People often use profitability as the measure of a successful dental practice but it’s not as important as cash flow. The general business world knows this. It’s widely cited that eight in ten businesses fail due to poor cash management. But, when you ask the dental community why dental offices fail, you’ll hear everything from lack of patient trust to improper scheduling.
It’s not that these things don’t matter. They do. But, the reason why they matter is that they impact your profitability and cash flow.
If you’re looking for ways to boost production, we cover that in “5 Simple Ways to Keep Patients Coming in Despite Inflation,” too. However, if you want to address core business processes that influence your cash flow, and ultimately the success of your dental practice, we’ll cover that here.
What’s Cash Flow?
Cash flow is the money moving in and out of your dental practice. It’s comprised of cash inflows (insurance payments, patient payments, etc.) and cash outflows (payroll, rent, supplies, lab fees, etc.).
Let’s say your practice brings in $250,000 per year and your total expenses are $125,000. You’re running a profitable practice and are up $125,000 when the year comes to a close. But, in September, your practice only brings in $30,000 and your expenses are $40,000. You’re in the hole $10,000 that month. You have negative cash flow. Unless you have $10,000 in cash reserves, you’ll be unable to make payroll or cover other expenses. Despite being profitable, you might wind up closing your doors.
If you have a bookkeeper, they likely track cash flow for you. However, bookkeepers usually have a backward focus, meaning they’re looking at what’s already happened. They may be able to tell you when your bank account is running low, but it’s after the damage is done.
Key stakeholders in the practice—the dentist, office manager, and anyone else who directly impacts cash inflows and outflows—should be aware of what’s coming down the pipeline and steps they can take now to ensure your practice cash flow stays strong.
That’s not to say you can never have negative cash flow. It’s expected sometimes, especially if your practice is growing, you make a large purchase, or are experiencing a seasonal lull. Overall, though, maintaining positive cash flow is essential.
How to Improve Dental Practice Cash Flow
Now that we’ve covered the background, let’s take a look at how to improve dental practice cash flow.
1. Automate
Automation helps your team operate more efficiently and reduces labor costs. For example, you can automate appointment reminders and confirmations. This increases cash inflows by boosting production and decreases cash outflows by reducing labor. For more ways to automate, check out “6 Easy Dental Practice Automation Hacks.”
2. Accelerate Insurance Payments
Eight in ten practices send claims electronically according to the latest CAQH Index. That’s positive news because it can shave two weeks or more off insurance response times compared to sending claims via U.S. mail.
The problem, however, is that just two in ten send attachments (x-rays, images, charting, and other documentation) electronically. Because this type of documentation is commonly required on high-value treatments such as crowns, bridges, and implants, most practices are slowing down their largest insurance payments by weeks because they’re using U.S. mail. Claims are often denied due to insufficient documentation too. When you’re working by mail, a month or more can pass before money finally makes its way to your practice.
Switch to end-to-end digital insurance processes to accelerate your insurance payments. This includes:
- Eligibility and Benefits Verification
- Attachments
- Claim Submission
- Status Inquiries
- Payment
- Remittance Advice
Because electronic insurance processes are a form of automation, you’ll reduce cash outflows from things like labor and stamps in addition to accelerating your cash inflows.
3. Speed Up Patient Payments
Speeding up patient payments to improve cash inflow means solving the individual reasons why they’re not paying. Below, we’ll give a quick overview of some of the most common reasons (as explored in our patient collections webinar) and what you can do to address the root cause.
Why Patients Don’t Pay
- Couldn’t Afford to Pay (51%)
- Thought Covered by Insurance (37%)
- Owed Amount Unclear (19%)
- Forgot to Pay (16%)
- Unsure of Due Date (13%)
What You Can Do About It
- Use electronic eligibility and benefits verification before visits to confirm coverage.
- Offer patient payment plans and in-house discount plans.
- Give patients clear and accurate estimates before treatment.
- Collect at the time of service whenever possible.
- Send a statement electronically and provide online access to bill information as soon as you’re aware the patient has a balance. (Half will pay within one hour if you use their preferred method!)
- Use Pay-by-Text and other virtual payment tools to make it easier for patients to pay.
4. Increase Your Rates
Around a quarter of dentists increased their rates during the pandemic. Thus far, we’re not seeing the same shift due to inflation, though that may be because practices tend to evaluate their rates on an annual basis.
Although increasing rates can improve cash flow, it’s a double-edged sword. Your loyal patients will likely stay and pay more, but you may lose patients and miss out on new patients if your rates are above average for your area. Use this strategy with care.
5. Perform a Staff Salary Review
When salary comes up as it pertains to budgets, most will talk about limiting salaries to save. Given that the dental industry is presently experiencing a staffing shortage and practices are struggling to attract and retain team members, it’s more advantageous to ensure that your staff is receiving competitive pay for your area and bump them up if they’re not. While this will increase your cash outflows, holding onto a talented and well-trained team is less expensive than hiring and training new people. Furthermore, your loyal team will work harder to ensure your practice weathers difficult economic conditions.
6. Renegotiate Supply and Lab Rates
Your suppliers and labs are dealing with many of the same challenges you are, so you may already be seeing price hikes from them too. However, if you have close relationships with your vendors, have a talk with them to see if there are ways you can reduce costs. Some may be willing to reduce fees, guide you into less expensive products or services, or help you uncover other ways to save. If they won’t budge or you don’t have strong relationships, shop around to see if you can find better rates without compromising quality.
If you’re using third-party solutions for things like automated reminders, texting, email marketing, e-prescribing, or reviews, and you have Practice-Web software, we also recommend connecting with our team to discuss your options. We offer these solutions and more (they’re called Smart Tools) for a fraction of the cost others charge. Because they’re integrated with your software, using them is easier and falls within your natural workflows too.
7. Prepare for Seasonality
Generally speaking, practices experience a slump in the fall after kids have gone back to school and before people start thinking about using their insurance benefits before they vanish at the end of the year. There’s usually another drop in the spring. Depending on your patient demographics, you may experience a shift at these points or at other times of the year. For example, if you’re in a warm climate with an influx of retirees during the colder months, your seasonal lull will generally be in the summer when other practices are busier.
If you’re not sure when you usually see a drop in revenue, run reports to check. In Practice-Web, the Annual Production and Income report will be your best bet, as it breaks the amounts down by month.
When you know which months are usually lighter, it’s easier to prepare for them by holding onto more cash during your stronger months.
8. Explore Loan Options
First, take a hard look at the interest rates and fees you’re currently paying on any loans and see if you’re still paying competitive rates. If not, it may be worth refinancing to reduce your cash outflows.
Secondly, it may be helpful to get an idea of the loan options available. Even if you don’t plan to take out a loan to help you through a lull, it’s good to know what’s out there. That way, you’re not scrambling to find a solution if money gets tight and become tempted to take a bad deal just to make ends meet.
9. Set Goals
Did you know that just setting goals and writing them down makes you 42 percent more likely to reach them? Set production goals, then stack the deck by adding them to Practice-Web and setting up your schedule to make meeting your goals more intuitive. Check out “Production Goals: 9 Proven Ways to Hit Your Mark” for more tips.
10. Involve the Team
Your team knows dentistry. They might not be business-savvy and they won’t know where you stand if you don’t include them in business-related discussions. That doesn’t mean you need to share the exact details of your financial status, but you can rally the team around core goals such as:
- Increasing the production value of each visit.
- Keeping the schedule full.
- Reaching your daily production goals.
- Being mindful about supply use and ordering.
- Delivering top-notch care to maintain patient satisfaction.
- Using time wisely—if not with patients, doing something that benefits patients or helps the practice grow.
11. Continue Marketing
Marketing is often one of the first things to go when a business needs to make cuts. The problem is that a typical practice will lose around 17 percent of its patients every year. If you aren’t replacing these patients with new patients, your production and revenue will suffer. Moreover, you may need to work even harder than usual to reach your normal production rates.
Use low-cost, high-ROI marketing activities to ensure you keep attracting patients and are getting maximum production. For example, you can use text message and email marketing campaigns to promote your referral program to current patients or use your Practice-Web Lists to reach patients who need treatment. This is also a great time to promote your in-house discount/ membership plan if you have one. Check out “The Dental Practice Marketing Tree: Where to Start and Why” if you aren’t doing any marketing yet and want to find out what works best.
Get the Tools You Need to Improve Your Cash Flow
As the most affordable and powerful solution on the market today, Practice-Web comes with tons of features that can improve your cash flow and run a stronger business. If you’re not already using our software, start with a complimentary demo.
Interested in a Smart Tools consultation? Click here to connect with us.