How Your Dental Practice’s Cash Flow Affects Your Bottom Line

The connection between money flowing in and out of your dental practice and your bottom line isn’t necessarily an obvious one. In order to stay out of the red, a dental entrepreneur must stay on top of the business’s cash flow. This can be as easy as employing a cash management system in expectation of the inevitable ups and downs a dental practice can experience if you stick to your own set of rules. Here’s how to keep cash flow top of mind at your dental practice so you can improve that all-important bottom line.

Make friends with the bank

The best way to stay on top of your cash flow is to go to the bank every day rather than sitting on deposits until the end of the week. Cash should be deposited into your savings account and transferred to checking as needed to cover expenses. While you’re at it, establishing a personal relationship with your banker will only help your business thrive when you’re in need of financial guidance.

Don’t be afraid to borrow money

Knowing how to use debt to a dental practice owner’s advantage can be tricky. Though interest rates can be high these days, consider using debt and not cash to make large purchases, such as investing in new equipment to grow your business. Spreading out the cost of your capital purchases can be more profitable in the long run. Plus, all the costs are deductible come tax time and will ultimately save your daily cash flow for when you need it in a pinch.

Think about leasing equipment

Alternatively, leasing can be the most sensible approach to many types of capital investment. That way, you can use the cash in other places in your business that will have a better return on your investment. Your tax adviser will help you determine the best course of action, especially if you purchased an existing dental practice that came fully equipped but it’s time for you to consider an upgrade.

Market your business

Sure, you could throw a bunch of money at your next marketing effort, but you’ll also want to consider the cost of patient acquisition. It’s OK to try a new approach, but make sure to track the patient referrals from those sources to keep costs as low as possible. One of the best tactics can be investing in a new website since that’s where most potential new patients turn first.

Set up autopay

One of the easiest ways to ensure your bills are being paid on time is to set up autopay. Make sure to set it on the bill’s due date, not before or after, so you can count on timely payments, as well as reliable cash flow, in turn. Making online payments will also eliminate the uncertainty of postal service delivery.

Collect those accounts receivable

To put it mildly, you need to be very aggressive with your accounts receivable. Consider implementing a discount program for patients who pay for treatment upfront. This will often cost far less than trying to go after that money after the treatment has been performed. What’s more, be sure to file insurance claims correctly. Developing a good process for sending claims, X-rays and narratives will eliminate any unnecessary back and forth to collect on covered treatment.

Maintain a cash cushion

Though sometimes easier said than done, try to keep enough cash in interest-bearing business accounts to cover normal operating expenses for three to six months so you aren’t left scrambling to pay next month’s rent or payroll. Best of all, your cash cushion will continue to make money for you since you’re keeping it in an interest-bearing account.

Rely on technology

Start by getting training from your accountant on which reports you should be running every month. Learn to read them quickly and understand industry metrics that are applicable to your dental practice. That way, with a quick glance at the end of the month, you can see what kind of shape your business is in.

What’s next?

The best way to understand the financial health of your dental practice is by working with a qualified dental practice broker even before considering a transition of ownership. Contact the experts at Professional Transition Strategies to start the process with a free valuation.