The Five Levers of Cash Flow
Hello, everyone, and welcome to the Brand Your Practice podcast where you get to learn about marketing, growing, and scaling your private practice. I'm Brent Stutzman. And today, we're gonna be talking about the 5 levers of cash flow. But before we get into the episode, I want all group practice owners out there listening and those who might be on the verge of starting a group practice know about the Group Practice Scaling Summit, and I'm hosting on April 23 & 24 in beautiful Oak Park, Illinois. It's a day and a half where you get to grow your business owner skills.
Brent:We're talking about how to hire amazing team members, how to fire team members, and what metrics you need to track on a dashboard to make sure your business is healthy and profitable, and so that you don't have any blind spots. And there's gonna be more things we're gonna be talking about at this summit as well. So think of this summit as a series of mini TED Talks, but you can ask all the questions you want to the speaker and learn from the wisdom of the group. We think community is important in the learning process, which is why we're limiting to only 50 attendees. If you need to level up your level up yourself as a business owner and grow as a leader, the group practice scaling summit is for you.
Brent:Go to brandyourpractice.com/summit and sign up today, and tickets are going fast. And there will also be a link in the show notes below. Alright. Let's get back to today's topic, the 5 levers of cash flow. And to help me do this is, Nate Hendricks, the owner of Navigator Bookkeeping, a bookkeeping services, service that specializes in working with mental health professionals in their private practices.
Brent:He's also a speaker and the cohost of the group practice summit this year. Welcome to the show, Nate.
Nate:Thanks, Brent. Happy to be here.
Brent:Alright. So let's jump in. We're gonna have you have 5 levers that you can pull to, we're just we're talking about cash flow, which is pretty important. So I'm gonna hand it over to you.
Nate:Sure. Yep. Yeah. So this is cash flow is one of the things that we talk to practice owners about quite a bit. Cash flow is probably the, you know, most stressful, but also one of the most destructive or productive pieces of your practice when you're thinking about it.
Nate:Most practices that struggle and and eventually, either thrive or don't thrive do that because of their cash flow. So so, yeah, it's an important task. It takes a lot of our mind space when we're running a business. So we're gonna talk about 5 levers you can pull as a business center to to improve your cash flow. Because I think sometimes one of the things one of the myths that practice centers might feel is the business kinda running them instead of them running the business.
Nate:Right? So I like to think of it as to make sure you realize you're kind of in that control center, pulling those levers, making the choices to get the business in a place that, is gonna be in a in a good positive place and gonna have some positive cash flow. So how I kind of think about this, and this is just a quick example, is there's a really good soccer team, which, Brent, I know you're aware of, called Barcelona. Right? If you're not a soccer fan, this is where they're they're one of the most famous soccer teams, but they have tons of cash flow issues.
Nate:They're one of the biggest teams. They're valued at billions and billions of dollars. They can get any player they want, but they have huge cash flow issues. So I like this example for a couple reasons. Number 1, it shows us that cash flow is not just a problem for small businesses or small organizations.
Nate:You get as big as you want, it still can be an issue, and Barcelona is a perfect example. They're giant. They still have huge cash flow issues. But last year, they're going through these big cash flow issues, and their president kept talking about we're gonna pull these levers to get our cash flow in the right spot. And those levers were, like, you know, selling certain players, selling off TV rights, things like that.
Nate:But I really liked that because it's like, wow. That's that's a great thought for practice owners to remember that even though you're not running a giant billion dollar multiple billion dollar football team, you still have levers you can pull in the same way to get your cash flow to a good spot. So we're gonna talk about those 5 levers and and what you can start doing. And we're gonna kinda go through those levers from easiest to most difficult or in some ways less urgent to most urgent. So the first lever is just building savings, and this one is probably the one you've heard about the most.
Nate:But this is the one that if you do this proactively, you're gonna have the least cash flow issues. So usually, we're telling practice owners try to save up somewhere between 3 to 6 months of your expenses, including payroll, save that in a high yield savings account. There's really nice interest rates right now, 3 to 5%, and just let that money just sit there, grow, and just don't touch it. Just have it be there. And what's gonna happen is then when, you know, July rolls around, which is that kind of historically bad month for private practice, you have cash sitting there ready to go.
Nate:You can just move it over to your operating account, and it can alleviate those cash flow issues. Now this is the easiest to do in some ways because you can just slowly do it over time, but you also need to not be in a cash flow emergency when you're doing this. Right? This is something you have to do kind of ahead of time. So when you're in kind of the thick of it, cash cash flow is tough.
Nate:You're feel like everything is burning. This is really not gonna be your lever to pull, but this is the lever to pull kind of from the beginning of your business or if things are in an okay place. Just start shutting some money settling some money aside. Even if it's $500 a month, $200 a month, still gonna be good. Right.
Nate:It's gonna take a long time to do, but it's gonna be the easiest and and most profitable option.
Brent:Yeah. And, you know, this is something that, you know, we talk about profit first a lot and that system. And you not just have a savings account for your, you know, kind of emergency savings if you want, but you also have one for your taxes, which is also a cash flow situation. If you're not saving for taxes, there's a good chance you you might be writing a pretty big check, and you're gonna have a cash flow issue. I'll say one other thing that could be helpful for the listeners is, and you actually turned me on this, Nate, is that most business accounts, savings accounts, you're thinking about Chase, like the big banks, the big brick and mortar ones.
Brent:They don't have the best, savings yield, like percentages. I still think I get maybe less than 1% on my savings. But you talked about because you are you're a QuickBooks advisor, pro advisor. And you said that QuickBooks has, like, an account, like a savings account kind of built in through that's a high yield account, right?
Nate:Yeah. It's 5% right now. There's a lot of people moving to that. It's, you know, it's a little bit of a clunky account, to be honest, but for savings, it's perfect. It's all virtual, and you can put as much money in there into different envelopes.
Nate:You can have different purposes for it, you know, tax savings, profit, emergency savings, 5% on all of those. So Yeah. If you have a large practice and you're saving a lot of money, you can get 5% on all that. It's it's great. Just some nice additional income just to build that savings a little faster.
Nate:So yeah. But, yeah, the profit first tie in is is key. I don't you know, we won't dive into that here, but that's a great way to force you to save and to manage your cash. So that definitely ties into it as well as far as helping you save and forcing you save in some ways. Mhmm.
Nate:But, yeah, that those tax savings, like you said, are are probably one of the biggest issues that we see practice owners run into is that tax bill comes up every March slash April, and all of a sudden, cash flow is a huge issue because you have this big tax bill, and, that's a whole another problem. So if you can have a tax savings, emergency savings, that's gonna alleviate pretty much all those cash flow issues for the most part. But, again, you have to be pretty proactive on that first lever.
Brent:Yeah. Little bit every month goes a long way.
Nate:Mhmm. Yep. Yep. Just start somewhere is what I always tell people for sure. So let's say, you know, didn't have time to build up as much savings or used up your savings, so now we're needing to pull another lever. Right?
Nate:So we're in lever 2. And this is a lever that you're gonna pull if cash flow is starting to get tight. If you're starting to kind of feel that squeeze where you start going to bed and worrying a little bit, right, feeling that. So this lever is basically increasing capacity, and or cutting expenses. So basically increasing revenue, decreasing expenses.
Nate:Pretty simple. Sounds easy, and it can be. Of these 2, cutting expenses is probably gonna be easier in some ways because you can just go in, look at your, profit and loss in QuickBooks or your accounting software, and just find things that you don't need anymore. Oftentimes, we all have subscriptions that we paid for once that we're no longer using or we can downgrade. Maybe there's, you know, a software that we're using that there's a cheaper option out there that we can change to.
Nate:So what I always advise people is just go into your profit and loss in every, you know, 6 months, twice a year, check out your expenses to see, is there anything I can cut here that I don't need? Now this isn't gonna be like an immediate huge savings most of the time. I mean, if you're changing, like, your EHR, that could be a large savings depending on, you know, which one you're with. But usually, it's gonna be relatively small, you know, $50, $100 a month, but it it adds up real fast. So that's a good thing just to do kind of proactively as well.
Nate:But if you're needing cash right now, the capacity part is a great way to to get some more revenue in fast. Now we work with a lot of owners who are trying to get themselves out of the clinical work, which is great so they have time to work on the business. But sometimes if you need some quick cash, one way one thing you can do is the owner can come back in and start taking some more sessions. So maybe they're doing 3 or 4 a week, bump that up to 10 to 12. Now that's gonna feel to the owner like a huge change and it will be a huge change, but that money coming in is almost pure profit.
Nate:Right? Because the owner is gonna be paying themselves the same amount. Nothing is changing expense wise, but all of a sudden, there's 10 more sessions that weren't there before, and that's 100 of dollars. Right? So that's a real easy way where the owner is just trading time for money.
Nate:So in short term, it's a great thing to do. It's not super sustainable. You don't wanna do it for years on end, but, it will help. And in the same way, you know, you can do that with your team. You can add in a new bonus structure to see if your team can bump up their capacity.
Nate:That might be adding in a short term incentive of extra dollars per hour or a flat fee after you hit a certain number of sessions just to try to get the team to bump up that capacity. And, again, you might be having less profit margin on those new sessions coming in, but they're new they are still new sessions coming in and new revenue coming in that wouldn't have been there before. So I really like that. I had an owner who was giving, like, a, $4 per hour bonus for evening and weekend sessions. So that was a great idea.
Nate:Because he's like, this this these spaces aren't gonna be filled up anyways. So even if I have a less less of a margin on these sessions, there's still money coming in. Even if it's at, you know, a 40% margin instead of a 50% margin, it's still 40% that I wasn't gonna get otherwise. So I thought that's a great way of thinking about it.
Brent:Yeah. That reminds me. You know, so we call that, like, dynamic pricing a little bit. So, you know, it could be a little bit of a nightmare to track, but it could be also worth it to track, you know, how you actually keep track of those. Because, like, for example, I know movie theaters, they're now starting to roll out dynamic pricing where, you know, you'll pay $25 for a 7 o'clock evening ticket, but they will also sell the same movie for $8 a ticket at 11 o'clock in the morning matinee.
Brent:You know? So and it will also fluctuate with how many people. So, like, dynamic pricing could also be, you know, I'm filling up. Right? This the movie theater is filling up.
Brent:And so let's say it's 50% capacity. The ticket prices will go up at 75%. Ticket prices will go up even more. So, so incentivizes you to get it to get it early. But, but that's not a bad idea.
Brent:I like that. The, clinician gets a little bit more for working a little bit later on, like, a Saturday morning or something like that.
Nate:Exactly. And I love that about private practice is that the pricing and the compensation can be so flexible. So if you wanna get creative with things like this, like you said, Brent, sometimes the admin side of it becomes a nightmare where you're like, man, we're tracking 7 different systems and this is crazy. But also if it can incentivize your clinicians to have to open up some capacity because they're gonna make a a higher margin, you know, that's great.
Nate:Let's do it.
Brent:Well, there's there's this other thing where, along the same veins is, you know, a lot of clinicians, practice owners, you know, they have a hard time filling up daytime appointments. So there could be an you could incentivize where you actually charge less, like, a little bit less, however you want per appointment for that 1 PM slot, right? That most people will not take. But you want to incentivize the market to be able to take that because you want to be able to fill that time for your clinicians because they're not working that time. So Mhmm.
Brent:That could be another way to kinda help increase your cash flow as well.
Nate:Right. Yeah. But filling up the capacity either way is gonna be just a huge change cash flow wise because your expenses are staying about the same. The clinician's gonna be paying for themselves cost wise. All your other fixed costs are staying the same, but you're seeing more revenue coming in.
Nate:So this lever to me is probably the most powerful out of all of these. I mean, the first one probably, but the second one is is the most dynamic where if you see that capacity change, you'll see your cash flow change within a month or within 2 months. This is gonna be the fastest change. So this one's super powerful and, a a really good one to consider. Love it.
Nate:So we're moving on from those first two levers. Lever 3, we're getting to the point of, okay, We've tried lever 1, lever 2. Maybe it's not changing as fast, and we're running out of cash. What do we do? So this is where we start bringing in, debt.
Nate:Right? Now debt has a lot of connotations and and rightfully so in a lot of ways, but sometimes it is nice to have some sort of debt on hand to cover short term cash. So this could be a line of credit, and I usually recommend people to get a line of credit before they need it. Right? So just have it ready to go.
Nate:Just have it sitting there so that if you hit a low month, that line of credit can be drawn on. Of course, with as with all debt, it's a slippery slope, so you need to have some accountability with that. Be really careful about taking on more and more debt because we do see practices that get kind of just locked down in debt, and it's really hard to get out of that. So, obviously, you always wanna only take on debt if you really have to as kind of a last resort. But, you know, usually having a line of credit and drawing on that is better than closing the business.
Nate:Right? So it the you can use it successfully. You just probably need some help, some consultation just to kinda talk through it, make sure you have a plan to pay it back down, make sure it's a short term solution. But lines of credit are great, great to apply for one of those before you need it so there's not kind of a rush of getting through that. And then you have traditional loans as well.
Nate:Traditional loans, you know, are gonna be a little bit, usually a lot larger as far as the amount of the loan. So you might be just be sitting on it for a while, but the interest rate is usually gonna be lower than a line of credit. But that's another option. We had, you know, during COVID all those EIDL loans, which a lot of business owners are still kind of sitting on. So a lot of people have kind of a lot of debt just sitting there still from those big EIDL loans.
Nate:So, again, I don't love this, but it's always a good one to go to if you are kind of in that place where you're like, man, we are down to, you know, $500 in our operating account. We need some cash coming in. So as long as it doesn't become a reoccurring theme of, more debt, more debt, more debt, it can work as long as it's more of a one time solution here and there. Yep. So lever 4, this is an interesting one, is thinking about your collections and your receivables process.
Nate:So we had a practice owner who was looking at their their numbers, and they just consistently were thinking, this doesn't seem right. Right? We're we're we should be seeing more revenue coming in with the amount of clinicians, the amount of appointments we're doing just doesn't seem right. They eventually kind of traced it back to their biller. Their biller was not super experienced and was just missing a whole ton of claims.
Nate:And there's all this money just sitting there that was misbilled, wasn't billed, wasn't followed up on. There's people who who are supposed to be private pay, who hadn't paid, who weren't being collected on, all this stuff. And there was there was tens of 1,000 of dollars there, maybe more. And this is an interesting one. Right?
Nate:Thinking Thinking about your billing process, thinking about your collections process, how efficient is it? Who's tracking this? Is there any accountability here? Is there just any low hanging fruit we can collect on? Are there any private pay patients who just forgot to pay or just never were checked in on?
Nate:Right? So this is one of one where you might have to dive into your admin process a little bit, but it's a great one even if you're not starting with cash flow, just to look into is how efficient are we being here, how is our process, and what does this all look like? You know, this changes drastically whether you have an external biller or an internal biller. If you're working with kind of one of those other companies who you have kind of like a a whole kind of, corporate system or if it's just someone in your actual practice. But this is a great one to dive into and see, is there money we can collect on quickly?
Nate:And then longer term, is our process efficient enough to get money into the door quickly? Right? Because none of us wanna be waiting around for claims to be coming in, for deposits to be hitting, and that's a whole process. So, yeah, this has a lot of nuance with it, but it's a great one to take some time to look into.
Brent:Yeah. It's really important because you need to have something in your policy where you're like, we're gonna submit claims either at the end of day, 5 o'clock every day, or by 12 o'clock on Thursdays, whatever. And then when you're going to charge credit cards, things like that, like, just having a system in place. And then how are you gonna depending on, you know, are your clinicians hitting the charge button, in your EHR or is there a biller? And when are they expected to do that?
Brent:You know, there's, like, all these things. And you're right. There's probably a lot of money just sitting around that you don't know is actually there for you. So to have a clear process and policy in place of when you're gonna be charging, hitting the buttons, collecting that money is gonna be really important.
Nate:Yeah. And I mean, it's it's about the lowest hanging fruit you can have because it's it's work you've already done. Right? It's money you've already earned, and it's just sitting there and just not being reached out on. So
Brent:The insurance company is just holding your money hostage. You know? You gotta you gotta you gotta set it free.
Nate:Right. And and we'd all love to, you know, think that they'll do their job and just send it to you super fast, but that's not usually how it happens. So this is one where you just have to put the time in just to make sure you are receiving what you should be receiving. We had another client where the bank was just holding up their funds, just not sending them through because of some security issue. And if they hadn't checked in, that money was just gonna keep sitting there. So sometimes you just have to look into it because crazy things like that happen.
Nate:So just make sure you're receiving what you should be receiving. Alright. So lever 5. And, to go back to, to the Barcelona example, this is one that they are gonna have to pull right now in the summer. So this is this is what I call the brake glass in in case of emergencies lever.
Nate:Right? So this is where you've tried all the other levers. It's it's a really bad situation. Right? There's no other solutions to you, and this is where we just have to do something just to keep the business alive, just to make payroll.
Nate:So this can be a couple things. This could be, getting a really high interest loan. There's a couple of companies out there that just sell you. I mean, it feels criminal levels of interest, like 40 to 50% interest loans, but those are available for you. If you if you can't get a loan anywhere else, those are still there.
Nate:They will lend to pretty much anyone. Again, super hard to get out of those because the interest is so high, but we've had clients that have done it and have got it coming on the other side in a better place. So they are available. I pretty much would never encourage you to do that unless it was really like it's this or the business is is done. Right?
Nate:So, that that's one thing to consider. A personal loan from a a family member or a friend is another option. You don't wanna mess with those relationships. Yep. But always always when you could look into.
Nate:And then the last one is selling things, and this is where I brought up Barcelona. Barcelona as a team is in a place where they have to sell a lot of their best players this summer because they don't have any cash. They're they're over the limit. And you may just have to sell things. Right?
Nate:Whether that's furniture, whether that's downsizing your office, whether that's personal items. At some point, you may need to just like, hey. Can we can we downsize here to get a little leaner, to get a smaller space, cut our costs, and really try to get into a small space as much as possible? So none of these are gonna be fun. These are all gonna be probably pretty painful and probably have consequences down the line, especially like these high interest loans.
Nate:You're gonna feel that for for months, even years, potentially, as you get out of that and pay just terrible interest. But, again, there's people that do it and can get out on the other side. You just probably gonna wanna plan on some accountability to make sure that it's not gonna keep happening and just kind of keep growing because the way they market these high interest loans makes them seem really appealing. But if you look at the conditions in the terms, you know, they're they're pretty pretty intense. So Yeah.
Nate:It can be an option, but again, break glass in case of emergencies. Don't do this unless you have to, and that would be the 5th lever.
Brent:Yeah. The other one is again yeah. It's like the most painful one too. The other one is you might need to renegotiate your contracts with your clinicians if you're a good practice. So, you know, I know I know practice owners out there, you are kind and giving and and goodwill people.
Brent:But sometimes you are, it's to a fault where you give too much away to your clinicians and you don't leave enough for you able to run your business. And so you kinda just you don't, pay yourself enough. You don't save enough. And so it might be time to relook at those contracts to see if, you know, is this really working for my business? Now those are the hardest conversations to have.
Brent:But for the sake of your own livelihood, Because if you if you can't if you can't run a business, then you you won't be able to provide for those who are working for you and for your own family. So, and it's okay. It's okay to renegotiate and be like, you know, this just isn't working for me. It's not working for the business, and something has to change. And so I wanna work with you to renegotiate the contract.
Brent:So, anyways, that was my kind of final word. So those are the 5, levers. Those are really helpful, Nate. And so thank you for joining me today, Nate, on this. And if you need to level up your business on your as a business owner, if you need to level up some of these business skills and even the financial skills that we talked about today, consider the group practice scaling summit.
Brent:Nate's topic at the summit is going to be the financial numbers practice owners need to measure to stay profitable. The topic I'll be speaking on are 3 essential dashboard metrics every group practice owner needs to scale. We have another, group practice owner in the area. She's gonna be speaking on, how to, like, creating a team culture that retains clinicians and grows your brand. So everything a lot of topics around growing and scaling your private practice.
Brent:So go to brandyourpractice.com/summit or just Google Group Practice Scaling Summit and then sign up today. Like I said before, tickets are going fast. So, Nate, how can people get more in touch with you and find out more about you?
Nate:Yeah. Well, I mean, come to the group practice scaling summit, and we'll we'll chat in person. That that'd be the best way. But, yeah, you can check out our website. It's navigatorbookkeeping.us and check us out on there.
Nate:We have a YouTube channel, which is all about private practice finance. So if you like some YouTube, you know, we're not as engaging as some things on YouTube, but we'll we'll talk about Profit First. We'll talk about, private practice, you know, profitability, clinician profitability, fun things on that. So check us out on YouTube as well. You can just search Navigator Bookkeeping.
Nate:You'll find us on there. And that's a that's a great place to go as well.
Brent:Awesome. Great. Well, hey, just to remind everyone, all the content on the Branch of Practice website, podcasts, and other media reflects my own opinions and should not be taken as legal advice, financial advice, and investment advice. Please seek out the guidance of professionally trained and licensed individuals before making any of these decisions. Some links in the descriptions may be affiliate links.
Brent:Alright, folks. Thanks for listening. If you found the conversation useful and helpful, please share it, subscribe to the podcast, and join me again at the Group Practice Scaling Summit and also at the Brand Your Practice podcast. Thank you. We'll see you next time.
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