Dental Practice Cash Flow Management Planning Is Critical In Any Economy

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Dental Practice Cash Flow Management Planning Is Critical In Any Economy

November 22nd, 2010

dental practice cash flow managementDental practice cash flow management is one of the most critical administrative functions to maintaining the financial health of the dental practice. Unfortunately, dental practice cash management is not adequately taught in any dental school.

The practice owner may get a short course on accounting, but accounting is NOT cash flow management planning. There’s a big difference between the two.

The only thing an accounting program can do is tell the dental practice owner what happened in the past – how much money came in and where it was spent. So if a practice owner is looking at how much it has cost them to make payroll and pay the bills, and that is the income target they are going after, then they are aiming for a break even target. As costs go up they tend to start losing money. Then they just pay bills as they get them. So, in essence, the cash flow controls the dentist, rather than the dentist controlling the cash flow.

On the other hand, if the dentist is actually doing dental practice cash flow management planning, they are setting an income planning target to do better than break even, and once the money comes in, they are planning how to best use that cash to not only pay the bills, but also to make more money and stash cash in savings for emergencies and long-term wealth building.

That is the best way to do dental practice cash flow management. So then the issue is how to accomplish that easily and effectively. That is precisely why I developed the Cash Flow Mojo® software program – to make it easy for the practice owner and their accounting staff to do that for themselves, and to make it possible to do their dental practice cash management planning in as little as 20 – 30 minutes a week.

That puts the dentist in control of their cash flow, rather than their cash flow controlling them. The dentist should become more forward-thinking rather than simply reviewing past results. That is the most important thing that the practice owner can do; think and plan in futures, instead of making financial decisions based on what happened in the past. Then the dentist can optimize their cash flow, despite what the economy is doing.

There are areas where dental professionals can improve their operations to achieve the maximum amount of profit. Budgeting is the biggest area because the practice owner has to know exactly how much cash flow they need each week to do better than break even. The dental practice owner has to factor in not only the increase in the cost of doing business each year, but also the money they will need for handling emergencies, expansion of the practice and for their own long-term retirement plan. I call that the income planning target.

Dental Practice Cash Flow Management and the Income Planning Target

The first thing the Cash Flow Mojo software program does is quickly show them exactly how much money they are going to need to bring in each week to meet that income planning target, and then they can figure out how many patients each dentist and hygienist needs to see each week to meet that target.

Money is always allocated for things that will increase income. It’s a planning process for the individual practice, not a one-allocation-formula-fits-all program.

Once the cash comes in, we use the Cash Flow Mojo cash flow management system to make that happen through promotion, and portioning out the income for bills, paying off debt, expanding the practice and setting aside buckets of cash for the practice owner’s long-term wealth building program. It’s a very simple, but powerful dental practice cash flow management process.

Dental Practice Cash Flow Management Planning Is Critical In Any Economy