What is the number one way to prevent failure in business? 
Take a minute to really think about your answer. What comes to 
mind? Increasing patients or customers served? … Effective 
marketing? … Location, location, location? … Improving patient 
or customer care? … Being the best in your industry?  

       Although these are all essential aspects of business, the 
answer isn't any of the above. The number one way to prevent 
business failure is to properly manage your working capital.   

       To ensure that we're all on the same page, working 
capital is simply defined as the difference between your current 
assets and current liabilities. If this figure is positive, you 
have working capital available. This working capital may exist 
as inventory, accounts receivable, or cash on hand.  

       Working capital management is a critical management issue 
for growing businesses or medical practices. Take the example of 
a growing doctor's office: As expenses rise with patient-load 
increases, you accrue more outstanding cash, particularly before 
receiving reimbursement from the health insurance payors. At 
this point, your incoming cash does not nearly offset your costs 
going out. This may be manageable while you work with payments 
for past services; however, eventually the time lag may become 
a significant stress-point for your business.  

       By adopting a few working capital management strategies, 
you can make your assets work for you, without becoming beholden 
to banks.  



Strategy #1: Get Paid Now 

       Let's take a look at the most obvious area: accounts 
receivable. What do your receivables do for you when they are 
not being paid? While your profit margins may look stellar if 
you have a lot of orders, you have essentially loaned all of 
your clients the amounts of your invoices-until they decide to 
pay you. Doctors, in particular, know the pain of this situation. 
Insurance payors are particularly adept at prolonging the time 
for payment; they realize that the longer they take to pay, the 
greater their profit margins.  

       Is this just another cost of doing business? Well, not 
necessarily. Eighty percent of small business owners, medical 
practitioners, and small hospitals are completely unaware of a 
resource Fortune 500 companies have used for decades: accounts 
receivable funding.  

       Banks often measure accounts receivable at as low as 50 
percent of their overall value as collateral for a traditional 
loan. In accounts receivable funding, however, accounts 
receivable are calculated at full value. Plus, you accrue no 
debt for this financing, as you essentially sell your accounts 
receivable for payment against the full value.  

       Perhaps the idea of selling your revenue stream makes you 
nervous. But consider this: You usually receive 80 percent of 
the entire amount of the invoice within one or two days-at least 
28 to 118 days sooner than usual. This cash injection allows you 
to make capital improvements for your business to generate more 
revenue, leverage the cash for discounts on your inventory, 
cover operating costs, or provide bonuses to your employees, 
for instance.  

       As your invoices are paid, your funder will repay the 
other 20 percent, minus the negotiated fee (average four to five 
percent of the invoiced amount). Don't get hung up on the "cost" 
of the funding. With proper management of those funds, you will 
more than make up for fees by the investments made in your 
business. Your day-to-day business costs may stay the same, but 
the tremendous increase in incoming cash will enable you to rest 
easy.  


       Homework: Review your accounts receivable aging report.  
Note the average payment time from one of your best clients or 
insurance payors. Assuming payment of 80 percent of the invoice 
value in 48 hours, make a list of ways to use that money for 
your business:  

 · Cash discounts on inventory (estimate in dollar amounts).  
 · Buying or leasing new equipment (anticipated return in 
   additional sales).  
 · New marketing campaign (anticipated additional revenue).  

After you total the increased income generated by implementing 
this strategy, you can easily see the real benefit.  



Strategy #2: Shorten Your Operating Cycle

       Your operating cycle starts when you take cash out of 
your account to begin work for a client, and ends the day the 
client pays you. If you complete a project on Tuesday, for 
instance, but do not invoice until the following Friday-or even 
the end of the month-you lose days of income. Since you need the 
cash in your account-not just in your profit margins-you must 
minimize the time between service rendered and service invoiced.  


       Homework: Review how long you usually take to invoice a 
client. If that period of time exceeds a week, have your staff 
shorten that time. This adjustment will decrease the payment 
time by as much as 25 percent.  



Strategy #3: Collect Past Due Accounts

       Do you have a significant number of invoices out more 
than 60 days?  If so, is your staff doing anything to shorten 
this timeframe? Call the clients whose invoices have been out 30 
days and inquire about the invoice. Devoting a few hours a week 
to completing this task is money well spent if it ensures that 
even half of your outstanding invoices are paid a couple of 
weeks earlier.  

       Some delays in the healthcare industry, for example, 
are intentional. Prolonging the turnaround for payment controls 
costs. In these cases, you don't have any recourse. As any doctor
can tell you, calling the insurance company to inquire about a 
claim can be a fruitless task.  


       Homework: Review your collections procedures and tighten 
up your ship, if needed. Assign one person to follow up on 
invoices outstanding for more than 30 days. Realize, though, 
that collections results fluctuate with your clients' priorities.
Don't count on this as your only means of improving your cash 
flow.  



Strategy #4: Turn Existing Equipment Into Cash

       As we know, keeping current with technology improvements
are constant and necessary to remain competitive. Leasing is a 
way to stay up-to-date without incurring the charges of 
frequently buying new equipment.  

       But have you ever considered leasing equipment that you 
already own? One option is selling your equipment to a leasing 
company, and leasing it back from them. This way, you generate 
some cash for your business. You will, of course, incur the lease 
payments.  

       Homework: Take stock of what you own. If you need capital, 
contact a few leasing companies and gauge their interest in 
purchasing equipment for you to lease back. Alternatively, a 
Certified Cash Flow Consultant will shop for you. Since they 
are independent consultants paid by the leasing companies, you 
will avoid any additional charges.



Strategy #5: When In Doubt, Outsource

       Outsourcing certain support areas of your business, in 
which you are not an expert, is an excellent way to reduce 
payroll and insurance costs. You will spend a higher dollar per 
hour for importing experts, but the reduced costs (no health or 
workers' compensation insurance) usually compensate for the cost 
variance.  

       Be sure to hire these experts with as much diligence as 
you would any in-house employee. As you'll typically retain this 
type of assistance through specialty staffing houses, interview 
the individuals to be assigned. As integral members of your 
team, they must be as reliable as any employee on your payroll.   


       Homework: Contact area firms that provide the kind of 
staffing you need. Compare the cost of those contracts against 
the cost of keeping these staff on payroll. Be careful: 
Consultants can get expensive, so be sure to build cost controls 
(i.e., fixed fee for a weekly basis or hourly with a "not to 
exceed" clause) into your contract. Be clear on their scope 
of work, to whom they report, and how you define satisfactory 
performance. In addition, you must directly approve any staff 
changes.



Strategy #6: Inventory When You Need It

       Inventory that sits in the warehouse, not being sold for 
income, eats away at your available cash flow. It is an asset, 
sure, but it should not become a liability because it is not 
quickly converted to cash. Over-ordering of inventory gets many 
businesses into trouble.  

       Review your inventory forecast all the time, and be 
aggressive. Know your options in times when you have shortfalls. 
Fulfilling customer orders on time is a number one priority, so 
don't take unnecessary risks. If you simply hoard inventory to 
offset any chance of being caught off-guard, you lose the 
potential profits made by managing it more aggressively.


       Homework: Review your current and projected inventory 
for the coming months. Do you need to make changes, or is it 
all under control? Make any necessary calls to your suppliers 
to negotiate better terms or better understand their supply 
controls.



Make Your Working Capital Work for You

       Working capital management is a key element to business 
success and the number one way to prevent business failure. By 
implementing strategies such as accounts receivable funding, 
outsourcing, or inventory management, your business can optimize 
the return on assets it already possesses. Your company will then
be well positioned to handle future growth or economic downturns.    


  "Reprinted from Create the Business Breakthrough You Want: 
  Secrets and Strategies from the World's Greatest Mentors 
  © 2004 Mission Publishing, a division of The Mission Marketing 
  Mentors, Inc., http://www.missionpublishing.net, or 
  http://www.missionmarketingmentors.com."