If a dentist collected $100,000 a month over a 25-year career, $30 million would flow through his or her checking account. What's frightening is that many dentists still end up broke and in debt. Whether you've been in practice for 25 years or you're just getting started, mastering cash flow is a critical part of every practice. But it's what many dentists neglect. When a practice has cash flow issues, problems tend to permeate throughout the entire practice, and the owner dentist starts feeling like he or she is losing control. I coach and train hundreds of dentists each month, and I have turned around many cash poor practices.
ADDITIONAL READING |The five financial freedom dials
ADDITIONAL READING |Scheduling for maximum profitability
These are the six steps to mastering cash flow. Just because you don't have cash flow problems today doesn't mean you never will. If you're not paying attention to any one of the six items listed here, cash flow problems are inevitable.
1. Pay attention
Cash flow problems occur when you don't pay attention. If you take your eye off the things that affect cash flow -- payroll, payables, daily revenue -- you will end up simply spending more money than you make. Spend less, a lot less, than you make. Enormous amounts of money can flow through a checking account with little to none of it ever moving over to the doctor's personal account.
2. Never delegate your checkbook
I see many doctors turn their checkbooks over to their office managers, who don't have any money themselves, and then wonder why they don't have money. This goes along with the advice I give my clients, "Never take financial advice from someone who makes less money than you do." What can someone who makes less than you tell you about managing money? This doesn't mean you have to do it all yourself. It simply means you need to delegate with controls. Someone else can prepare all the checks to be signed, but you need to physically see them and sign them. Someone else can balance the checkbook, but they shouldn't have unrestricted access to the online account.
3. Take responsibility for revenue
Have you ever heard the Henry Ford quote, "A business that makes nothing but money is a poor business"? If you really focus on giving more in value to your patients than what they pay you, you will always provide great service. There's nothing wrong with making money if you take great care of your patients and give them what they need. Set a daily service goal of how many patients you want to help. Great service equals reward in the form of revenue.
4. Move to a performance-based incentive model for your staff
I'm a huge proponent of incentivizing employees for many reasons, but one of the biggest reasons is because performance-based incentives keep fixed costs at a minimum while still growing your practice. If everyone on your team receives a high base salary, this increases your guaranteed overhead. The typical office has a payroll made up of around 95% guaranteed payroll, which is a fixed cost, and only 5% incentives, which is a variable cost. The ideal office has only 70% guaranteed payroll, and 30% or more incentives.
5. Know where you stand in these five areas
There are only five places where money goes -- living, debt, savings, taxes, and giving. You have to pay your taxes and debts, and you have some living expenses that are necessities. Many people aren't even aware of this, nor do they track all five at the same time. Most never even get to giving, which is really what gives people the most joy, and some never eliminate debt, which once eliminated allows people to allocate more money to the other areas.
6. Eliminate debt
Debt is not bad, but the excessive use and dependency on debt is. Debt is part of owning a practice and is necessary to growing. Most dentists will have to acquire debt at some point in order to build a practice. The key to taking on debt is to set a payoff date, and lay out the payoff plan before you take on the debt.
