills than it is to collect them, audit the person(s) responsible for collections. See if they are out of balance in how they divide their work between billing and collections. As your practice grows, that system works more effectively if billing and collections are handled by separate staff members.

Conversion Time
The amount of time from the minute you provide your service until you collect is called conversion time. Have you ever noticed that when you’ve had some procedure performed at your friendly local hospital, when you arrive home, there will be at least three notices to pay from that hospital?

They know from experience that the sooner you pay (and the shorter their conversion time), the better their profit structure.

Work to reduce your office’s conversion time by allowing your patients to pay for your services by credit card, have a strong insurance billing follow-up system, and/or by having cash as the major part of your practice.

2. Slowing down your outflow. When you receive an invoice from one of your vendors, check out the “due date.” Then, ask yourself when you normally pay your invoices. If you regularly pay invoices before their due date, then you are providing a free loan of your hard-earned money. Paying an invoice on time means that the vendor receives the money by the due date on the invoice... not any sooner.

Adhering to the above due-date policy will better manage your money with the following exceptions:
• If the bill is due in less than 30 days with a discount for early pay (before the due date), then take the discount and pay early.
• If the bill has a due date of more than 30 days, hold off payment until the due date and use that money elsewhere.

You can help reduce your cash outflow if you can convince your vendors that you are their most loyal and timely-paying customer. Further, that most loyal and timely-paying customer (you) is now trying to find ways to reduce your cash outflow. By doing so, it will enable that wonderful customer (you) to think well of and patronize this vendor with your future purchases. See if you can use that theme to work out an arrangement that enables you to stretch out the time given to pay their invoices.

The same arguments can be used to see if a better pricing structure can be arranged based upon your good credit rating, brand loyalty, or consistent past purchases.

You could also approach your vendors with an agreement to buy larger quantities of their products (as long as their shelf-life is strong) for a reduced cost-per-unit.

3. Cutting expenditures. One terrific way to cut expenditures would be to stop paying your employees... too frequently.

If you are paying your staff weekly, then change your pay periods to the 1st and 15th of each month. This cuts your payroll processing costs by 50%!

If you are doing the payroll “in-house,” consider farming it out to a bookkeeper.

Some of the benefits of having a bookkeeper do your payroll are:
• a bookkeeper is less expensive than a CPA;
• your records will be in better shape if you get audited;
• your CPA will love you because your records will be in good shape when he or she does your taxes..

Unproductive Space
The clock on your overhead costs runs 24/7. This includes all the extra space in your office that sits there being unproductive. Consider renting your unused, wasted space. Every square foot you rent reduces your overhead costs. Just make sure your professional tenant is compatible with a chiropractic practice.

Service Contracts
Service contracts are terrific for one person... the person who sells you the contract! Look at what you are contracting to have serviced. Items such as computers have the lifespan of a May fly. When you crunch the numbers, check to see if it might be less expensive to eventually buy another PC, rather than to continue paying on a service contract for a soon-to-be obsolete computer.

Read the small print in your service contract. For example, your contract may charge you for service calls; however, if the contract is on a piece of equipment that can be carried to a local repair shop, eliminate the “service call” clause and save some money.

There are numerous ways to get better cash mileage out of your practice. Every cash-leaking hole you plug improves both your personal and practice life. Your mileage may vary; however, the money you save will benefit all.

Dr. Delman is the author of “The Business of Chiropractic: How to Prosper AFTER Startup,” now in the Second Edition. 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, travel, and share his ideas at schools and seminars. Dr. Delman can be reached at ivan@businessofchiropractic.com or through his website at www.businessof chiropractic.com