Aaep 2015 cash management
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![Page 1: Aaep 2015 cash management](https://reader036.fdocuments.net/reader036/viewer/2022062420/55d38b20bb61eb784c8b45b0/html5/thumbnails/1.jpg)
Improving Cash Management
Mike Pownall, DVM, MBA
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Improve Cash Flow
1. Decrease Accounts Receivable
2. Decrease Inventory
3. Increase time to pay Accounts Payable
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Working Cash Gap
AR Days
+Inventory Days
– AP Days
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Accounts Receivable (AR) Days
AR/(Sales/365)
Account Receivable $75,000
Sales $500,000
54
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Inventory Days
Inventory/(Cost of Sales/365)
Inventory total $30,000
Cost of Sales $125,000
88
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Accounts Payable Days
AP/(Cost of Sales/365)Accounts Payable $10,000
Cost of Sales $125,000
29
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Working Cash Gap
AR Days +Inventory Days – AP Days
54 + 88 – 29 = 113
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Working Cash Gap GoalsAR Days = < 30 days
Inv Days = < 30 days
AP Days = > 30 days
29 + 29 – 45 = 13
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AR System
How to create an AR system
Maintain an AR system
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AR > 90 Days
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AR > 90 Days?
Bill $500,000
Profit $35,693
AR >90 Days $10,000
Net Profit $25,693??
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$10,000!!
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Ave Days AR Per Year
accounts receivable total
(sales for previous year/365)
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Ave Days AR Per Year
75,000(500,000/365)
54 Days
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Our Story
Jan 2012
Ave Days AR = 100 days!!!
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How?
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3 Client Groups
1.New clients
2.Existing clients with payment
problems
3.Existing clients with excellent
credit
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New Clients
Payment at
Time of Service
No Excuses!!!
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Problem Clients
Payment at
Time of Service
No Excuses!!!
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Excellent Clients
Status Quo
Letter with new policy
If >60 days = COD
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How
1. Client Service Agreement
2. Credit Card on file
3. Cash/Cheque at call
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The Result
No Fuss
Eliminated deadbeats
Less money worries
Less time chasing money
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The Result
22 Days Ave AR!!
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Previous Year
Monthly
Rolling Ave Days AR/Year
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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
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Tips
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How to Maintain
Diligence
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Ideal Ave Days AR
39,500(500,000/365)
29 Days
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$10,000!!
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Inventory
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COGS
% of Revenue
Pleasure Practice = <20%
Sport Horse = 15-30%
Race Horse = 30%+
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Inventory
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Inventory Days
Inventory = (Cost of Sales/365)
30,000
(125,000/365)
87
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Inventory Turnover
Cost of Sales/Inventory
125,000/30,000
4
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Goals
Ave Inventory Days = < 30 days
Inventory Turnover = 12 +
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Goal
Reduce order time
Reduce expired medications
Reduce interest payments
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Holding Costs
20-40% of cost
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Holding Costs
Item cost = $10
Holding cost = $2-4
Actual Cost - $12-14
Selling Price - $20
Profit - $8-6 not $10
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HowMinimum & Maximums
Inventory Counts
Weekly orders
Measure & compare
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Minimum & Maximums
Quarterly or semi annual
1 - 2 week minimum
3 week maximum
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Minimum & Maximums
July – Sept
24 Phenylbutazone Powder
2/week
4/2 weeks
6/3 weeks
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Inventory CountsAA – top 5% of items sold
A – next 20%
B – next 20%
C – All the rest
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Inventory CountsAA - Weekly
A - Quarterly
B – Semi-annual
C - Annual
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Measure
Ave Inventory Days = < 30 days
Inventory Turnover = 12 or more
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$10,000
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Inventory Days
Inventory = (Cost of Sales/365)
10,000
(115,000/365)
32
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Inventory Turnover
Cost of Sales/Inventory
115,000/10,000
11.5
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Accounts Payable Days
AP/(Cost of Sales/365)
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Accounts Payable Days
10,000
(125,000/365)
29
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Accounts Payable Days
15,000
(125,000/365)
45
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$5,000
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Working Cash Gap
AR Days +Inventory Days – AP Days
91+41-29= 103
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Working Cash Gap
AR Days +Inventory Days – AP Days
29 + 32 – 45 = 16
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Working Cash Gap
AR Days +Inventory Days – AP Days
10,000 + 10,000 + 5000 = 25,000
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$25,000
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Supplier Discounts
2/10 Net 30 Days
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Supplier Discounts
Order = $1000
2% Off = $20
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Supplier Discounts
Loan = $980
Interest = $20
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Supplier Discounts
(Interest/Loan)
x
(Year /Loan Term)
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Supplier Discounts
($20/$980)
x
(365/20)
= 37%
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Questions
• www.veterinarybusinessmatters.com
• www.slideshare.net/mpownall