What we cover in this episode:
- 01:44 – Gaining understanding and control
- 06:38 – Tracking business expenses
- 11:25 – Typical expenses for a dental practice
- 16:36 – Tracking personal expenses
- 24:15 – Conclusion
Gaining understanding and control
One of the largest reasons to get a handle on cash flow and financial projections is to get rid of the sense of overwhelm that comes from not knowing what is happening in your practice. Cash flow forecasting in dental businesses can help with peace of mind. You don’t need to be the one who is compiling all of the information as the owner, but you do need to review it regularly.
Many dental practices are very profitable. Because of that incoming revenue, they don’t usually worry about an empty bank account and assume all is fine with their business. When you don’t have a pulse on cash flow in your practice, it can easily and swiftly impact the success of your practice, its profitability and how much money you can bring home.
In addition to the cash flow projection template below, we offer a free cash flow template for download on our previous episode #23. We also have a library of prior episodes focused on dental practices, and encourage you to revisit the dental series when you have time.
This free template will help you project the cash flow situation in your dental practice over the next 13 weeks.
Complete and edit this template to meet your individual needs and determine what your cash flow situation will look like throughout the quarter.
Business considerations
As we focus back to the business side of this issue, and specifically as a dental practice owner, you may ask why tracking expenses is so vital and important. There are many considerations regarding what you need to be looking at expense wise, and what you need to be keeping mindful of when it comes to your business and its finances.
Where does your business stand?
To start, you need to know exactly where your business stands in order to make sound financial decisions. Can you answer the following questions?
Do you need to be saving more money?
Do you need to be cutting back?
Are you able to invest in, or buy new equipment and, if so, do you potentially need a loan for that?
It’s really important to be looking at your financial statements on a monthly basis to get a sense for where things are, both on the profit and loss side, and if you are bringing in enough revenue to cover your expenses. If you are able to benchmark the numbers you need to keep your business going comfortably, then you can compare and make sure your expenses are in line and make really great decisions.
Current Cash Flow Situation
Do you have a good handle on your current cash flow situation, and know how much cash is on hand? Is it comfortable? Is it enough? We recommend having a savings account, not just money in your operating account, because you just can’t always predict things.
Consider things like COVID, or a huge snow storm, where you will not be able to bring in the revenue that you thought you would. How will you manage those circumstances? Can you pull from a savings account or cover your payroll or suppliers if needed? You should always have a good comfort level with your cash flow in your business in case of unexpected events.
Profitability
Lastly, you need to be considering profitability. Many dentists are running very profitable practices, but also in a position where they owe a fair amount as well. Most often that is personal debt, and if it’s a flow through entity, that income is going to flow through to your personal tax return. Consideration should be made for what your personal tax situation will look like. We highly recommend working with a CPA to prepare for tax time, and fully understand your profitability.
Typical expenses for a dental practice
Obviously, you’ll have many expenses on a monthly basis, but when looking at cashflow, you can step back and focus on the large expenses to compartmentalize and plan what your cash out will be on a regular basis. These large expenses include:
- staff payroll
- doctors’ salaries
- dental supplies and equipment
- lab fees
- rent or mortgage
- insurance
- debt
You should try to track all of these expenses, create benchmarks for what to expect, and then turn your attention to the numbers you are bringing in when it comes to production. Will those numbers cover these expected expenses, and will there be anything left over? Using industry metrics and standard benchmark percentages can be a benefit when you compare to what you are paying in expenses for your practice.
Tracking personal expenses
The same mindfulness that you have for tracking your business expenses should also extend to tracking your personal expenses. First of all, are you bringing in enough salary as the doctor that you are, and accounting for the time and effort you’re putting into your practices? You want to make sure that you’re getting a good salary because that helps you to be able to, as you said, manage your household.
Next, you should consider your personal expenses. Then ask yourself about your savings and goals for the future to ensure you have what you need. It’s important to track to be sure you are saving for your long term goals, such as your retirement. You should consider if you want to be living a similar or better lifestyle in your retirement.
Knowing where your personal money is going will help you to save for the future expenses you know will arise. It may be an unpleasant subject, but taxes are a big consideration, as well as paying down debt. Having a cushion for unexpected expenses can be a lifesaver.
Conclusion
Your dental practice is also a small business and requires all of the necessary components, like a business plan, financial model, cash flow analysis, and more. You are an amazing doctor, but if you own your own practice, you need to be able to look at the business side as well in order to grow and reach the most success possible.
Having an understanding of your financial situation as a part of practice management will provide much needed peace of mind and reduce the anxiety and stress that often come with owning your own business. Consider your dental practice financials a major and key component of the operations in your practice and make them a priority.
We recommend having help and a team of advisors to assist you with any cash flow concerns, or to help guide you with any questions you might have. The more knowledge you have, the better, when managing your dental practice, so you can make proactive adjustments when needed. Track your money to ensure you know where it is going, either on the practice side or on the personal side, to ensure you can enjoy your retirement as you plan.
Links mentioned in this episode:
- Episode #23: 5 Ways to Manage Cash Flow Issues
- Episode #51: The Dental Series – What Dental School Didn’t Teach You
- Episode #52: The Dental Series – Accounting for Your Dental Practice
- Episode #53: The Dental Series – Purchasing a Dental Practice
- Episode #54: The Dental Series – Selling Your Dental Practice with George Bozonelos
