Essential Tips for Improving Cash Flow
By: Erik Neilson
Cash flow is one of the most stressful factors for businesses across all industries. For some, it can mean the difference between success and failure. A dental practice that thrives and grows is one that has figured out how to effectively manage cash flow—otherwise, floundering is almost always to be expected. Unfortunately, some learn how to manage cash flow the hard way instead of taking the time to plan ahead. This can end in issues and may even spell the end of one’s practice.
Dental accountants need to pay a great deal of attention to cash flow, and it doesn’t have to be as hard as you think to come up with a plan—here are a handful of tips to get you started.
1. Start by Reducing Your Overhead
It should essentially go without saying that the best way to run a lean business is to keep overhead as low as possible. All in all, however, many practice managers and dental accountants tend to forget about just how important it is to place focus on this aspect of day to day business, which can inevitably result in unexpected cash flow issues. Reducing your overhead is something that should consistently stay top of mind, regardless of how well your practice is operating at the moment.
So, how exactly can you get started improving cash flow for your dental practice? First, you need to escape from the rut of doing things the way you’ve always done them—change most certainly needs to occur. The best route toward success is often to hire an advisor to come in and take a close look at how you’ve been operating up until now. From there, he or she can make suggestions about how to reduce your overhead without sacrificing client experience. After all, the more you can maximize the efficiency of your office, the more profitable your practice will be in the end.
2. Secure Credit Ahead of Time
There are plenty of reasons why one might assume that staying away from credit cards and loans is crucial to running a successful business without drowning in debt. This is certainly an admirable mindset, but it does very little to help if you end up financially strapped and have no options to help you move things in the right direction. Many people make the mistake of trying to secure credit when they actually need it, which can quickly result in headaches and dead-ends.
By securing credit ahead of time, you’ll have access to funds in the off chance that you might actually need them, which is a lot safer than getting stuck in a financial drought.
3. Request Payment in Full Upon Each Visit
One of the biggest mistakes that dental practices make is one that typically means very well. Extending payment terms out 30-60 days or allowing patients to be billed after the fact can certainly be great customer service, but it does very little in terms of helping out your practice’s cash flow situation. Ideally, you should plan to collect payment from your patients at the end of each visit, and in full. There may be relationships in place that cause reason for an exception to this, but making it the rule can help to alleviate cash flow issues to a large degree and should be something every dental accountant focuses on.
4. Perform Quarterly Forecasts
If you do just one thing in an attempt to get a strong grip on your practice’s cash flow, it should be to perform regular quarterly forecasts. This is especially important for younger practices that haven’t necessarily gotten their feet under themselves quite yet, as not being prepared for the costs associated with growth will do nothing but delay success. Even if you know how much money needs to go into the business up-front, the key to managing cash flow comes from knowing when you’ll see money coming back.
For small practices, managing cash flow is as easy as projecting via pen and paper. Larger practices may want to create a more thorough cash flow forecast, perhaps stretching into the next year rather than sticking to quarterly estimations.
Don’t let cash flow issues get in the way of growing your practice. Plan ahead—you’ll end up thanking yourself for the due diligence.
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