Today I want to talk about cash and cash flow. It doesn't matter how much money you make; what's important is how much you keep after paying all your monthly expenses.
Many podiatry businesses struggle in their first few years because they've entered their business venture full of enthusiasm and wearing rose-coloured glasses, but when the dust settles after all the excitement, they realise there are a lot of expenses attached to running a podiatry business properly.
Worst case scenario, they start to run out of money before they run out of month because the money going out is far exceeding the money coming in.
Having a negative cash flow cannot be sustained long-term.
Were They Dumb?
I personally know a couple who spent over $200,000 to set up their podiatry business on the Sunshine Coast, and they went broke within 12 months.
Was it because they were dumb? Well, the jury is still out on that, but from the outset, this is what I observed.
- They began their business venture with limited capital and therefore borrowed too much money, resulting in larger than normal monthly repayments, which immediately ate into their monthly cash flow.
- They purchased equipment they did not need. There was no delayed gratification, they wanted everything from day one.
- They made purchases for their home and added them to the business repayments. That was really dumb.
- They gave out a lot of accounts and didn't chase them up.
- They also gave discounts unnecessarily.
- They took financial advice from unqualified family and friends.
Right from day one, they were trading with insufficient capital, and their cash in was far less than their cash out, which caused them a lot of stress, and lead to dumb and dumber decisions.
Starting a business this way is ridiculous.
Established Businesses
I'd like to point out that running out of money before running out of month is not just a problem for new podiatry businesses, it can also happen to establish podiatry businesses if they do not pay attention to their cash flow and monthly expenditure.
I recall talking with an insolvency expert, and he said you'd be surprised how many highly intelligent health professionals declare bankruptcy. After watching the couple from the Sunshine Coast and seeing it first-hand, I knew he was not exaggerating.
Accounts
If your business gives out accounts, you need to have a strict account policy, and everyone needs to adhere to it, and if a patient is ever late with a payment, you should have processes in place to follow them up. And you should never give them additional credit, hoping they will pay.
When I had my podiatry business, I had a zero-account policy, the same policy as most grocery stores.
Yes, a few patients did complain, but after complaining they paid for their treatment in full and made their next appointment. When they returned for their next appointment, they never asked for an account a second time.
After 30-plus years, and tens of thousands of patients I had no bad debts.
If you're catching yourself saying, I COULDN'T DO THAT WITH MY PATIENTS, at least give it a go and see what happens.
It Is Possible
Every business should also work towards having enough cash in their bank account to cover all their expenses, including wages, for at least three months.
Less Stress
You may or may not agree with this three-month cash flow tactic, but lack of money is stressful, and stress affects your judgment and decision-making capabilities.
You want to build your podiatry business with a clear head, not a cloudy head concerned with paying next month's rent, wages and other expenses.
Good cash flow allows you to:
- Pay all your accounts on time, which suppliers love, and it builds trust. And if you do get in a financial pickle at some stage, your suppliers will help you where they can.
- Purchase in bulk and make significant savings.
- Save money on freight because you're ordering fewer times throughout the year.
- Build trust with your team. Your team sees everything, and nothing destroys confidence in a business more than ongoing phone calls and emails from creditors.
Wait 12-18 Months
So here's my warning: DO NOT OPEN your podiatry business if you don't have enough capital and the cash to sustain the business.
If money is tight, consider waiting another 12 to 18 months and do it properly because you also need to allow money for marketing, which will be crucial to your podiatry business's long-term success.
Many businesses do not allow for marketing in their budget, and when their cash flow is tight, marketing tends to be the first thing business owners want to cut, which is a huge mistake.
Today's Summary
- Cash is King
- Cash flow is also a King and you want to see your cash flow going upwards.
- If your business does give accounts, limit the payment terms, and get paid faster.
- Aim to have enough cash in your bank account to cover three months of expenses so you can think clearly.
- A good payment history with your suppliers builds trust.
- Don't rush into business ownership if you don't have the capital and cash flow to start correctly.
If you have any questions about this episode, please email me at tyson@podiatrylegends.com
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