In this episode of the Audigy webcast, Heather Sager sits down with Zach Byrd, an associate finance manager at Audigy, and talks about the steps you need to take to put your financial house in order. This is a great discussion for practice owners in addition to anyone who is struggling to pay down debts.
- Restructuring your cash flow
- Debt-repayment strategies
- Managing and paying down multiple large debts
Read the Financial Tips podcast transcript below:
HEATHER SAGER: Hi, and welcome to the Audigy webcast. My name is Heather Sager, and I’m joined here today by associate finance manager Zach Byrd.
ZACH BYRD: Good to be here, Heather.
HEATHER SAGER: Hi Zach, how are you doing?
ZACH BYRD: All right.
HEATHER SAGER: Are you excited to be on the show today?
ZACH BYRD: I am. I’ve got a lot to talk about today.
HEATHER SAGER: We were just chatting earlier about your big dreams of becoming a famous finance celebrity.
ZACH BYRD: Yeah. And I’m hoping that by spreading my financial knowledge and helping our members out there reduce their debts, that I can work my way toward it.
HEATHER SAGER: Well, today will be your jumping-off point, because today’s topic is all about finance. Specifically, today you’re going to share with us three steps to financial nirvana.
ZACH BYRD: That’s right.
HEATHER SAGER: Now, financial nirvana — when I saw the title of this episode, I had to start laughing. Because all I could think about was the band Nirvana. And I had flashbacks to high school.
So let’s talk a little bit today, the three steps that you are going to cover for us: Step one, restructuring cash flow. Step two, implementing a debt-repayment strategy. And step three, implementing a payment strategy for multiple debts.
So this concept, financial nirvana — I make jokes, but it’s really, really important —
ZACH BYRD: Absolutely.
HEATHER SAGER: —For today’s business owner. So why don’t you talk a little bit about why is this so relevant to small-business owners today?
ZACH BYRD: Well, let’s say you own a small business. It’s making money. You’re seeing revenue come through the door. You’re seeing that flow. But it seems like as soon as a dollar comes into your bank account, it’s immediately being consumed by one or more large loans. Now, loans are a necessary part of business. They can be used to really help grow your business, to start your business. But it’s also very easy, if you’re not careful, for them to get a little overwhelming.
This is a situation that a lot of small-business owners see, where you know you have the potential, and even the cash flow coming in, to grow your business, if only you paid off some of these loans. But you’re making those payments every month, and they just don’t seem to be getting any smaller.
HEATHER SAGER: I think — I’m not a business owner. But to me, this reminds me so much of my student loan debt that I graduated college with. It’s very similar, the idea of debt at the time seems really great to take on. But it can become extremely overwhelming very quickly.
ZACH BYRD: Exactly.
HEATHER SAGER: And can almost create this paralysis, if you will, about the “What do I do next? And how do I get around it or through it?” So, I think today’s topic is so relevant to so many business owners. I know that topic of debt is definitely something that is a hot one.
So, let’s just jump right to it, Zach. Let’s talk about step number one, restructuring cash flow. What do you mean by that?
ZACH BYRD: So it just means readjusting and altering the financial strategy or budget that your business is using to free up any possible additional cash that you can put toward increasing that payment and reducing your debt.
HEATHER SAGER: And how does that actually help a practice?
ZACH BYRD: Well, not every cash-flow adjustment that you have to make has to be permanent for the business. You can make certain adjustments, cut certain expenses that maybe you don’t need temporarily, that you might need later on. Use it to work on paying off the debt. And then put that cash back where it was once that debt is paid off.
HEATHER SAGER: Walk me through a little bit, this understanding of cash-flow restructuring. Like, what does that really mean? How does that actually work?
ZACH BYRD: Well, there are several ways to go about doing it — several steps. And, you know, whether a business does some or all of these, all are really helpful. I think the first one is just focusing on increasing the flow to your business, the conversion; everybody’s favorite Audigy acronym, those KPIs. That’s probably the simplest thing you can do.
HEATHER SAGER: Those key performance indicators. We want to attack those.
ZACH BYRD: Indeed. Because [if the practice is] bringing in more money, you can apply those funds to your debt before working — once that debt is reduced or paid off — on taking that additional cash flow and using it to grow the business.
HEATHER SAGER: So that’s a pretty basic principle. To increase your cash flow, increase your flow of cash.
ZACH BYRD: Exactly. I couldn’t have said it any simpler.
HEATHER SAGER: I can follow that.
ZACH BYRD: But, you know, that’s not always the case. If your business isn’t exactly in a place of growth right now, then it’s time to take a look at the back end. Take a look at those expenses, and see if any can be temporarily reduced, or even permanently cut, until that debt is lowered to a more manageable level.
HEATHER SAGER: OK, so we talked about increasing the volume of cash coming in. Secondly, we talked about reducing expenses. What are some other tips you have?
ZACH BYRD: So another big issue I see with cash flow is a business will be making a lot of money on paper. But they’re not actually seeing that cash come in. They have a lot of outstanding invoices, [like] with private patients — they’re on some kind of a payment plan or they just haven’t paid their bills yet. Or especially with insurance companies: We see, typically, if the insurance company is not prompted, we can see them not paying out that cash for 90 days or more, if at all, sometimes.
HEATHER SAGER: So that collection conversation. Ensuring that that money is actually collected from the patient or the insurance company really has to take place.
ZACH BYRD: Yeah. And there are a lot of steps you can do. I think just implementing making those collections calls into your business’s block schedule, whether it’s calling those patients with the outstanding bills or calling the insurance companies. With the patients, a lot of the time, making those regular calls will get them to pay within the month. And insurance companies, it’ll cut that time down from 90 days or more to 30 or 60. And that’s really going to help your cash flow.
HEATHER SAGER: And this might be an area where a finance manager or financial expert can really be a good partner for the business. Not only with these ideas, but also with the budgeting process.
ZACH BYRD: Yeah, they can advise and partner with you to determine that strategy.
HEATHER SAGER: OK. So that was a lot of great tips around cash flow. I’m going to recap those. For those of you listening, I want you to be able to write these down if you’re looking to increase your cash in your business. First, it was, generally, bring in more business, increase your cash. Second, you talked about reducing your expenses. Third, really tackling the collection.
So whether it’s through insurance companies or patients with outstanding bills, really making sure that you have a diligent process built into your practice to follow up.
ZACH BYRD: Exactly.
HEATHER SAGER: And then four was really getting clean around the budgeting process, and looking for other opportunities there. So, whether that’s collaborating with your finance manager on your annual budget, or that’s going through to extract any other areas that might be heavy on the budget. Just taking a second pass at that and ensuring that it’s as tight as possible.
All right. Now that we’ve tackled some strategies on cash flow, let’s transition and talk about step two: really tackling that debt-repayment strategy. So share with us a little bit about how we can go about debt reduction.
ZACH BYRD: Once you have that extra cash, it can be applied to debt. But there are better ways of doing it than others. And you want to make sure you pay off that debt the right way, that you’ve explored all of your options before you just kind of blindly write that check and make that payment.
HEATHER SAGER: Not all debt, like you said, is created equal. You want to be strategic about how you tackle that debt. And I think, again, this — a lot of what we’re talking about today actually could be really parallel to our personal finance lives. So, for those of you who are listening and who are not practice owners, and are thinking, “How does this apply to me?” This completely applies to you on your personal side, too.
So, thinking about debt-repayment strategies, how do we actually tackle this?
ZACH BYRD: So if you find yourself in a situation where it seems like your debt really is overwhelming, and you’re not sure what to do or where you should be putting your money, the first thing you can actually do is speak with your creditors directly, with the loan organization or the bank or whoever this loan is through. Many organizations actually offer what are called hardship plans, which are — if you can show that your business is, in fact, struggling from a cash-flow perspective, they will offer a reduced-payment option for your loan.
And even if they don’t, a lot of times, you can ask for a settlement where you pay either a reduced total loan amount, or they can revise your payment plan so your monthly payment itself is lower. Even if you have multiple short-term loans, you could look into consolidating them into a single long-term debt that will reduce your monthly payment, but will not necessarily reduce the total amount that you pay. But it can free up that extra monthly cash that you can put toward growing the business.
But you really want to check with your finance manager first if this is right for you. Because if you require additional debt past that long-term loan that consolidated all of your little smaller loans, it can actually end up doing more harm than good. So while this is an option, it’s not always the best in every situation.
HEATHER SAGER: When it comes to debt-repayment strategies, there’s two things you can do. You can address each loan independently by addressing with that creditor: What are some alternate options that you have for repayment?
But the second area is, you might want to look at potentially consolidating some loans together to simplify your payments but also reduce your overall cost. Are there any risks when taking that direction?
ZACH BYRD: Yes. So while consolidating multiple smaller loans into one larger one, like I said, can be really helpful in reducing that monthly payment, it’s not always the best situation. Because if you find yourself in a place where you have to take additional debt beyond that loan that was supposed to consolidate all of your debt, it can actually end up doing more harm than good. So you really want to check with your finance manager first, and determine if it’s the right option for you.
HEATHER SAGER: OK, so step two is debt-repayment strategies. I think there’s a lot to consider. And if you’re sitting there with a lot of debt on your plate, this is a really good opportunity to have an open conversation with your finance manager around which strategies really could be the most effective for you, both short term with cash flow but also long term for the longevity of your business.
Let’s move on to step three, Zach, and talk about payment strategies for handling multiple debts.
ZACH BYRD: While consolidation is good if you have multiple smaller debts, a lot of our members also struggle with having multiple large debts. And if that’s the case, it can seem almost completely hopeless. I mean, one large debt alone can seem pretty overwhelming. So if you have several of them, it’s really easy to get paralyzed.
So there are actually two strategies that are focused around reducing multiple debts: one focused on reducing it as cheaply as possible, so you’re paying the lowest total interest, and one around paying it off as quickly as possible. They both have kind of winter-themed names.
HEATHER SAGER: I’m laughing because yesterday was 101 degrees here in Portland. So that’s just kind of funny. So one, you said, cheaply. So the least cost possible. And then the second one was time. What are the winter-themed names for those?
ZACH BYRD: They are respectively called the avalanche and the snowball.
HEATHER SAGER: Why don’t we start with the snowball method. Talk to us a little bit about what that means around getting down through our debt quicker.
ZACH BYRD: Sure. So the snowball method just focuses on paying off your smallest debts first. So essentially how it works is, all of your debts, except the smallest one, you make only the minimum payment on. After you pay that debt off, you take the money that you were paying for that small debt, and put it toward the next largest debt. And you just repeat that process over and over. So it’s like a snowball. It starts small at the top of the mountain. And then, as it rolls down, it gets bigger and bigger and bigger. Until when you have your largest debt left, you’re also making large payments toward it.
So all of the debts get paid off quicker and quicker and quicker. Your total loan payment doesn’t change. The total amount that you’re putting toward paying off debt does not change. Instead, the amounts that you’re applying toward each debt change as each one gets paid off one after the other.
HEATHER SAGER: All right, Zach. We’ve got the snowball method down. Now let’s talk about the other winter event, the avalanche.
ZACH BYRD: Sure. So the avalanche, in principle, works pretty close to the snowball effect. You are paying only one debt off at a time, and just making those minimum payments on all the others. But instead of the snowball method, where you are paying the smallest amount first, with the avalanche method, you’re actually paying the highest interest first.
The advantage this has is that, while it may take longer in a lot of cases to pay off than the snowball method, the avalanche ends up with you paying the lowest total amount. So you know, loans have that interest payment, that extra amount that doesn’t actually pay down your loan. The avalanche method minimizes this, so that when you look at how much you spend in total, it’s the smallest amount it can possibly be.
HEATHER SAGER: You have to really get clear on what your goals are for paying down debt. And then make sure that you choose the best one for you in your specific scenario. But I think in both scenarios, the snowball or the avalanche, they can be very successful.
ZACH BYRD: Exactly. And both do have the same end result, which is, your debt is paid off in full.
HEATHER SAGER: But I actually think that’s a lot of our owners’ goals, they want to be debt free. Or at least have their debt down to a very manageable volume, where they can be a lot more free in the decisions they make for their businesses.
ZACH BYRD: Speaking of our members, the finance managers here at Audigy actually have the tools and the analytics available to show you what your debt would look like over time, whether you use the snowball or the avalanche, so you can see what they both look like. You can see how much total you’re paying with each, when they’re paid off, and determine which one is right for you.
HEATHER SAGER: So let’s say someone’s listening today, Zach, and they’re not a business owner, and they don’t work directly with the finance manager. Is there a way that any other listener today can start getting a better understanding around which method could work for them? Because, like we’ve talked about, this really fits for personal debt, not just business debt.
ZACH BYRD: Absolutely. So there is actually a debt-reduction tool on the Audigy CEO website, where you can download it, enter in your own debts, the balances, the interest rates, the minimum payments. And all you have to do is select from a menu, snowball or avalanche. And it’ll calculate the entire plan all the way to the end of the debt payment. Whether snowball is better, whether avalanche is better, it will tell you actually month by month what payments to make to which loans.
HEATHER SAGER: What a phenomenal tool. I wish I would have had that available to me 10 years ago. I created one myself in Excel. And I am not a finance guru as you are. But what an incredible tool that is for really empowering our listeners to be able to start tackling their debt, and help them start putting their money toward their actual financial goals, not the choices that they’ve made in the past.
So what an incredible tool. And you say we can find it on CEO?
ZACH BYRD: Exactly.
HEATHER SAGER: All right. That’s really great information today, Zach. We have covered a lot of ground. We’ve talked about the three steps to financial nirvana. Step one was restructuring cash flow. And with that, I wanted to recap the four very specific tips that Zach had shared. One was increasing the overall cash flow in your business by increasing the volume of business you’re doing. Number two was really taking a look at reducing your existing expenses. Three, tackling your collections, ensuring that the bills are being collected from your patients and insurance companies. And four, reevaluating your budget, and partnering with your finance manager or financial planner around some methods of increasing cash flow at the budget level.
Then step two, we talked about implementing a debt-repayment strategy. And step three, we talked about the winter land of snowballs and avalanches through the payment strategy for multiple debts.
Zach, we’ve covered a lot of ground.
ZACH BYRD: We have.
HEATHER SAGER: Any additional tips that you would like to give to our listeners today around this overall topic?
ZACH BYRD: I think the biggest thing is, it’s not wrong to have debt. I said that at the beginning of this too. But just remembering that debt can be a really useful tool to help grow your business. It’s just making sure that the debt is a level not only that you can handle, but that, in the situation that it does get out of control, there are steps you can take. And it’s definitely not the end of the world.
HEATHER SAGER: I think that’s a beautiful piece of advice to leave it on, that it’s OK to have debt. The main thing is, you want to really feel in control of your decisions. And really, specifically in control around where you’re investing your money to make sure it aligns with the vision and goals you have for your practice — and more importantly, yourself.
So with that, Zach, thank you so much for joining us today. It was a pleasure to have you.
ZACH BYRD: Thank you.
HEATHER SAGER: I wish you good luck in your adventures as a successful finance celebrity.
ZACH BYRD: I’ll always make sure to remember my time at Audigy.
HEATHER SAGER: Perfect. All right. And thank you all so much for listening today. We’ll see you on the next episode.