In this episode of the Wise Practice podcast, host Whitney Owens interviews financial expert Carla Titus about understanding cash flow in your business. Carla shares her expertise as a fractional CFO and financial consultant, helping business owners grow their profits and manage their finances. They discuss the importance of cash flow, the challenges it presents, and how to improve cash flow in your practice. Let's dive into the show notes:

What is Cash Flow?

So when people say cash flow, what does that even mean? Carla Titus explains that cash flow refers to the money that is coming into and going out of your business. It is the movement of cash in and out of your bank account, which is crucial for the financial health of your practice. Cash flow is different from profitability, as you can have a profitable business but still struggle with cash flow if you have outstanding invoices or delayed payments. Carla emphasizes the importance of understanding the timing of cash coming into your bank account and when it is leaving. This is especially crucial for practice owners who may experience delayed payments from clients or have bills due before receiving payment. Without proper cash flow management, practice owners can find themselves in a cash crunch, where they struggle to pay their bills or make payroll on time. In order to effectively manage cash flow, Carla recommends focusing on revenue-generating activities to ensure a steady inflow of cash into your practice. This means prioritizing billable services and actively following up on outstanding invoices. 

By monitoring and forecasting your cash flow, you can anticipate any potential cash shortages or issues and take proactive steps to address them. Understanding cash flow and actively managing it is essential for the financial stability and growth of your practice. It allows you to make informed decisions about business investments, expenses, and staffing, ensuring that you have enough cash on hand to cover your obligations and support the growth of your practice.

Common Cash Flow Problems for Practice Owners

Cash flow problems highlight the importance of implementing effective systems for receivable management, maintaining good banking relationships, aligning commitments with revenue, tracking cash runway, and optimizing payment processes. By addressing these issues, practice owners can better manage their cash flow and ensure the financial stability of their businesses. Common issues practice owners face include: 

1. Lack of Receivable Follow-up: Many practices struggle with a poor process for following up on receivables, resulting in delayed or declined payments. Implementing a robust system for tracking and collecting payments can help improve cash flow.

2. Banking Issues: Practice owners may face challenges when banks put holds on their accounts, which can disrupt cash flow and hinder their ability to meet financial obligations. Having a secondary bank account or building relationships with multiple banks can provide flexibility in such situations.

3. Overcommitment and Cash Crunch: Some practice owners make commitments that surpass their actual revenue-generating capacity. Hiring ahead or expanding without sufficient cash flow can lead to payroll and operational challenges. It is essential to align commitments with revenue potential and plan for sustainable growth.

4. Declining or Unreliable Payments: Private pay practices, even without insurance, may face cash flow problems when clients' payments decline or are not saved for future transactions. This can lead to challenges in meeting payroll and other financial obligations.

5. Failure to Monitor Cash Runway: Cash flow issues can arise when practice owners don't have a clear understanding of their cash runway - the period between now and when funds may run out. Without proper monitoring, they may face unexpected cash deficits and struggle to find timely solutions.

Strategies to Improve Cash Flow

Strategies may vary depending on your specific practice and circumstances. It is always recommended to seek professional advice from a fractional CFO or financial expert to tailor these strategies to your business needs.

1. Increase Revenue: Focus on growing the top-line revenue by finding ways to bring in more money to your practice. This can include adding new services, revisiting your fee schedule, or exploring opportunities to generate additional income.

2. Audit Expenses: Review your business expenses and determine if you are getting the maximum benefit from each expenditure. Look for areas where costs can be reduced or eliminated, such as overlapping technology or unnecessary subscriptions.

3. Plan and Forecast: Develop a 13-week cash flow plan to proactively monitor and manage your cash flow. This includes projecting revenue, tracking capacity, and assessing any potential red flags in cash flow. By planning ahead, you can make informed decisions and take necessary actions to mitigate cash flow challenges.

4. Build Cash Runway: Establish a cash reserve or cushion to provide a safety net for unexpected events or cash flow fluctuations. This can help ensure that you have enough funds to meet payroll and other financial obligations during periods of uncertainty.

5. Evaluate Business Model: Assess your business model to ensure it aligns with your goals and objectives. Consider if there are areas where you can streamline operations or implement more efficient processes to improve cash flow.

Show Sponsor

• Alma - Your private practice support system

Links and Resources

• Wealth &  Worth Within - Connect with Carl Titus

• Facebook: @wealthworthwithin

• Instagram: @wealthworthwithin

• LinkedIn: @wealthworthwithin

• TikTok: @wealthworthwithin

• Wealth & Worth WIthin Projection Services

• Connect with Whitney Ownes on Instagram

• Check the podcasts on the PsychCraft Network: PsychCraftnetwork.com 

 

Podcast Production and Show Notes by Course Creation Studio