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Bookkeeping for Cash Flow for Dental Practices

What is Cash Flow

In essence, cash flow is the difference between the money generated by a business – cash inflow – and the cost to operate the business – cash outflow.

As it pertains to a small business loan, for example, banks often take it a step further by incorporating personal obligations as part of the cash outflow.

A cash-flow analysis measures a company’s financial health and a borrower’s ability to meet their business and personal obligations.

Cash Flow Forecasting

How important is cash flow forecasting?  Think of it this way:  If you are not fully aware of how much money your dental practice will have in the future in order to pay bills, make payroll, or to make debt payments, your practice is essentially operating in the dark.

Making projections for cash flow is essential so your practice can anticipate cash shortages and make arrangements before you actually experience a cash shortfall.

Cash flow forecasting begins by creating an annual budget that can be analyzed on a month-to-month basis, and eventually, a weekly basis. As the majority of dental businesses operate on a cash basis, it is vital to determine your budget based on when money is coming in and going out. An example of cash flow forecasting is if you tend to pay your annual malpractice insurance during a particular month, then you should make sure the payment is budgeted for that month.

In order to correctly project cash flow, start with your beginning cash balance and add your net profit – or subtract your net loss – according to your budget. Then calculate the cash out for your balance sheet amounts. For example, you could be budgeting to spend a certain amount of capital on balance sheet accounts, including fixed assets or owner distributions. The money dedicated to these accounts must be deducted from the budgeted net profit, being this is cash spent not reflected in your budget. Keep in mind, your budget is based on your profit-and-loss statement and not your balance sheet.  

After you subtract your cash outflow from your balance sheet accounts — which comes from the budgeted net profit — you can then determine your overall cash inflow and outflow. When you add or subtract this number from the beginning cash balance, you will know your budgeted ending cash balance.

Cash flow forecasting allows you to take a proactive approach to budgeting and avoid potential financial pitfalls. If you prefer predictability and consistency with your dental business’s finances, then you would be wise to regularly do cash flow forecasting.

7 Ways to Improve Your Dental Practice Cash Flow

Having control over your cash flow situation is at the core of building a successful dental practice. For many dental practices, the challenge is handling the sometimes complex and time-consuming task of financial management.

The good news is that there are several ways you can make having a healthy cash flow a primary function of your business.  Here are some proven steps you can take to improve cash flow at your dental practice: 

1)     Be Aware of Your Cash Flow Statement

An important factor to keep in mind regarding cash flow is that, at times, it can be erratic. Initially, you might interpret these variations as random, however, if you are partnered with a dental accounting partner like Drilldown Solution, we can assist your practice in analyzing and identifying patterns. When you do encounter differing expenses, you will want to also be aware of revenue patterns or know when to budget for these irregular expenses.

 In short, it is important to budget for future expenses. 

2)     Make Sure Minor Expenses are Under Control

While large purchases, such as those for new equipment, are much easier to spot and track, it is the minor expenses you should guard against being overlooked. If you take the time to audit your smaller expenses, and look for ways to cut spending, your practice could recover substantial funds that could be allocated to the operation of your dental business.

 If you even saved 1 percent of an unnecessary expense on an annual basis, after 20 years or so that translates into a lot of money for your dental business. 

3)     Maintain a Short Cash-to-Cash Cycle

It is best to bill your customers well before the end of the month. Your practice is better off maintaining timely and efficient billing. And that means timely payments. We advise you to make sure you consistently track balances that are due. This tracking enables you to send proactive reminders to your customers. 

4)     Utilize Effective Billing Procedures

It is important to have a uniform credit policy with sufficiently strict standards to extend credit. You also want to keep billing errors to a minimum, as customers may not pay their dental bills if they catch mistakes on their invoices. Inaccuracies could potentially lead to late payments or payments that make their way into collections. 

5)     Eliminate Inefficient Business Processes

Thoroughly train your employees at your dental business and make sure they are knowledgeable about administrative processes. It’s always ideal to avoid staff turnover as much as possible, as your dental practice will benefit from the expertise your employees acquire over time. When you have the advantage of stable and long-term staff, you don’t have to spend more time and money onboarding and training new employees.

Enhance efficiencies by automating recurring and redundant accounting tasks. This automation allows your business to recoup administrative dollars and have a healthier bottom line. 

6)     Call Patients with Delinquent Accounts

While it might not be a task you relish, reaching out to patients with delinquent accounts could likely result in more revenue for your dental practice.

Train your dental employees to be patient and understanding when having conversations with patients who owe the dentist money. It will ultimately benefit your practice if you display compassion and attempt to work with patients who are behind on their payments, with the goal of keeping them paying. Work with these patients to find a solution that works for you and the patient.

It is always helpful to initially investigate if insurance is involved to ensure there was not an insurance or administrative error slowing down the payment process. 

7)     Consider Third-Party Financing

As many patients might be faced with financial struggles in this uncertain time, a good portion of them might be unable to make a full payment right away. By offering third-party financing from companies like CareCredit, this financing enables the patient the option to pay in smaller installments over an agreed amount of time. 

Third party financing is a win-win solution in that your dental business eventually receives payment while allowing the patient to receive the treatment they need. Financing is also a feasible solution for both your practice and the patient because payment plans make it possible for your dental business to schedule the number of appointments necessary to complete treatment, as opposed to the number of appointments the patient can afford. This strategy translates into your patients being more likely to keep their appointments instead of canceling or just not showing up for an appointment. Your dental business will also enjoy more stable and predictable budgets, which has the potential to boost your bottom line. 

Choose Drilldown Solution for Your Dental Business Bookkeeping Needs!

At Drilldown Solution, we provide dental practices with accurate and effective bookkeeping services to help you make real-time decisions that accelerate growth.

We are your one-stop shop for all financial management and business consulting for your dental practice. When you partner with Drilldown Solution, you gain access to the exceptional accountants and CPAs who can give you expert guidance and advice on all accounting and bookkeeping matters.

Drilldown Solution offers a full suite of financial services that includes bookkeeping, accounting, and tax preparation. We have the expert team to help any dental business thrive, even under the current COVID-19 pandemic circumstances. We accomplish this growth with a three-part system comprised of patient-experience excellence, financial focused operations, and accountability.

Our goal at Drilldown Solution is to put your dental business in the best financial position possible, utilizing proactive processes and personal care!

 

Heather Porter

DrillDown Solution was founded in 2004 and has helped thousands of people save on taxes and achieve their best financial position possible.

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