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How do you manage your practice’s cashflow so you can enjoy the spoils of success, while still creating a nest egg for the future? By Lynne Testoni
Managing cashflow is tricky at the best of times, never mind during a pandemic.
With periods of total quiet, increased costs (especially in line with new COVID regulations) and then a huge rush of work (all those COVID puppies!), it has been a challenge to manage the ebbs and flows of revenue in most vet clinics.
So if you have a big influx of money now—what should you do? Should you pay down any debt? Put some aside for tax? Enjoy it while you can? Invest it in your clinic?
Stephanie Mellick, head consultant and strategist at Gold Coast-based consultancy, Iron Advisory, says that when you start looking at cashflow and business planning, you need to go back to basics.
The first thing you need to start with is ensuring that you have your business structured in the right way for your needs, she says. You also need to make sure that you get the right advice—by finding the right accountant.
“A lot of people will start out as a sole trader and they’ll start very small, but within a year or two, they’re thinking of grander plans,” she says. “So it might be they want to start their own practice or take on business partners.”
With many cloud-based accounting systems, such as MYOB, QuickBooks or Xero, your accountant can log in as a financial adviser and get a handle on your profitability and cashflow in real time. This gives them great visibility as to how your business works on a day-to-day basis and helps them tailor their advice to your needs.
“I think a lot of people starting out don’t realise how much an accountant can help them—or maybe don’t utilise them as much as they can,” says Mellick.
“They think an accountant is someone who just does their tax, and sees them once a year or maybe once a quarter to do their BAS. However, creating that relationship from the get-go is so important. Because then you’ve got that business adviser who knows your business and exactly what’s happening as you grow.”
Mellick adds that to make the best use of your accountant or financial adviser, you need to be in regular conversation so they understand the big picture.
Heather Smith, chartered accountant and author of Xero for Dummies, says that most of her work is getting business owners to understand their finances and become familiar with reports so they can make the right decisions.
Smith says there is a ‘cashflow lifecycle’ that impacts your business. The key is understanding the impact of different cashflow triggers and planning accordingly.
For example, with many vets currently seeing an influx of puppies and kittens, it’s worth considering how this ‘puppy/kitten boom’ will play out over the years as the animals mature with different and possibly more veterinary needs.
“In terms of management of that cash, I would be running out a two-year forecast, and maybe even a five-year forecast,” advises Smith. “It doesn’t necessarily need to be greatly detailed. But a forecast will show how that money will be spread out in coming years.”
One way of dealing with irregular cashflow is to sign up customers to payment programs, says Smith. This is a common practice with larger clinic groups, where new pet owners commit to regular monthly payments for services such as check-ups and immunisations.
But once you have done your cash forecast it’s all about prioritising and planning, says Smith, to make sure that regular expenses are budgeted for, especially tax. “You should plan how much you’re going to pay yourself, how much you’re going to pay your staff, and how much is owed to GST and to tax,” she says.
If you know you have got extra cash coming in (and your expenses are covered), Smith advises reducing any outstanding long-term debt you may have, then tackling other expenses such as inventory. Border closures throughout the world have brought supply issues to the forefront, she says.
“You may review your existing suppliers because a lot of vets stock US-based products and you may want to look around and see whether there’s any Australian-based suppliers that you could develop new relationships with.”
She also recommends that practice owners and managers look at the location and size of their clinic. Changes over the last 12 months (such as the boom in remote and online consultations) may open up previously untenable locations.
“A vet may want to look at the infrastructure of the location they’re currently in,” she says. “Does that suit their purposes going forward? Do they want to maintain the location? Or is remote going to work for them? Do they need that sort of office size anymore?
“The smaller the practice, the higher the expenses are in relation to the actual practice. That’s why bigger organisations streamline those practices across practices to create efficiency.”
And, Smith stresses, while times seem great with extra revenue coming in, managing the extra work can add more costs.
“Managing a lot of cash is just as challenging as managing a small amount of cash,” she says. “So one of the things you may consider exploring is taking on a new staff member, and training them up for the long term.”
Many financial experts say that the past 12 months have been ideal for businesses looking at ways to work smarter, rather than harder.
“It can be an opportunity to invest in people and training,” adds Smith. “And you also may want to spend some time investing in your infrastructure to make sure your systems are up to date and can be operated remotely if necessary.”