Business for Health Business Skills for Private Medical Practices

Business for Health Business Skills for Private Medical Practices Module 17: Manage Your Cash Flow

A Quick Start Welcome! While you are waiting for the class to begin, please take the Pre-Test and make sure your name is on it before you hand it to the facilitator. Thank you!. Business Skills for Private Medical Practices

Agenda Welcome Can You Show a Profit and Still be Cash Poor? Read a Cash Flow Statement Make Cash Flow Projections Improve Cash Flow Summary and Evaluation Close Business Skills for Private Medical Practices

Learning Objectives During this session, you will: • define key terms related to cash flow and profit; • explain the difference between cash and profit; • describe the categories in a cash flow statement; Business Skills for Private Medical Practices

Learning Objectives • interpret a cash flow statement; • practice making cash flow projections; • identify strategies to improve cash flow; • describe the next step; and • state your key take-away from this session. Business Skills for Private Medical Practices

Introduction You will have 1 minute to introduce yourself: 1. Your name 2. Your position 3. Your business 4. How long you have been in business Business Skills for Private Medical Practices

Can You Show a Profit and Still be Cash Poor? Business Skills for Private Medical Practices

Cash Flow and Profitability • Cash Flow Statement- Shows cash inflows and outflows over a past period of time. • Cash Flow Projection- Shows cash inflows and outflows projected for the future. • Income Statement- shows profitability over a past period of time, but says nothing about the business’ cash position. Business Skills for Private Medical Practices

Cash Flow and Profitability • How can a business show a net profit but have a negative cash position? • How can a business show a loss on an income statement but still have cash? • What causes more businesses to fail: lack of profitability or lack of cash? Why? Business Skills for Private Medical Practices

Profitable or Cash Poor?Scenario #1 • After paying the expenses, how much money did the clinic owner have left? • Did the clinic owner make a profit from this service? • Did the clinic owner have cash in the business after this transaction? Business Skills for Private Medical Practices

Profitable or Cash Poor?Scenario #1 Business Skills for Private Medical Practices

Profitable or Cash Poor?Scenario #2 • Did the clinic owner have enough cash from the sales to pay all the expenses? • Why didn’t the clinic owner have enough funds? • Does the clinic owner have a cash flow problem? • Is this service profitable? Business Skills for Private Medical Practices

Profitable or Cash Poor?Scenario #3 • Did the clinic owner have enough cash from the sales to pay all the expenses? • Why did the clinic owner have less than a shortfall than in Scenario #2? • Does the clinic owner have a cash flow problem? Business Skills for Private Medical Practices

Profitable or Cash Poor?Scenario #3 • Is this service profitable? • What would happen to the clinic owner’s profit and cash if the utility also offers a 30-day credit? Business Skills for Private Medical Practices

Profitability versus Cash Flow Profit ≠ Cash • Accrued net profit is calculated regardless of when cash is received or paid out • Expenses are paid with cash, not profits • Businesses go bankrupt if they run out of cash, even though they generate net profits Business Skills for Private Medical Practices

Profitability versus Cash Flow Net Profit • Total revenue minus total expense, regardless of when the cash goes in or out. • Found on the Income Statement. Business Skills for Private Medical Practices

Profitability versus Cash Flow Accounts Receivable • Money owed to you for services provided in the past. • It appears as an Asset on the Balance Sheet. Business Skills for Private Medical Practices

Profitability versus Cash Flow Accounts Payable • Money you owe for services provided to you in the past. • It appears as a Liability on the Balance Sheet. Business Skills for Private Medical Practices

Profitability versus Cash Flow What can the clinic owner in Scenario #2 do to meet the cash requirements of the business? Business Skills for Private Medical Practices

Determining Implications for Profitability and Cash Positions A. Payment Incentive • How did this affect: • the profitability of the business? • the cash position of the business? • What are the immediate consequences to the business? Business Skills for Private Medical Practices

Determining Implications for Profitability and Cash Positions B. Purchase More Drugs • How did this affect: • the profitability of the business? • the cash position of the business? • What are the immediate consequences to the business? Business Skills for Private Medical Practices

Determining Implications for Profitability and Cash Positions C. Supplier Credit • How did this affect: • the profitability of the business? • the cash position of the business? • What are the immediate consequences to the business? Business Skills for Private Medical Practices

Determining Implications for Profitability and Cash Positions D. Larger Facility • How did this affect: • the profitability of the business? • the cash position of the business? • What are the immediate consequences to the business? Business Skills for Private Medical Practices

Read a Cash Flow Statement Business Skills for Private Medical Practices

Introduction to a Cash Flow Statement Business Skills for Private Medical Practices

Cash Flow Story: What Do the Numbers Say? Business Skills for Private Medical Practices

Cash Flow Story: What Do the Numbers Say? • What is your general feeling about this business? Does it have enough cash to operate comfortably? • What did the owner do to keep a positive cash flow each month? • Does this business have any cash reserves? How much does it need? Business Skills for Private Medical Practices

Cash Flow Story: What Do the Numbers Say? • How many months in the year did the clinic need to borrow money? Do you see any cash flow patterns? • What would have happened if the owner did not put in her own cash in month 4? • What can this owner do to build her cash reserves? Business Skills for Private Medical Practices

Make Cash Flow Projections Business Skills for Private Medical Practices

Why is a Cash Flow Projection Important? • It is an early warning system. • Depending on the projected cash balances, it indicates when: • there is a need to access external funds, • expenses need to be cut, or • investments can be made. Business Skills for Private Medical Practices

Making Cash Flow Projections Business Skills for Private Medical Practices

Cash Flow Projection Business Skills for Private Medical Practices

Making Cash Flow Projections • Will Dr.Abich have enough cash to pay the 11,000 rent at the beginning of next month? • What issues can affect the inflow or outflow of cash? • What should you keep in mind when creating a cash flow projection? Business Skills for Private Medical Practices

Improve Cash Flow Business Skills for Private Medical Practices

Strategies to Improve Cash Flow Please stand up next to your chair if you have an answer to one of these questions: 1. What can you do to accelerate cash inflow? 2. What can you do to delay cash disbursement? Business Skills for Private Medical Practices

Summary and Evaluation Business Skills for Private Medical Practices

Evaluation Sheet Business Skills for Private Medical Practices

The Next Step • Analyze your cash flow on a weekly or monthly basis. • List your assumptions about future cash flow. • Make a cash flow projection. Business Skills for Private Medical Practices

Let’s See How Much You’ve Learned Please take the Post-Test. We will compare it to your Pre-Test to see how much you’ve learned in this session. Thank you. Business Skills for Private Medical Practices

My Key Take-Away Business Skills for Private Medical Practices

Business for Health Business Skills for Private Medical Practices