Below are five lessons from the COVID-19 pandemic that can help your practice better manage the financials now and in the future.
1. Maintain capital reserves
Fortunately, many dental practices' revenues were significantly bolstered by the Small Business Administration-backed Paycheck Protection Program (PPP) loan, which was often fully forgiven, turning the loan into a grant.
Still, in 2020, for the first time, many practices had to calculate a breakeven point to determine how much monthly revenue they needed to cover expenses and maintain a profit.
Many certified public accountants (CPAs) are recommending that practices maintain a cash reserve ratio to ensure business liquidity -- a measure businesses use to determine their ability to cover short-term financial obligations. The current recommendation is to have enough cash on hand to cover expenses for up to three months.
2. Patient and revenue growth
The good news is that a lot of lessons were learned during this crisis, and the dental profession is emerging from the downturn stronger than ever.
Dentists have put 2020 behind them and are experiencing unprecedented growth, often exceeding 2019 revenue levels. Their deposit accounts and cash-on-hand positions are at an all-time high when you combine receivables with any remaining PPP funds.
3. Don't miss growth opportunities
Industry experts agree that when dentists strategically invest in their practice's future, they often receive a very high return on investment.
Investments can come in the form of purchasing the building or space that your practice occupies, new equipment, and technology. Investing in the right technology upfront can increase both revenues and the patient experience. Other opportunities to continue to grow your revenue include purchasing another practice or bringing in a partner.
Therefore, this may be a good time to meet with your financial advisers and map out a growth plan that includes quality monthly financial reporting, with a detailed cost-benefit analysis.
4. Maximize your practice's value
In addition to having an initial devastating effect on dental care as practices shuttered, the pandemic also revealed that many practices were ill-prepared for the emergency sale of their practice, and certainly not at its peak sale price.
A best practice is to have a local industry expert transition consultant or CPA perform a business valuation every few years, with a focus on profitability and revenue growth.
5. You don't have to be a financial expert
Dentists focus on providing quality oral healthcare. That's vital. Equally important is for dentists to consult with trusted advisers, CPAs, attorneys, healthcare bankers, etc., to help them focus on the business side of dentistry to ensure long-term success and profitability.
Dan Croft has been the head of TD Bank's Healthcare Practice Solutions Group since 2014. In this role, he is responsible for overseeing and growing TD Bank's healthcare practice finance business, which assists dentists, veterinarians, optometrists, physicians, and podiatrists in choosing sound financial solutions for their practices. Croft has more than 20 years of experience.
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