Cashflow Challenges for Growing Dental Practices
Growing dental practices face a number of different challenges, and often, cashflow is one of them. While you might think that more patients automatically equates to more money in the bank for a busy, growing dental practice, the reality is in fact, a lot more complex.
The advantage for smaller dental practices
For smaller practices with fewer patients, systems are simpler and every transaction is known. Expenses are easier to predict, collections are usually aligned with the volume of patients, and money coming in and going out becomes clearer, especially with guidance from an experienced dental accounting firm. But, as operations begin to expand and new staff are employed, new technology comes into play, and possible new locations are added, moving parts multiply. Planning cashflow then becomes more of a necessity than something that forms part of the monthly routine.
The challenges as they grow…
With growth comes a whole host of new expenses, issues with timing, and various financial blind spots that if not managed with care, have the capacity to put a heavy strain on liquidity.
- Cashflow
One of the most common issues faced by dental practices as they grow, is a mismatch in timing between business expenses, and collections. For instance, if a new employee is hired, payroll immediately increases in cost, but despite production having also increased, it can take many weeks for those collections to appear. With lab bills, reimbursements for insurance, and financing for equipment, cashflow begins to fall behind and chip away at working capital.
Without a proactive approach to planning, a growing dental practice may well look profitable on paper, but in reality, be cash poor.
- Scaling costs
Investment in such things as upgrades to technology, marketing, and training for new employees, is often required upfront when any business expands. And although necessary, they rarely provide returns immediately. Then, as the practice’s overheads grow, so does the necessity for more detailed forecasting. With a strategic plan for cashflow, it becomes far easier to predict shortfalls before they take place, and gives practice owners the confidence to make sound financial decisions.
- Managing complexity
Cashflow also becomes more complicated, making it trickier to manage. With a bigger practice comes more vendors, insurance receivables that fluctuate, an increase in payroll schedules, and expenses that vary according to the volume in production. At this stage, the practice’s financial picture starts getting difficult to manage with a single spreadsheet. Projections for cashflow need to be regular, budgeting must become more disciplined, and reporting needs to be accurate. Having professional assistance from dental accountants then becomes a necessity. With their expertise and skill, specialist accountants can help dental practice owners identify patterns, keep cash reserves healthy, and forecast upcoming needs.
For dental practices wanting to scale with confidence, cashflow must ideally be tracked and forecast on a quarterly basis, with trends in collections adjusted for, along with overheads and staffing. With help from a specialist dental accountant, practices can develop a cashflow strategy that’s forward-looking, build reserve funds, tighten up their billing procedures, and time major purchases strategically.