Three reasons why you need to keep an eye on your cashflow.
We tend to remember only a few things from each subject at university. In my accounting degree it was ‘Cash is King” and I will never forget it. It seems obvious but what happens when you and your staff are on holidays, there is no cash coming in, you still need to pay their wages and your rent. Just because you're on holiday doesn’t mean your expenses are. Here are the top three reasons why you need to be on top of your cashflow:
Avoiding Insolvency
Running a healthcare business while knowingly unable to pay bills when they fall due could put you in serious trouble. It is illegal to trade while insolvent, and this is particularly crucial in the healthcare sector where delays in payments or unexpected expenses can arise. For instance, what happens when your allied health practice fails to keep track of its expenses. Without proper monitoring, you might overlook important payments such as superannuation obligations or income tax bills. Did you know that once you are withholding more than $25,000 (annually) of employees PAYG tax contribution, you need to pay the tax office monthly instalments and not quarterly. This is likely to affect you if you have more than two full time employees including yourself. How would that impact you bill payments?
Better Decision Making
Inadequate access to cash or capital could put you under immense pressure, often leading to suboptimal decisions. For example, say a staff member proposes attending a professional development workshop that has early bird pricing. If you haven’t budgeted for such an expense or you lack immediate access to cash, you might be inclined to decline the opportunity, potentially hindering staff growth and morale. Such decisions, driven by financial constraints, can ultimately lead to increased costs and hinder the overall efficiency of your practice.
Impact on Staff and Supplier Relationships
Delayed payments not only strain relationships with suppliers but also with staff. In the healthcare industry, maintaining trust and reliability is paramount. Late payments to suppliers can damage trust levels and strain future negotiations as well as impacting staff retention. If you're late paying a supplier their trust in you will decrease and they are unlikely to extend payment terms with you next time. Think about this in reverse when a client doesn’t pay you on time, what goes through your mind, will you be emphatic towards them next time or are your thinking they are too hard to service as you spent the last two months tracking down payment. Not paying your staff on time is one of the biggest sins you can make as well as incurring possible legal action. As a staff member when you are not paid on time all sorts of concerns go through your mind, is the business failing? should I look for another job?
To address these challenges, it is essential to establish a robust cash flow budget and the process becomes indispensable if not addictive! Watch out for my next post on how to set up a cashflow budget. If you need help in the meantime, use this coupon code to book in a two hour ‘all you need budgeting session’. The online face to face session will also provide valuable industry insights into whether you estimates of expenses are too high and low.