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Digg It - What 80% of Businesses Don't Know: Tips for Improving Your Working Capital Management
What is the number one way to prevent failure in business? Take a minute to really think about your answer. What comes to mind? Increasing patients or customers served?
Effective marketing?
Location, location, location?
Improving patient or customer care?
Being the best in your industry?
Although these are all essential aspects of business, the answer isn't any of the above. The number one way to prevent business failure is to properly manage your working capital.
Although these are all essential aspects of business, the answer isn't any of the above. The number one way to prevent business failure is to properly manage your working capital.
According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product
To ensure that we're all on the same page, working capital is simply defined as the difference between your current assets and current liabilities. If this figure is positive, you have working capital available. This working capital may exist as inventory, accounts receivable, or cash on hand.
Working capital management is a critical management issue for growing businesses or medical practices. Take the example of a growing doctor's office: As expenses rise with patient-l
; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.
Examples of combination products may in
Examples of combination products may in
ad increases, you accrue more outstanding cash, particularly before receiving reimbursement from the health insurance payors. At this point, your incoming cash does not nearly offset your costs going out. This may be manageable while you work with payments for past services; however, eventually the time lag may become a significant stress-point for your business.
By adopting a few working capital management strategies, you can make your assets work for you, without becomin
By adopting a few working capital management strategies, you can make your assets work for you, without becomin
lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.
beholden to banks.
Strategy #1: Get Paid Now
Let's take a look at the most obvious area: accounts receivable. What do your receivables do for you when they are not being paid? While your profit margins may look stellar if you have a lot of orders, you have essentially loaned all of your clients the amounts of your invoices-until they decide to pay you. Doctors, in particular, know the pain of this situation. Insurance payors are particularly adept at prolonging the time
Strategy #1: Get Paid Now
Let's take a look at the most obvious area: accounts receivable. What do your receivables do for you when they are not being paid? While your profit margins may look stellar if you have a lot of orders, you have essentially loaned all of your clients the amounts of your invoices-until they decide to pay you. Doctors, in particular, know the pain of this situation. Insurance payors are particularly adept at prolonging the time
here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe
or payment; they realize that the longer they take to pay, the greater their profit margins.
Is this just another cost of doing business? Well, not necessarily. Eighty percent of small business owners, medical practitioners, and small hospitals are completely unaware of a resource Fortune 500 companies have used for decades: accounts receivable funding.
Banks often measure accounts receivable at as low as 50 percent of their overall value as collateral for a traditional l
Is this just another cost of doing business? Well, not necessarily. Eighty percent of small business owners, medical practitioners, and small hospitals are completely unaware of a resource Fortune 500 companies have used for decades: accounts receivable funding.
Banks often measure accounts receivable at as low as 50 percent of their overall value as collateral for a traditional l
d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.
Combination pro
Combination pro
an. In accounts receivable funding, however, accounts receivable are calculated at full value. Plus, you accrue no debt for this financing, as you essentially sell your accounts receivable for payment against the full value.
Perhaps the idea of selling your revenue stream makes you nervous. But consider this: You usually receive 80 percent of the entire amount of the invoice within one or two days-at least 28 to 118 days sooner than usual. This cash injection allows you to
Perhaps the idea of selling your revenue stream makes you nervous. But consider this: You usually receive 80 percent of the entire amount of the invoice within one or two days-at least 28 to 118 days sooner than usual. This cash injection allows you to
ucts have become life saving products for the pharmaceutical companies who doesnt have many innovative molecules in their product pipeline and have been inc
make capital improvements for your business to generate more revenue, leverage the cash for discounts on your inventory, cover operating costs, or provide bonuses to your employees, for instance.
As your invoices are paid, your funder will repay the other 20 percent, minus the negotiated fee (average four to five percent of the invoiced amount). Don't get hung up on the 'cost' of the funding. With proper management of those funds, you will more than make up for fees by the
As your invoices are paid, your funder will repay the other 20 percent, minus the negotiated fee (average four to five percent of the invoiced amount). Don't get hung up on the 'cost' of the funding. With proper management of those funds, you will more than make up for fees by the
easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi
investments made in your business. Your day-to-day business costs may stay the same, but the tremendous increase in incoming cash will enable you to rest easy.
Homework: Review your accounts receivable aging report. Note the average payment time from one of your best clients or insurance payors. Assuming payment of 80 percent of the invoice value in 48 hours, make a list of ways to use that money for your business:
Homework: Review your accounts receivable aging report. Note the average payment time from one of your best clients or insurance payors. Assuming payment of 80 percent of the invoice value in 48 hours, make a list of ways to use that money for your business:
- Cash discounts on inventory (estimate in dollar
nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically
amounts).
Buying or leasing new equipment (anticipated return in additional sales).
New marketing campaign (anticipated additional revenue).
After you total the increased income generated by implementing this strategy, you can easily see the real benefit.
Strategy #2: Shorten Your Operating Cycle
Your operating cycle starts when you take cash out of your account to begin work for a client, and ends the day the client pays you. If you complete a project o
After you total the increased income generated by implementing this strategy, you can easily see the real benefit.
Strategy #2: Shorten Your Operating Cycle
Your operating cycle starts when you take cash out of your account to begin work for a client, and ends the day the client pays you. If you complete a project o
and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ
Tuesday, for instance, but do not invoice until the following Friday-or even the end of the month-you lose days of income. Since you need the cash in your account-not just in your profit margins-you must minimize the time between service rendered and service invoiced.
Homework: Review how long you usually take to invoice a client. If that period of time exceeds a week, have your staff shorten that time. This adjustment will decrease the payment time by as much as 25 perce
Homework: Review how long you usually take to invoice a client. If that period of time exceeds a week, have your staff shorten that time. This adjustment will decrease the payment time by as much as 25 perce
ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi
t.
Strategy #3: Collect Past Due Accounts
Do you have a significant number of invoices out more than 60 days? If so, is your staff doing anything to shorten this timeframe? Call the clients whose invoices have been out 30 days and inquire about the invoice. Devoting a few hours a week to completing this task is money well spent if it ensures that even half of your outstanding invoices are paid a couple of weeks earlier.
Some delays in the healthcare industry, for example
Strategy #3: Collect Past Due Accounts
Do you have a significant number of invoices out more than 60 days? If so, is your staff doing anything to shorten this timeframe? Call the clients whose invoices have been out 30 days and inquire about the invoice. Devoting a few hours a week to completing this task is money well spent if it ensures that even half of your outstanding invoices are paid a couple of weeks earlier.
Some delays in the healthcare industry, for example
ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.
Following aspects would a
Following aspects would a
, are intentional. Prolonging the turnaround for payment controls costs. In these cases, you don't have any recourse. As any doctor can tell you, calling the insurance company to inquire about a claim can be a fruitless task.
Homework: Review your collections procedures and tighten up your ship, if needed. Assign one person to follow up on invoices outstanding for more than 30 days. Realize, though, that collections results fluctuate with your clients' priorities. Don't co
Homework: Review your collections procedures and tighten up your ship, if needed. Assign one person to follow up on invoices outstanding for more than 30 days. Realize, though, that collections results fluctuate with your clients' priorities. Don't co
dd to the challenges in developing combination products:
Which markets to tap where the combination products can do fairly well?
Which combination prod
Which markets to tap where the combination products can do fairly well?
Which combination prod
nt on this as your only means of improving your cash flow.
Strategy #4: Turn Existing Equipment Into Cash
As we know, keeping current with technology improvements are constant and necessary to remain competitive. Leasing is a way to stay up-to-date without incurring the charges of frequently buying new equipment.
But have you ever considered leasing equipment that you already own? One option is selling your equipment to a leasing company, and leasing it back from them. T
Strategy #4: Turn Existing Equipment Into Cash
As we know, keeping current with technology improvements are constant and necessary to remain competitive. Leasing is a way to stay up-to-date without incurring the charges of frequently buying new equipment.
But have you ever considered leasing equipment that you already own? One option is selling your equipment to a leasing company, and leasing it back from them. T
cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
is way, you generate some cash for your business. You will, of course, incur the lease payments.
Homework: Take stock of what you own. If you need capital, contact a few leasing companies and gauge their interest in purchasing equipment for you to lease back. Alternatively, a Certified Cash Flow Consultant will shop for you. Since they are independent consultants paid by the leasing companies, you will avoid any additional charges.
Strategy #5: When In Doubt, Outsource
O
Homework: Take stock of what you own. If you need capital, contact a few leasing companies and gauge their interest in purchasing equipment for you to lease back. Alternatively, a Certified Cash Flow Consultant will shop for you. Since they are independent consultants paid by the leasing companies, you will avoid any additional charges.
Strategy #5: When In Doubt, Outsource
O
tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
tsourcing certain support areas of your business, in which you are not an expert, is an excellent way to reduce payroll and insurance costs. You will spend a higher dollar per hour for importing experts, but the reduced costs (no health or workers' compensation insurance) usually compensate for the cost variance.
Be sure to hire these experts with as much diligence as you would any in-house employee. As you'll typically retain this type of assistance through specialty staf
Be sure to hire these experts with as much diligence as you would any in-house employee. As you'll typically retain this type of assistance through specialty staf
t?
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
ing houses, interview the individuals to be assigned. As integral members of your team, they must be as reliable as any employee on your payroll.
Homework: Contact area firms that provide the kind of staffing you need. Compare the cost of those contracts against the cost of keeping these staff on payroll. Be careful: Consultants can get expensive, so be sure to build cost controls (i.e., fixed fee for a weekly basis or hourly with a 'not to exceed' clause) into your contra
Homework: Contact area firms that provide the kind of staffing you need. Compare the cost of those contracts against the cost of keeping these staff on payroll. Be careful: Consultants can get expensive, so be sure to build cost controls (i.e., fixed fee for a weekly basis or hourly with a 'not to exceed' clause) into your contra
ping new procedures for reviewing their safety, efficacy and quality.
Professional from academic institutions, pharmaceutical industries, health care indust
Professional from academic institutions, pharmaceutical industries, health care indust
t. Be clear on their scope of work, to whom they report, and how you define satisfactory performance. In addition, you must directly approve any staff changes.
Strategy #6: Inventory When You Need It
Inventory that sits in the warehouse, not being sold for income, eats away at your available cash flow. It is an asset, sure, but it should not become a liability because it is not quickly converted to cash. Over-ordering of inventory gets many businesses into trouble.
Revie
Strategy #6: Inventory When You Need It
Inventory that sits in the warehouse, not being sold for income, eats away at your available cash flow. It is an asset, sure, but it should not become a liability because it is not quickly converted to cash. Over-ordering of inventory gets many businesses into trouble.
Revie
y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products
your inventory forecast all the time, and be aggressive. Know your options in times when you have shortfalls. Fulfilling customer orders on time is a number one priority, so don't take unnecessary risks. If you simply hoard inventory to offset any chance of being caught off-guard, you lose the potential profits made by managing it more aggressively.
Homework: Review your current and projected inventory for the coming months. Do you need to make changes, or is it all under
Homework: Review your current and projected inventory for the coming months. Do you need to make changes, or is it all under
.
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
control? Make any necessary calls to your suppliers to negotiate better terms or better understand their supply controls.
Make Your Working Capital Work for You
Working capital management is a key element to business success and the number one way to prevent business failure. By implementing strategies such as accounts receivable funding, outsourcing, or inventory management, your business can optimize the return on assets it already possesses. Your company will then be w
Make Your Working Capital Work for You
Working capital management is a key element to business success and the number one way to prevent business failure. By implementing strategies such as accounts receivable funding, outsourcing, or inventory management, your business can optimize the return on assets it already possesses. Your company will then be w
elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.
Companies that provide selfless information through particip
Companies that provide selfless information through particip
ll positioned to handle future growth or economic downturns.
*Reprinted from Create the Business Breakthrough You Want:
Secrets and Strategies from the World*s Greatest Mentors
© 2004 Mission Publishing, a division of The Mission Marketing
Mentors, Inc., http://www.missionpublishing.net, or
http://www.missionmarketingmentors.com
*Reprinted from Create the Business Breakthrough You Want:
Secrets and Strategies from the World*s Greatest Mentors
© 2004 Mission Publishing, a division of The Mission Marketing
Mentors, Inc., http://www.missionpublishing.net, or
http://www.missionmarketingmentors.com
tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products
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