With two weeks to go in the current year, I’m finishing up a financial plan for the new year for a healthcare practice. We anticipate a slight pricing pullback from Medicare payments. Yet, we are increasing pay rates across our 30-plus FTEs. Health insurance is up 11%. Some of our medical supplies are going up, too.
Newsflash: inflation stinks. It’s a not-so-silent or subtle profit killer. We can’t eradicate inflation. We have to live with it. But we can still thrive in our small businesses despite this deadly profit killer. Let me offer a few suggestions.
My Favorite Question for Every CEO
More than ten years ago, I once asked my friend, Ken Allman, if his business would still be relevant five years from now (obviously, it still is). “Mark, that’s one of the most probative and probing questions I’ve ever been asked.” The ensuing conversation continued for more than one hour while I mainly did head nodding with plenty of uh-huh interjections.
The question should be, “How will we remain cash flow relevant during continuing inflation?”
I will resist answering–I’ll do that in the section below. Start with the question first and start brainstorming. Don’t keep this question to yourself. Every single person on the team should be providing ideas.
Let’s Broaden the Product/Service Portfolio
I started this conversation by reflecting on the healthcare business model I was working on. That client sells counter products (they call them cash products), which augment our top line. That’s our sole strategy for attacking inflation. While the approach is debatable, the analogy applies to your business, too.
We can’t be wildly willy-nilly in adding products and services to your revenue portfolio. But is there the possibility of adding products to start attacking your inflationary woes?
During a recent shopping trip, I was reminded of such product enhancements that probably did not exist years earlier in these businesses:
- My local Hy-Vee grocery store has several stores within a store. No longer are they other grocers or food retailers. By necessity, they have become landlords, too.
- The Wal-Mart clerk asked, “Do you want a maintenance plan for your electronic device?” Seriously, for a $40 Bluetooth speaker? Nah, I’ll pass. But this is another innovative and low-cost idea to thwart inflation.
- Amazon has undoubtedly reduced the need to leave the house to shop. And that reminds me of their multiple streams of revenue beyond e-commerce: Amazon Prime subscriptions, Amazon Music and Prime Video, AWS, and, let’s not forget, Audible memberships.
Every well-executed idea above started with a brainstorm. Now it’s your turn. Think of multiple but complementary streams of revenue.
I Love Quantrix
At the risk of sounding like a financial modeling nerd, I genuinely love Quantrix. Quantrix is the number one financial modeling tool on the planet. Your mind is the only limit to what this powerful tool can do.
We will always live in inflationary periods. While we can’t end inflation, we can regularly test what inflation will do to our cash flow.
Each month, I apply attainable and predictable assumptions to my client’s cash flow models, which look ahead twelve to eighteen months in advance. This habit does not reduce the impact of inflation, but we can start asking new or better questions each time I refresh the model.
Earlier, I told you about the wage and health insurance hikes my client was expecting. I already knew those increases were coming because I had anticipated them twelve months earlier. Our plan for the new year already bakes in elevating our counter/cash products.
You can perform the work in a spreadsheet even if you don’t maintain a rolling cash flow model using a world-class modeling platform. Don’t do this sporadically; make the exercise a monthly habit. Once you start, you’ll wonder how you existed without this model.
A New Heightened Sense of Awareness
I grew up in the 1970s. I know and understand inflation, along with the long gas lines and the era of no Christmas lights, based on a plea from our president at the time. A decade later, inflation seemingly went dormant. Now, it’s back with a vengeance.
We can’t eliminate inflation. But I don’t see many CEOs and CFOs talking about it. My best recommendation is to be continually aware of inflation and its deadly effects on profit and cash flow.
Think about it. Plan for it. Then act on it.
