Stay on top of cash management and ensure your practice stability.
For many veterinary practices, lack of cash can be a bigger problem than lack of profits. “Cash is truly the lifeblood of your practice,” says Tera Latham Nance, a financial consultant for Summit Veterinary Advisors.
The most critical factor in cash management is timing, she says. That’s true whether you’re collecting payments, controlling cash disbursements from your bank account, covering shortfalls or forecasting your cash needs. Staying on top of your cash management will both reduce your stress and help ensure your practice stability.
Manage receivables. Collecting what people owe you tends not to be a great headache in small-animal practice, because payment is typically collected at the time of service, says Nance. Her general guidelines:
- Collect client payment as soon as possible.
- Require a deposit for voluntary surgeries.
- Accept all major credit cards.
- Collect payments if needed by making calls from the practice or using a collection agency.
Manage payables. Maximize your vendor payment terms. “It’s better to pay [bills] later rather than sooner,” says Nance—as long as you don’t pay them late. For instance, if a vendor gives you 30 days to pay an invoice, pay it on day 25. “This gives you time to sell the product and get money, so the product pays for itself, and you don’t have to use excess cash,” she explains.
Manage inventory. Reduce your inventory to increase your available cash, suggests Nance. Make just one person responsible for ordering. Keep your pricing updated in your practice software. Price-shop when possible, but beware of “discount” bulk purchases of products that won’t be sold quickly.
Strike the right balance. Every practice has a “happy medium” of operating cash to have on hand. “You want to have enough cash to cover the unexpected, but not too much money sitting in the bank where you miss opportunities for reinvesting in your practice,” Nance says. Consider using an interest-bearing savings account for excess cash and a revolving line of credit that you can pay back on your terms. “With a line of credit, you can pull money when cash is needed for something unexpected and not tap a credit card or use cash earmarked for something else,” Nance says.
Measure cash. Keep your books current and analyze your cash monthly, Nance advises. “Reconcile daily or weekly by checking to see what hit your bank account and compare that with what’s in your accounting software, so you know what’s outstanding,” she says. “Cash is a moving target. When you’re measuring it, you can manage it.”
Develop cash forecasts. Predict your cash needs in advance based on seasonal or cyclical patterns and trends. “Forecasting may be the most important part of your business plan, regardless of the life stage of your practice,” Nance says. If you’re in an exit strategy, forecasting will help you build practice value and plan for retirement. If you’re just starting out, it will help you grow at an appropriate rate. Keep two to three months’ worth of cash on hand for fixed costs, Nance recommends. That way if something happens, you will be able to get by for a short period of time.