We’ve been talking about how running a business is like baking or cooking. You need all the right ingredients, in the right proportions, cooked at the right temperature, for the right amount of time.
Every business owner wants a business that’s “cooked” just right, with lots of cash flow and profits. You can read about the first ingredient, profitability, here.
The next ingredient is activity. Said another way, activity means how well you are collecting on accounts receivable. My heart breaks when I see an accounts receivable aging report that has too many receivables in the 90-120 days past due category. This means that a business has an abundance of checks they’re waiting on, rather than that money sitting in their bank account where it can be used.
We started working with a professional practice about two years ago. We’ll call the owner Beth. Beth had an excellent practice with 3 locations, but her cash balance was low and she was struggling to make payroll. Her receivables number seemed high, so I asked for her aging report and quickly saw that 27% of her receivables were over 90 days past due.