The Importance of Managing Cash Flow in a Dental Practice
As a dentist, you work hard day in and day out. It’s natural to be frustrated and anxious when you get to the end of the year and feel like nothing is left. Previously, I discussed the merits of reviewing your practice cash flow in depth to understand where your money goes and how your numbers stack up against industry standards. This is an important place to start if cash flow gives you a daily dose of stress. Understanding your practice’s cash flow is important for a number of reasons, so let’s briefly explore them.
First, it gives you the confidence to make decisions! Whether the decision in front of you involves proceeding with a debt restructure, implementing a 401(k) plan, or something else entirely, knowing your numbers and understanding your cash flow helps give you the confidence that you’re moving in the appropriate direction.
Second, if you don’t know what your practice expenses are and where they should stand, how can you make any meaningful changes?
Third, understanding your employee expenses and how they correlate to your office’s production and collections can help you understand if you are overstaffed or understaffed. Are your hygienists productive for what they are being paid?
We often see profit and loss statements that are in alphabetical order or in descending order of the size of the expense. We’ve spent a great deal of time reviewing practice numbers, and have found that this type of organization makes it very hard to manage your business and understand your cash flow. So, we break it down and organize your practice cash flow by categories. This often is the first time a dentist starts to have a true understanding of his or her cash flow and what it takes to run the business. This may also be the first time a dentist has an understanding of how much his or her staff costs, and how that compares to industry standards. A dentist may not know how much he or she spends on marketing and the return on investment he or she is getting.
Confidence is one of the biggest outcomes of going through the exercise of evaluating and understanding your cash flow. That’s not to say changes won’t need to be made, but at least you’ll have the confidence to know what changes to pursue and what the potential result may be.
In our next post, my colleague, Tom Bodin, will discuss some things to consider when you’re deciding whether to purchase equipment in your practice.
This commentary originally appeared September 11 on DentalTown.com
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