At its simplest, cash flow management means delaying cash expenditures for as long as possible while encouraging those who owe you money to pay it as quickly as possible. Although it seems simple enough, managing cash flow can be an intricate and complicated process that greatly influences the success of your business. As the saying goes: “Revenue is vanity, cash flow is sanity, but cash is king.” While large inflows of revenue from sales are important for growth, managing your cash flow is essential for sustainability. Cash flow measures the day-to-day health of your company, and managing it properly means you have the cash you need, when you need it.
In the home care industry, it can be particularly difficult to manage your cash flow since providers bill in arrears. This form of billing is easy to track, but oftentimes, it is draining on your revenue since your employees get paid before you receive payment from clients or their insurance companies.
One way to secure consistent revenue is billing an initial deposit for services up front. This will ensure that you always have money on hand in between billing cycles. Another option is to charge a setup fee for starting services that covers your cost in staffing and the time to start providing care. It is wise to have an overview of your cash flow to make sure you don’t encounter periods when your costs are greater than your income. An accurate cash flow projection can warn you of trouble long before it strikes.
When calculating your cash flow projection, consider your company’s current standing. If your home care company is on shaky ground, only project cash flow into the next week. As your company becomes stronger, calculate a month to three months in advance. The key is to take it one step at a time. The balance between expenses and revenue is complex, however, when managed correctly, it opens the doors to immense growth and profitability.
To learn more about managing your cash flow, I invite you to register for our free CORE Webinar, “Managing by the Numbers“, on July 13th and 27th. Home Care Pulse Director of Operations, JC Weber will discuss ways to generate positive cash flow as well as how to improve operational efficiencies and create a strong client experience that will drive profitability.