Let’s talk cash flow…specifically the 3 reasons you might be having a cash flow problem.
Cash flow is a simple accounting principle. Cash flows into your business (revenue) and cash flows out (expenses). If there’s more cash flowing in than out, you have what’s known as a positive cash flow. If there’s more cash flowing out than in, you have a negative cash flow. Pretty simple, right?
But for many therapists it’s more complex than that, partially because they’re not tracking the revenue and expenses quite as accurately as they need to. That can result in negative cash flow turning into large debts, or even a positive cash flow that is just an uncomfortably low margin. For others it’s just a simple matter of correcting some structural problems within your business.
So let’s look at the 3 big reasons for cash flow problems that may be happening in your business…
If you’re not seeing enough cash flowing in, it may come down to your pricing. You may be charging too much, pricing yourself out of the market and never getting enough clientele, even with a premium rate, to keep that cash flow positive. Or you may be charging too little, and no matter how booked you are, you still can’t seem to bring in enough revenue.
Everybody and their brother’s dog has an opinion on what you should be charging. Some will argue that you need to charge a premium price or you’re devaluing yourself and the industry. Others will say you need to charge less in order to build any clientele at all. But here’s the thing…no one but you can know what’s best for your business when it comes to your service prices. There are numerous factors to consider and only you (and/or your accountant) know the behind-the-scenes numbers enough to decide that. Be sure to watch a few of our other videos on pricing for some more detailed help in this. We’ll link those in the description
It’s simple, don’t spend more than you make. But for many that’s easier said than done. Every cent needs to be accounted for. Even those small, seemingly insignificant expenses can add up fast, and put a big dent in your numbers. Don’t get caught up in this or that product, app, program, or anything else that you think is going to make some massive difference in your business. You can run a great business using just the basics for the time being. Then later, as your revenue increases your expenses can increase and you can justify those extras.
But even when you see a little increase in your revenue, don’t go crazy. You have to keep yourself under control. The more you make, the more you’ll spend. You’ll find excuses for making this or that purchase because you see a bit more revenue, but don’t fall into that trap of thinking you can now afford all this wonderful stuff. If it’s going to be tight at all, you can’t afford it. It’s better to live well below your means and keep things simple for a while than to stress yourself out constantly about whether you can cover your bills. You’ll succeed much faster and with far less stress.
Sit down to go over your numbers (you should be doing this every week or at least every month anyway) and write out every single expense, what it’s for, if it’s a necessity or a luxury to your business, and the return you see from that expense. You should be able to separate out what is absolutely required to keep your doors open and your business running smoothly from those expenses that may not be necessary and you can scrap completely, cut back on, or put off until later.
#3 your BUSINESS MODEL
Much of a business’s success or failure comes down to the business model. While there’s many facets to this, I think there’s 3 primary parts that you should take a good hard look at to see where your cash flow could be affected.
Your Business Structure: this is your legal structure, services and retail, profit margins, additional therapists, things like that.
Your Marketing Strategy: promotions, marketing avenues, budget, etc.
And Your Financial Plan: bookkeeping/accounting, savings, investment planning, ROI tracking, etc.
Which of these areas are you not managing properly, and therefore losing money, either in revenue or expenses? Take control of every part and change up your business model if need be.
Getting a handle on your cash flow will make the biggest difference in the financial success of your business. Where are you seeing problems? What changes can you make to fix those? Take care of this – it really defines whether you fail or succeed in business – and the more you know and the more control you have over this aspect, the more control you have over your success or failure.
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