A successful cash-flow analysis can be tricky to get it right when you have a dental practice.
For starters (and no offense), many of your “customers" don't really want to visit you. Then there's the insurance drama that can drag your payments out for weeks or even months.
“My practice is approximately two-thirds insurance driven and one-third private pay or fee for service," says Stanley Levenson. (He's had his dental practice, Levenson Smile in Worcester, Massachusetts, for about 30 years now.)
Insurance often has an annual limit of less than $1,500 per patient, with many restrictions, Levenson adds. That means you may have patients who can't get procedures done at all or who may ask to pay in installments.
There's also the fact that general dentist practices typically have high overheads, according to Levenson. That makes keeping your cash-flow analysis accurate even more important.
So if you want to make your bank account statement less frightening than a trip to the... well... you know, it may be time to improve how you manage your cash flow by doing the following.
1. Do a cash-flow analysis and look for potential problem areas.
You may know that you're running low on money occasionally, but have you thought about why?
Are you planning for things to go wrong?
Sure, planning for the worst sounds pessimistic. But if you aren't prepared and don't have ample money in the bank or working capital to help your dental practice function, you're inadvertently preparing for a future financial problem (or a slew of them).
Jerry Lanier is the founder and former CEO of Kids Dental Kare in Southern California, which grew to 14 locations while he was running the show. (He is also the author of a new book, The Entrepreneur Dentist.)
As Lanier can tell you, just about anything can shake up a dental practice's bank balance, no matter how thorough you think your cash-flow analysis is. Some examples he's seen include:
- Held-up revenue: "Insurance companies or Medicaid especially can hold reimbursements for any number of reasons and for long and undetermined amounts of time," Lanier says.
- Legal issues: “Lawsuits can be very expensive and must be defended," he says.
- Taxes: Business owners who don't pay their estimated taxes may run into issues, Lanier explains. "[Since] things happen throughout the year that can pull your funds in a different direction, they find themselves short when it's time to pay the piper," he says. "Now penalties and interest start to add into the equation, and it becomes a hard catch up game."
- Competition: "Many times, it's an associate of yours who will try to take your staff, management, associate dentist and your patients if they can," Lanier says. "This can cause a real cash-flow problem until you find a solution to combat it."
- Sickness and/or accidents: "Disability insurance can help, but it's slow to kick in and only replaces a percentage of your income [and not] your business expenses," he explains.
You could also have a PR or natural disaster, embezzlement or a fight with a business partner. Really, the list of what could upset the predictions you've made with your cash-flow analysis is unfortunately endless.
It's easy to delegate certain activities to others in an office, so you can focus on patients and not on the books, but it is important to know at all times where the office stands financially.
—Dino Johnson, vice president and founding partner, Steward Partners Global Advisory
2. Work on your dental practice's budget.
A mismanaged budget is how most businesses, dental practices or not, get into trouble, says Benjamin Yin, co-founder and principal of Generational Financial Partners, a wealth management firm in Norcross, Georgia.
Yin is a financial advisor who primarily works in the physician market and has advised numerous dentists. You'll want to update your budget—and stick to it, he says.
“Once a budget is created, including advertising, payroll, operations and so on, it must be followed with a lot of discipline," Yin says.
He also advises dental practices to identify how much it costs to acquire a patient and which advertising campaigns are creating new patient opportunities.
“All too often, a medical practice will stop marketing because they see it as an expense, and they don't know exactly how much revenue can be attributed to each campaign," Yin says.
3. Make sure the machinery is running correctly.
There are a lot of moving parts to any business that generate income, and they aren't all obvious. Yes, you need patients coming in the door. Yes, you need health insurers to pay you faster. But don't forget about the little, less-thought-about considerations either, says Dino Johnson. (Johnson, along with his father Mark, have a practice called the Johnson Wealth Management Group at Steward Partners Global Advisory, a wealth advisory firm based out of Albany, NY.)
“In our opinion one of the biggest issues a dental practice may face longer term is not so much on the profit side of things. From our experience, it is a lack of cash flow," Johnson says.
He advises dentist-owners to monitor the cash flow statements “at all times."
“It's easy to delegate certain activities to others in an office, so you can focus on patients and not on the books," Johnson says, "but it is important to know at all times where the office stands financially."
Johnson also suggests keeping your technology up to date.
“Many patients today prefer to pay by card. Having a cash-only option for patients can slow the process down for payments," he explains. "It's also important to set up a website to make payments online. Many people today utilize online payments for bills and dental practices should be no different."
Even student loans can hurt cash flow by hurting your chances of getting, say, a working capital loan for your dental practice.
"According to the American Student Dental Association, 2017 dental students graduated with an average dental school debt of $287,331," says Todd Hoffman, a senior advisor at Steward Partners. (The study the Association references is the American Dental Education Association's Survey of Dental School Seniors, 2017 Graduating Class.)
"As a result, often when dentists want financing for their business, it can be complicated because they may already have significant personal debt plus student loans."
But that doesn't mean you won't be able to take out money for your dental practice, Hoffman adds.
"If the dentist's credit is good and the collateral is reasonable and the practice is profitable, the rates should be very attractive with high levels of financing available since this will be a competitive situation many banks may be willing to compete for," Hoffman says.
It's just another reminder that when it comes to a cash-flow analysis, you want to look at everything—and not only what money is coming and going every month.
4. Have easy-to-understand financial policies for your patients.
Dentistry is a business that is emotional and important, but it can also be confusing at times because of the role health insurers play in the equation. And when patients are perplexed about how much they're paying for a service, or even if they have to pay, that can really throw off any dental practice's cash-flow analysis.
“Patients need to be educated to value the care you provide and [be] willing to pay for it," Levenson says.
“For elective non-insurance type procedures, we are paid at the time of service or sometimes in advance," he continues. “Since most insurance claims are filed electronically, reimbursement is often received in three to 10 days. The insurance companies are also doing more and more electronic deposits as well."
Navigating insurance can be complicated for you and your staff—just imagine how it is for your patients. The hope is that the more informed your patients are, the easier it will be for them to pay you.
5. Run your business like your home.
Just as you hopefully have an emergency fund for your household, Lanier suggests having a rainy day fund that can carry your practice through one month of having no revenue coming in, in the hopefully unlikely event that that would ever happen.
He advises every dentist to “pay your estimated taxes in as soon as the CPA advises you to do so" and check your books regularly.
“The best advice is to live within your means. Never spend Uncle Sam's money; he's not very kind to those that cross him. Maintain a substantial amount of liquidity even when you think it's not needed," Lanier says.
Still, that doesn't mean you shouldn't take calculated risks and try to grow your business.
But it's a thorough and accurate cash-flow analysis that can help your dental practice become long in the tooth someday.
Read more articles on managing money.
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