Many business experts report that Lack of Funds is the #1 reason for small business failure. When I review many years of business, I have to concur that my biggest stresses have been when cash flow dried up. Nothing worse than having more “month than money” or not having enough cash to pay myself. I extremely dislike working and not getting paid. These types of incidents are commonplace in the life of a business owner and sometimes timing creates the shortfalls but after the business is established (let’s say a year), there should be enough funds to pay bills and yourself – as long as the business is being run properly.
One of the biggest causes of lack of funds is that the owner or manager is not carefully reviewing the numbers. You need to know how much revenue the business needs to generate each month or each quarter to cover expenses and then you develop a plan of how you will generate the revenue. I know most business owners have more than enough to do because they are seeing patients, managing employees, trying to run a business and more, but knowing how much the business needs to generate to be profitable and establishing prices that make that happen are ESSENTIAL for positive cash flow. In most cases that I have seen, the business owner doesn’t really know the cost of operating the business and they set their prices too low. Making changes to pricing without knowing costs is like jumping into a body of water without having any idea how deep it is. Very risky! It doesn’t matter how much revenue the business generates if there isn’t enough left at the end of the month to cover bills or to pay yourself.
If you are busy and only have time to track a couple things – have every professional track (what I call) their Help Rate. This ratio is determined by dividing the number of patients who purchased hearing aids by the total number of patients who were tested and needed hearing aids. Industry trends indicate that the typical Help Rate of a professional is less than 50%. Imagine what helping an additional 10-20% of patients improve their hearing will do for business, not to mention helping improve more patient’s quality of life. If you want an easy way to improve profitability, start tracking Help Rate and then commit to improving it. Most office management software makes it easy to track opportunities.
Another important number to track if you dispense hearing aids is Cost of Goods Sold. This number shouldn’t be based on what you feel is appropriate or what your competitors charge, it should be based on what on your costs and the cost of operating your business. Business metrics would suggest that cost of goods sold (and don’t include what you are paying towards a loan if you have a supply agreement) should be 35% or less of total gross revenue.
If financial anxiety is weighing on you, start by identifying the specific issues keeping you up at night. Whether the problem is credit card debt or upcoming bill payments, pinpointing where the problems lie is the first step towards improving cash flow and profitability.