MMHS is a successful home health service company which has expanded constantly over the intervening 20 years, with further patient growth forecasted in 2012. The home healthcare business is seasonal with 66% of the entire annual sales occurring in the late Fall and Winter months. The evolving expansion of the agency and seasonality of the business makes cash management challenging for Ms. Ringer and has landed her in the predicament of requiring a loan to pay salaries. Aligning operating expenses to revenue, improving management of operating costs and decreasing the amount of cash in accounts receivable will improve her immediate cash flow crisis. For details see prior question.
2. To have access to The rapid expansion of the company may require more administrative oversight, but it does not appear that this increased administrative costs is improving the collection rate for AR, or decreasing their contractual allowances, which would both improve immediate cash flow.
Solutions available to immediately increase cash flow include:
1. Optimize collections of monies owed to the agency. She should immediately contract with a debt collection agency and work actively to decrease the amount of money in AR and decrease what she is writing off as bad debt. This is the least disruptive opportunity to improve cash flow without impacting the workflow of the agency.
2. Ms. Ringer should flex down her salaries/benefits by 5% for to align costs with revenue as they vary with seasons. This core labor force will remain constant throughout the year and she can utilize temporary staffing to provide adequate coverage of the home health patient needs during the busy winter months. This will allow her to better align her variable expenses (labor) with her revenues.
3. Ms. Ringer should reduce overhead and administration to 10% or less of gross revenue as it was in 2008 and maintain at that level.
4. Another option is to maintain staffing at current levels, but to do away with benefits. This could lead to attrition but will immediately relieve the cash
