Cash flow crunches happen, and you need to know how to get through them.
Cash flow is extremely tight right now. No, I don’t mean in general; I mean for my pharmacy. In fact, we had a daily payment to our wholesaler get returned. Ouch!!! Why? Too many changes and acute circumstances. Here’s a shortlist of what is causing a cash flow crunch in my pharmacy.
- Missing $30,000+ due to stolen checks
- Changing bank accounts
- Changing GPOs/wholesalers with different payment terms
- New compounding lab with lots of new equipment
- Too many paper checks and not enough ACH deposits
This mix of things within our control and out of our control has led to an acute cash crisis. If you find yourself in a cash crunch, you can take steps to help ease the pain. DiversifyRx has an infographic you can download that shows 14 strategies. I am going to dive into the top strategies that will help quickly.
How quickly this one will help depends on your payment cycle. Most pharmacies are on a 2-week payment cycle. With the new wholesaler we switched to, we decided to go on a daily payment cycle. It seemed like a good idea at the time as cash flow was robust. Now that it is tight, it’s a headache. So, decreasing our daily orders greatly helps with cash. Don’t go draconian; you don’t want empty shelves. Just shave extra quantities of items you won’t need for a few days.
When cash flow was good, I didn’t pay much attention to all the bills. As soon as cash flow started to get tight, I tracked every dollar. I have found several services and fees that were duplicative, excessive, or just not needed anymore. Here’s a small example: we were paying for an 800 number through the phone service that was $10 a month while also paying $0.99 a month to a third party for an 800 number. It’s small, but little wins add up to significant cash savings. And those savings continue into the future.
Typically your payroll comes due every two weeks. So, if you decrease your employees’ hours, you will get a cash boost in a short while. There are many ways to trim hours. Take an hour a day from each employee or a rotation of employees. Have employees work a half-day once a week. Again, minor cuts will add up to measurable savings.
Leveraging Credit Cards
When you choose to use a credit card to pay some expenses, you can delay the hit to your cash flow for up to a month. This strategy can be the perfect bridge to help get you through a short cash flow crunch. You will need to be sure to have the discipline to pay off the card, so you don’t incur extra fees. If cash flow is extra tight, carrying a balance for a month or two won’t kill you, but long-term debt on credit cards will get expensive really fast and eventually hurt cash flow.
Yep, I didn’t follow my own advice on this one. I wasn’t paying attention to the daily balance one day and incurred extra fees when it hurts the most. When you are in a cash flow crisis, it is essential to check your accounts and know when items will hit the bank. I could have easily made some moves to avoid the fees. Death by a thousand cuts is real.
Be Due Date Smart
Most bills have a due date and then a grace period. When cash flow is a struggle, make sure you are taking advantage of the grace periods. That can buy 10 to 14 days of extra payment time. When paying your bills, look at the due date and then look for when late fees will start. If those dates are different, that is your grace period. Aim to have payments hit before the grace period is over, not necessarily before the due date.
You Can Control Your Cash Flow
While my current crisis circumstances are unique, having a tight cash flow isn’t. Poor cash flow is pharmacy owners’ number one worry. Be sure to download the complete 14 strategies so you can better manage your cash flow.