Managing Cash Flow

Cash flow management problems have led to the demise of many successful businesses. According to corporate credit reporting firm Dun and Bradstreet, poor cash flow management causes 90% of small business to fail.

Additionally, a recent study by the Business Development Bank of Canada suggested that poor cash flow management is the largest cause of business failure. Another by the coveted US Bank suggests that 82% of all business bankruptcies are due to poor cash flow management.

Effective cash flow management should be made a priority to ensure the success of any business. In order to further explore and understand this, we must understand what exactly does ‘cash flow’ mean? Simply stated, cash flow is the movement of funds in and out of the business. There are two possible cash flow outcomes that will result from this activity: positive cash flow occurs when cash inflows during a period are higher than the cash outflows during the same period. Conversely, negative cash flow occurs when more cash is spent than generated. The generation of positive cash flow is, arguably, the most critical measure of success in operating a financially sound and sustainable clinic or business.

By trade, I am a chartered professional accountant and an advisor to many companies, with a focus on turning around businesses in potential danger. I have learnt that there are certain cash flow indicators that all clinics should be regularly reviewing and paying close attention to. Aside from more obvious indicators such as law suits over non-payment, defaulting on payroll obligations and legal payment demands, there are five indicators that individually or in any combination, are direct warning signs of current or impending cash flow problems. To continue reading article, click here.