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Dentists should understand the importance of a good cash flow, but many dentists give little thought to the matter. In this day and age, no financial aspect of operating a business should be taken for granted.

Few dentists stop to think that a lack of cash flow often is one of the main reasons that small companies go bankrupt. Although bankruptcy is an unlikely event in dentistry, practices still can experience significant financial difficulty. Fortunately, most dental practices have sufficient numbers of patients, production levels and amounts of profit so that cash flow usually is not a problem. In a slower economy, however, some practices are finding that they do not have enough cash. As a result, they are having difficulty paying their bills or are forced to reduce the dentist’s income.

Cash is tangible. You can see it, feel it and hold it in your hand. Profit, on the other hand, is a number on a piece of paper. Businesses can have reasonable profitability and still be cash-poor. That may sound strange, but it happens more than we may think. All it takes is a few unplanned or spontaneous purchases coupled with an inefficient collection system for a company to look good on paper while having cash flow problems. It is not impossible for dental practices to fall into this category.

For example, suppose a dentist invests significantly in technology without fully comprehending the subsequent effect on cash flow. What this dentist does not realize is that costs need to be considered before purchasing new equipment, and a timeline must be established for the return on the investment. Otherwise, the investment in technology may take a great deal of cash, which leaves less for payroll and the dentist’s income.

This situation is hardly hypothetical. I have been seeing an increasing number of practices that appear to be in excellent financial health but that are struggling because they do not have sufficient cash flow.

	ONE DENTIST’S STRUGGLE

TOP ONE DENTIST'S STRUGGLE CONCLUSION

 
I recently spoke with a young dentist who had spent heavily on technology for her practice. She had been convinced that to practice high-quality dentistry, she needed to have all of the technology right away. Putting aside the question of whether the investments were appropriate for her practice, let us focus on one important fact: too much investment will eat up cash. When I spoke with her, she was in dire financial straits. She was unable to pay all of her bills in any given month and had not given herself an income for approximately four months before we had an informal conversation at a seminar.

It was a situation that need never have happened. Her production level was reasonable for someone in the early years of practice. Had she not invested so heavily in technology so early in her professional career, the practice would have been providing her with a reasonable income, thus giving her an opportunity to grow with the practice rather than having it become a financial burden.

She had few options available to her. She could bring another dentist in to share space and overhead expenses, return what items she could or find a way to build the practice to meet increased expenses. We discussed the options and concluded that her best choice would be to build her practice aggressively.

To get her practice in order, she needed to look critically at her practice systems, including the following items:

– Production per patient. As in many practices, it was too low. She needed to look at expanding her service mix to create higher profitability.

– Scheduling. Her schedule was chaotic and inefficient. A finely tuned schedule could help increase her practice production rate significantly.

– Collections. A slow economy often means delayed payments. She needed to be careful about this issue and look seriously at her patient financing options.

	FOOTNOTES

The views expressed are those of the author and do not necessarily reflect the opinions or official policies of the American Dental Association.

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				R. K. Thompson Jr. ADVICE QUESTIONED J Am Dent Assoc, July 1, 2009; 140(7): 830 - 832. [Full Text] [PDF]

This Article Full Text (PDF) Alert me when this article is cited Alert me if a correction is posted Services Similar articles in this journal Similar articles in PubMed Alert me to new issues of the journal Download to citation manager Citing Articles Citing Articles via HighWire Citing Articles via Google Scholar Google Scholar Articles by Levin, R. P. Search for Related Content PubMed PubMed Citation Articles by Levin, R. P.