It’s impossible not to look at the numbers if you own a dental practice; it’s a business like any other, after all. But would you be surprised to learn that profit may not be the most significant financial metric for your business?
While being profitable is of course advantageous and an important goal for business owners to focus on, what’s most important for the smooth running of a dental practice, is cashflow. Without this, your team can’t be paid, you’re unable to make equipment investments, or cover any unexpected expenses that may (and often do), arise, even if your practice is profitable.
Let’s take a closer look at the importance of cashflow for dental practices, and should you need more detailed information, you can schedule a consultation with accounting services for dentists:
What’s the difference between cashflow and profit?
If you’re a dentist with a profitable practice, you could be forgiven for thinking that this means it’s financially secure. But, this isn’t always the reality.
- Profit – this is the amount of money left over once all the practices expenses have been subtracted, and while it might look good on paper, it doesn’t always mean that you have plenty of cash to play with.
- Cashflow – this is the inward and outward flow of cash from your business, and having a positive cashflow means that you’re able to comfortably cover your daily operational expenses. Negative cashflow is quite the opposite.
Why is cashflow more important than profit?
Below are a few reasons why cashflow should be your main priority as a dental practitioner:
- Without cash, you can’t pay your expenses
Things like rent, payroll, utilities, and supplies all need to be paid on time and in full, and if you’ve got a healthy cashflow, you won’t need to worry about paying them.
- Without cash, the growth of your practice may remain stunted
Whether you want to renovate your practice, upgrade your equipment, or take on a new hire, you’ll need more than just a piece of paper saying that you’re in profit; you’ll need cash.
- Without cash, insurance delays can be painful
It’s a well-known fact that insurance companies don’t always pay up on time, and when they fail to make timely payments, your accounts receivable starts to pile up. Without a healthy cashflow, such delays can leave you in an uncomfortable position.
- Without cash, loan payments can build up
Dental practices often take out loans when they need to make major purchases, and if the cash isn’t flowing, those payments can become quite burdensome.
So, what can you do to improve cashflow for your practice?
Fortunately, there are a few strategic moves you can make to take better control of your cashflow:
- Expedite collections – by offering payment options that are more flexible, or setting up outstanding invoice reminders that are automated
- Keep a close eye on key financial metrics – make time for regular reviews of your cashflow statements, and work with a dental accountant to help you project trends in cashflow.
- Control he cost of overheads – negotiate with suppliers for better rates, and try to avoid any expenses that don’t directly contribute to practice efficiency or patient care.
- Plan for seasonal lows – with guidance from dental accounting experts, you can set aside a financial buffer to help you cope with slower months.
Nobody is suggesting that as a dentist, you don’t focus on your practice being profitable, but without cashflow, what have you really got? Manage your cashflow with the tips outlined above, and you can ensure that your team get paid, and your practice thrives.