Cash flow—how much money is flowing into and out of a dental practice—is an easy concept to understand. But not every practitioner is fully aware of the impact that cash flow has on the bottom line. That’s because the importance of cash flow is far easier to recognize in some professions than it is in others.
#1: NEVER ALLOW ANY OF YOUR MONEY TO LIE IDLE
If you don’t already have one, open a money market account at your bank and have it linked to your business checking account for telephone or online transfers. Deposit daily receipts into the money market account where they will immediately start drawing interest.
#2: DON’T BE TIMID ABOUT USING OTHER PEOPLE’S MONEY
We’ve all heard stories about professionals who have built large, successful practices without ever borrowing a cent, but they are clearly the exceptions. At today’s extraordinarily low interest rates, careful use of credit is one of the most effective practice-building tools.
#3: CONSIDER LEASING
Leasing products like cars for personal use is not a good idea. Most accountants agree that leasing is the most expensive way to maintain a personal car. But business is a different animal entirely.
#4: SPREAD THE GOSPEL
To manage cash, you’ve got to have a steady flow of the stuff coming in. As long as it’s in good taste, there’s no reason to be reluctant to market your services. As is the case with any business, marketing is a critical element to growth. As one medical professional told me recently, “If you don’t think you’re good, no one else will. You have to tell your story.”
#5: DON’T BE IN A BIG HURRY TO PAY YOUR BILLS
There’s a good reason why checks are slow to come in from your accounts receivable: Hanging on to your cash as long as possible keeps that money available to draw interest or to work in your practice. Take the time to set up a system that provides for paying bills only when they are due. It’s easy to do and is another rung on the ladder of professional cash management. But don’t go overboard and jeopardize your credit standing by paying bills late. Pay your bills when they are due—not before, not after. And keep an eye on the state of postal deliveries during this uncertain time. If it appears that deliveries may be delayed, allow a little extra time to make sure your payment arrives in time to avoid those oppressive late-payment fees.
#6: BE AGGRESSIVE ABOUT COLLECTING ACCOUNTS RECEIVABLE
Never allow your billings to go untended. You’ve earned that money, you have a right to it, you need it. If your patients learn that you are cavalier about money owed to you, you can be certain they will stretch your patience (and your cash flow) to the limit.
#7. MAINTAIN A CASH CUSHION
Whenever possible, keep enough cash in interest-bearing business accounts to cover normal operating expenses for 3 to 6 months. There is nothing like the peace of mind and self-confidence that comes when you don’t have to sweat out next month’s office rent or payroll during a slow spell. And remember—your cushion money is making money for you in those interest-bearing accounts.
#8: DEVELOP A PERSONAL RELATIONSHIP WITH YOUR BANKER
Handling money is a banker’s job, and most are very good at it. Even if your practice is tiny, it’s a good idea to have a personal relationship at the bank where you do business. Discuss your financial picture with your banker. You’ll get some good ideas and a favorable ear should you ever need a little financial help.
#9: LET YOUR COMPUTER HELP YOU MANAGE YOUR CASH FLOW
Whether you use one of the commercial software packages such as DenPrax or Windent, or a PC with one of the popular financial programs such as Money or Quicken, learn to trust every aspect of your business affairs, including investments, to your computer. The financial reports and analyses that modern software can produce at the touch of a button can be vitally important tools for improving cash flow and bottom-line profits.
Mr. Lynott is a management consultant, author, and lecturer who writes on business and financial topics for a number of publications. His latest book, Money: How to Make the Most of What You’ve Got, is available through most bookstores. You can reach him at email@example.com or visit his website www.blynott.com.