Effective cash management is what sets your business up for long-term success. It builds efficiency, identifies weak areas and maximizes profitability. As a naturopathic doctor, it’s important you understand the basic elements of cash management.
To do that you need to know what cash flow is and how your cash flow statement is different from your income statement.
What is Positive Cash Flow?
Cash flow simply refers to the money coming in and going out of your naturopathic practice. It gives you a good idea of how financially stable your business is.
If your practice is financially healthy you will have positive cash flow. This is what will help you pay off debts, cover operating expenses and reinvest back in your business.
How to Read a Cash Flow Statement
Here is an example of a cash flow statement:
There are three main parts to a cash flow statement: operations, investing and financing.
Your operations include the money you made from your clients, interest, tax and inventory. The investing section is about the money you put into the growth of your business. It includes equipment or software costs. Finally, financing refers to money borrowed from banks or lenders.
It’s important to remember that your cash flow statement is different from the income statement and balance sheet.
Your income statement (also known as the Profit and Loss statement) helps investors gauge your business growth and decide if it’s a profitable venture. It’s a detailed look at your gross revenue and what you spend that money on.
The balance sheet is a lot more broad. It’s a look at what’s making you money and the amount you owe other parties.
The 3 Basic Elements of Cash Management
You probably have some form of cash management already. But if you’re reading this, it’s because you need a better one. Your naturopathic practice should be making more profit.
Here are three basic elements of cash management and how you can use them to create a healthier business.
Evaluation
The first step to managing your income is evaluating how much of it you spend.
Get real with your numbers. Find out if you’re making enough money to cover expenses. If you’re not bringing in enough revenue you need to attract more business. To become more profitable you need to be more efficient.
One of the biggest issues small business owners face is when their revenue continues to grow but their profit doesn’t.
Bringing in more business will increase your top line. But unless you also tighten up your financial strategy, you won’t grow your bottom line.
Now look at the items in your inventory. Are you overspending? More importantly, why did you buy each piece of equipment in the first place? Everything you spend money on should bring value to your naturopathic practice.
Even if it does bring value, see if you can find a more affordable alternative. If it doesn’t, then it’s not in your best interest to keep it.
The same can be said of your staff. They can either be the best part of your business or the worst. Employees that don’t meet company values or aren’t performing well can eventually hurt your business.
The evaluation stage isn’t a one-time thing. You need to review your cashflow at regular intervals. It’s similar to how you treat your patients. You don’t meet with them, diagnose them and then send them off. The journey to a state of complete health is a process. The same is true of your cash management.
Flexibility
The next crucial element to effective cash management is building flexibility. Almost every company has interest, debt and taxes. There needs to be a better way to make those payments.
Here is an easy-to-follow strategy to help you destroy your debt.
Establishing financial flexibility is the secret to paying off your debt quicker. Be intentional about putting money aside.
This includes an emergency fund. You need to factor in margin for error. If business is slow, you need enough money saved that you can operate as normal.
An emergency fund also helps make your business agile. In 2020, the world was forced to deal with a deadly pandemic. A lot of businesses were forced to pivot or close down. Those who had savings were able to withstand the economic effects. Some even managed to flourish.
Having extra cash saved allows you more personal freedom as well. You could take a month off of work to spend time with your family without worrying about your business.
Growth
The final element of cash management is growth. This is the top of the cash management pyramid for a reason.
Once you’ve evaluated your business, established your goals and built in flexibility —- the next step is ensuring you have multiple avenues of cash generation.
What are you doing to create more money beyond the obvious service-for-cash exchange? Even more importantly, what’s your plan for recurring cash? Your practice needs a predictable and steady flow of income.
There are multiple strategies you should consider.
Start by monitoring your patient visits. Identify your best clients. Figure out who your target audience is. And nurture those client relationships. The single most effective way to grow your business is a client referral.
Then create a plan for instant cash. To do that you’ll need an email list. This is basically a digital community that you can reach out to any time you need a jump-start.
The best way to do that is by building a brand. Start engaging with your patients on social media, email campaigns and especially through your website. You can learn more about this in the book Marketing Made Simple by Don Miller.
The goal here is to store up at least one month of revenue from cash creation.
Summary
Cash management can be complicated. But using these simple strategies will give you a strong foundation to build upon.
For a more comprehensive plan, give Every Single Bean a call.
We’ve helped dozens of naturopathic doctors from across the country become instantly profitable. Our approach to cash management helps you get paid what you truly deserve and find more confidence in your practice.