Winning Back-Office Strategies to Boost Your Business Agility
VIEWpoint Issue 1 | 2023
2023 Compliance Trends: Staying Ahead in an Evolving Regulatory E...
All business owners have the never-ending task of managing cash flow. Owning and operating a dental office is no different. Proper cash-flow management is critical to running a successful practice. You need to pay close attention to your accounts receivable, both owed from insurance providers and patients, as well as monitor your expenses like your supply inventory, payroll, etc.
Typically a dental practice should have at a minimum one month’s expenses and debt payments, plus one payroll in cash. However, each practice is different and may require a different composition of cash flow. Planning for your cash balance needs will require digging into the details and putting a budget in place. To help aid you in the process, Doeren Mayhew’s Dental Division has compiled tips for managing cash flow that will help your dental practice reach goals and maintain a healthy existence.
Accounts receivable is the amount owed to a practice from patients and insurance providers for services performed. Reviewing the aging of the accounts receivable should be done regularly to ensure balances on accounts are collected timely. The balance of your accounts receivable should be less than one month’s production, and no more than 20 percent of your accounts receivable over 60 days old.
Implementing a budget and having a business plan will help you set goals, benchmark your numbers, plan for spending and monitor practice overhead. To get started, take a look at the past year’s line items to evaluate costs before planning next year’s budget. Also, consider how the variable items such as supplies and amped up advertising might impact overhead costs, as well as collections. Simpler items to nail down may include payroll since it’s predictable to some extent based on the schedule and timing of any bonuses. Project out your annual income and expenses each year, and periodically compare your actual numbers to your budgeted numbers. More importantly implement any changes needed or identify opportunities to eliminate unnecessary overhead costs after analyzing the numbers.
One easy way to manage your dental practice overhead is to benchmark. There are many benchmarking ratios out there to help shed light on your practice’s financial health. Understanding how your practice operates is essential to aligning your benchmarking goals to what is going on in your practice. Your production mix and growth plan can have a direct impact on the numbers so it’s important to get it right before implementing any changes. Take the time to review your practice’s benchmarking ratios and major budget line items, as it can often lead to a discussion on areas for improvement.
Managing the timing of cash flow can be a battle. If you have extra cash to pay down debt it’s important you also coordinate with your tax plan as these have an inverse relationship. For instance, when you pay down debt you have a cash outflow, but this outflow of cash usually does not equate to the same reduction of taxable income. This is especially true if you took accelerated depreciation on an asset purchased creating this debt in a prior year. Meaning you have an outflow of cash to pay the debt, but your taxable income does not decrease accordingly which results in a higher tax bill. Getting a plan and budget in place can help coordinate the timing of these payments and reduce tax liability.
Understanding and monitoring your numbers will help you better manage your dental practice to improve efficiencies maximizing profits and reducing waste. Sit down with a dental CPA, like those at Doeren Mayhew, to help get your practice on track and set a roadmap for success. We stand ready to assist with budgeting, benchmarking and analyzing practice numbers – contact our team of dental CPAs and advisors today.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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