Every business owner dreams of a business with lots of cash and positive cash flow. With this type of business, the owner can reinvest in the business, take distributions, and pay off debt. The options are endless. The problem is, most business owners don’t know which levers to pull in their business to increase cash. They ultimately wind up feeling confused and frustrated, sometimes lying awake at night wondering how to make it happen. Every business owner deserves to have a business with a strong financial future.
Recently, I worked with a professional services practice that relied on insurance company reimbursements for their cash flow. Insurance companies are notorious for slow payments, often taking 60-90 days to remit payments. To cover payroll at times, this business owner had to borrow money from a lender and pay 30% plus interest.
Once we started working together, we were able to identify how we might increase collections and increase sales at the same time. You see, the business owner was stuck in a fixed mindset. This was just the way business had run for years and there wasn’t a way to change it.
We set out to improve collections by setting a goal and then asked their internal accountant to be accountable for that goal. We first focused on the 90 days receivables and then worked backwards toward the 60 days, then 45. Pretty soon, we had increased the daily cash balance by $60,000.
Next, we worked with the client schedule at each of their locations to increase the frequency of appointments to maximize the daily billings. Over a two-year period, we increased revenue by 60%. Again, the owner had a fixed mindset about the number of appointments that could be handled per day and didn’t see a way to change. But with a few small improvements, we had increased sales per day by over $3,000 and increased cash another $60,000.
Many times, we tend to focus on skill set first, leaving mindset unchanged. When this business owner could picture a goal in their mind’s eye and properly execute changes with accountability, they saw a $120,000 increase in their cash balance. No more borrowing at 30% interest and multiple options of what to do with the increased cash on hand.
So, how about you? Are you stuck in the same, old cash flow rut? There’s a saying, “What we think about we tend to bring about.” Picture in your mind’s eye what cash and cash flow could feasibly be, and then make a plan on how to do it.