aaep 2015 cash management
TRANSCRIPT
Improving Cash Management
Mike Pownall, DVM, MBA
Improve Cash Flow
1. Decrease Accounts Receivable
2. Decrease Inventory
3. Increase time to pay Accounts Payable
Working Cash Gap
AR Days
+Inventory Days
– AP Days
Accounts Receivable (AR) Days
AR/(Sales/365)
Account Receivable $75,000
Sales $500,000
54
Inventory Days
Inventory/(Cost of Sales/365)
Inventory total $30,000
Cost of Sales $125,000
88
Accounts Payable Days
AP/(Cost of Sales/365)Accounts Payable $10,000
Cost of Sales $125,000
29
Working Cash Gap
AR Days +Inventory Days – AP Days
54 + 88 – 29 = 113
Working Cash Gap GoalsAR Days = < 30 days
Inv Days = < 30 days
AP Days = > 30 days
29 + 29 – 45 = 13
AR System
How to create an AR system
Maintain an AR system
AR > 90 Days
AR > 90 Days?
Bill $500,000
Profit $35,693
AR >90 Days $10,000
Net Profit $25,693??
$10,000!!
Ave Days AR Per Year
accounts receivable total
(sales for previous year/365)
Ave Days AR Per Year
75,000(500,000/365)
54 Days
Our Story
Jan 2012
Ave Days AR = 100 days!!!
How?
3 Client Groups
1.New clients
2.Existing clients with payment
problems
3.Existing clients with excellent
credit
New Clients
Payment at
Time of Service
No Excuses!!!
Problem Clients
Payment at
Time of Service
No Excuses!!!
Excellent Clients
Status Quo
Letter with new policy
If >60 days = COD
How
1. Client Service Agreement
2. Credit Card on file
3. Cash/Cheque at call
The Result
No Fuss
Eliminated deadbeats
Less money worries
Less time chasing money
The Result
22 Days Ave AR!!
Previous Year
Monthly
Rolling Ave Days AR/Year
Tips
• Pay vets on paid invoices
• State on Day Sheet the client status & method of payment
• PCI PSS CC storage system
• Signed Client agreement form
Tips
How to Maintain
Diligence
Ideal Ave Days AR
39,500(500,000/365)
29 Days
$10,000!!
Inventory
COGS
% of Revenue
Pleasure Practice = <20%
Sport Horse = 15-30%
Race Horse = 30%+
Inventory
Inventory Days
Inventory = (Cost of Sales/365)
30,000
(125,000/365)
87
Inventory Turnover
Cost of Sales/Inventory
125,000/30,000
4
Goals
Ave Inventory Days = < 30 days
Inventory Turnover = 12 +
Goal
Reduce order time
Reduce expired medications
Reduce interest payments
Holding Costs
20-40% of cost
Holding Costs
Item cost = $10
Holding cost = $2-4
Actual Cost - $12-14
Selling Price - $20
Profit - $8-6 not $10
HowMinimum & Maximums
Inventory Counts
Weekly orders
Measure & compare
Minimum & Maximums
Quarterly or semi annual
1 - 2 week minimum
3 week maximum
Minimum & Maximums
July – Sept
24 Phenylbutazone Powder
2/week
4/2 weeks
6/3 weeks
Inventory CountsAA – top 5% of items sold
A – next 20%
B – next 20%
C – All the rest
Inventory CountsAA - Weekly
A - Quarterly
B – Semi-annual
C - Annual
Measure
Ave Inventory Days = < 30 days
Inventory Turnover = 12 or more
$10,000
Inventory Days
Inventory = (Cost of Sales/365)
10,000
(115,000/365)
32
Inventory Turnover
Cost of Sales/Inventory
115,000/10,000
11.5
Accounts Payable Days
AP/(Cost of Sales/365)
Accounts Payable Days
10,000
(125,000/365)
29
Accounts Payable Days
15,000
(125,000/365)
45
$5,000
Working Cash Gap
AR Days +Inventory Days – AP Days
91+41-29= 103
Working Cash Gap
AR Days +Inventory Days – AP Days
29 + 32 – 45 = 16
Working Cash Gap
AR Days +Inventory Days – AP Days
10,000 + 10,000 + 5000 = 25,000
$25,000
Supplier Discounts
2/10 Net 30 Days
Supplier Discounts
Order = $1000
2% Off = $20
Supplier Discounts
Loan = $980
Interest = $20
Supplier Discounts
(Interest/Loan)
x
(Year /Loan Term)
Supplier Discounts
($20/$980)
x
(365/20)
= 37%
Questions
• www.veterinarybusinessmatters.com
• www.slideshare.net/mpownall