We’ve been talking about how running a business is like baking or cooking. You need all the right ingredients, in the right proportions, cooked at the right temperature, for the right amount of time.
Every business owner wants a business that’s “cooked” just right, with lots of cash flow and profits. You can read about the first ingredient, profitability, here.
The next ingredient is activity. Said another way, activity means how well you are collecting on accounts receivable. My heart breaks when I see an accounts receivable aging report that has too many receivables in the 90-120 days past due category. This means that a business has an abundance of checks they’re waiting on, rather than that money sitting in their bank account where it can be used.
We started working with a professional practice about two years ago. We’ll call the owner Beth. Beth had an excellent practice with 3 locations, but her cash balance was low and she was struggling to make payroll. Her receivables number seemed high, so I asked for her aging report and quickly saw that 27% of her receivables were over 90 days past due.
At the time, Beth was building her practice and over the past 2 years had increased revenue by 64% and increased her profitability by 217% in that same period. It was clear that she was increasing revenue, but was not focused on collections. Beth quickly assigned her bookkeeper the responsibility of handling collections. By doing that, she could still focus on driving her business through client delivery and revenue growth and collecting payments was no longer being ignored. Soon, the company was able to cut the percentage of over 90-day receivables from 27% to 10%, creating more cash in their bank account.
The ingredient for Beth’s success on improving collections was assigning someone other than herself to be accountable for collections. They also established a collection process that could be followed so that there was no confusion. Starting out Beth had severe cash flow issues. Two years later she has a business that is not only surviving, but thriving with large cash balances.
Is your business experiencing the cash in the bank you’ve always dreamed of? Or is your “recipe” off? It can be difficult to know which ingredients need to be adjusted to help your business come out just right. But you don’t have to figure it out alone. Let’s talk today.
P.S. For some ideas on where to start, check our free resource “4 Blind Spots That Could Be Costing You Money”.