We talked about revenue and expenses last week. Did you get a chance to look at the numbers for your practice?
Was there room for adjusting one or the other, or perhaps both? What would you have to do to increase your revenue, decrease your expenses, or perhaps a combination of the two?
If you missed last week’s article, click here to read it now.
Today, let’s discuss the other two numbers in your business, cash flow and pricing.
The third important number in your business is cash flow. It’s another “must-track number” for any business.
Because at its core, cash flow is a reflection of the financial health of your clinic at any given time.
It’s the money that’s “flowing in” and “flowing out” of your business. It is revenue coming in (inflows) and expenses going out (outflows).
Cash flow is the lifeblood of any business, no matter how small or large. Perhaps you’re thinking: “That’s pretty obvious… what’s so special about that?”
At first glance, nothing really. But once you take a closer look, you realize just how important cash flow is.
Here’s an example. What happens if…?
Your clinic is barely seven-month-old. Already you see close to 18 patients every day of your 5-day work week. Your new clinic and you are hopping!
But there’s a small problem. You are yet to get paid for most of the claims you have submitted. Some of those claims have been outstanding for months.
Because of the volume of patients you’ve been seeing, you needed to bring on extra help, and it paid off. You also had to purchase more supplies, equipment, and technology.
All in all, you’ve been able to keep up with your expenses. You paid your employees, taxes, lease, insurance, and supplies. You paid all your bills, and you paid them on time.
It Takes Cash To Stay In Business
But over the last few weeks money has been getting tight, very tight indeed.
Luckily, at startup, you gave yourself a buffer. You expected some delays in getting reimbursed, but nothing like that. Who would think it would take that long to get paid?
And what are you supposed to do?
Pull money out of thin air? How can you pay your bills if they don’t pay for the services you’ve provided?
Unless you get paid for the work you’ve done, you won’t be able to pay your bills, let alone stay in business.
Cash Flow is The Life Blood Of Any Business
Do you see how important cash flow is to your business? Without money coming in, a business is “dead in the water,” unable to function or carry on.
Cash inflows allow you to stay in business because you can pay your bills and invest in your business. Cash flow makes it possible for you to buy goods and services; in return, you’re able to provide services to your patients.
There are various types of cash flow. They include cash flow from operations, from investing, and from financing.
For most small businesses cash flow comes from operations, from the products and services they provide (sell) to their customers (patients).
It’s crucial to track cash flow in your business. You need to know if you’ll have enough money coming in to pay your bills over a given period.
The cash flow statement tracks this information for you. Your bookkeeping software can generate the statement, as long as it has the correct data.
Businesses may end up closing their doors if they cannot pay their bills. There is not enough cash flow to meet day to day obligations. Sadly, at times it may not even be their fault.
What’s Your Pricing?
In other words, what are the price points for the services (and or products) you provide? Why is it an important number?
Well… the fee (price) for your service is part of the revenue equation. Just as we did last week, let’s run some basic numbers to see the difference.
Today you are a seller of widgets.
Your best widget is available for sale at the price of $50. On a typical day, you sell approximately 20 of them. At the $50 price point, your gross revenue for the day is $1,000.
Now let’s change the price point for the widget. Let’s raise the price of our widget from $50 to $75. After a quick calculation, you now see that the revenue for the day is $1500.
By changing the price point for your widget, you have increased your revenue by $500 for the day. Do you see the importance of price point or pricing?
But wait, are you thinking: “This doesn’t apply to me, I’m a healthcare provider, and I don’t set my own fees?”
I won’t argue; it’s true. However, you are the one deciding which insurance company you’ll do business with and what reimbursements you accept.
If you find yourself working with various insurance companies, all offering low reimbursements, you may want to make some changes.
Perhaps you’ll let one or two of the contracts go. And you’ll keep those where you know the company consistently pays and pays on time. Or perhaps, you’ll keep the one where you can negotiate reimbursement.
If you own a cash-based practice, you have more flexibility when it comes to price points/pricing. Unlike insurance based practices, you can set your fees, within reason of course.
But it doesn’t matter if your practice is insurance or cash-based. The important thing is to recognize that the four numbers discussed in the last two articles don’t exist in a vacuum. The numbers affect and impact one another.
As the owner of the business, it’s your job to understand and monitor how revenue, pricing, cash flow, and expenses affect your business and ultimately your bottom line.
Here’s what to do next:
Set aside time to familiarize yourself with the four numbers discussed in the two articles. Understand:
- where your revenue comes from
- where your expenses go
- what your price points are
- how your cash flows in, through, and out of your business
Do you see room for improvement? If you do, take the necessary steps to regulate your cash flow, increase your revenue, lower your expenses, or adjust your pricing.
The four numbers we discussed are key tools in your “business toolbox.” Understand and use them to succeed in your business.
As always, we’d love to hear from you…
Tell us what you think and how you plan to implement what you’ve learned.
By Johanna Hofmann, MBA, a regular contributor to the NPBusiness blog and author of “Smart Business Planning for Clinicians.”