While having a bookkeeper take care of your books can make a significant difference in your dental clinic's financial wellbeing, you still need to have a clear understanding of your practice's financial health.
When running your dental practice, it isn't enough to simply focus on your profits. You also need to have a solid knowledge of how your cash flows in and out of your business. This will ensure that there is always sufficient cash on hand to pay your bills and wages.
If you want to improve the cash flow of your dental practice, follow these seven valuable tips:
1. Inform patients about estimated payments before providing service
After you have diagnosed your patient and shared your suggested treatment options, you should also make sure they are fully informed of all the costs involved.
If they have insurance coverage, you can request their insurance policy number to determine their coverage amount and inform them of the amount of their portion of the payment. This will avoid any issues later on and ensure that they can afford the treatment you are providing them.
2. Review your expenses regularly
Minimizing your expenses is an excellent way to reduce the outflow of money from your clinic. Review your expenses regularly and identify those that may be unnecessary. Things like subscriptions or phone plans may be cancelled or reduced.
Also, you should take a look at existing vendor contracts to determine if you are getting the best possible terms and pricing for your practice. Don’t be afraid to ask for a better deal or shop around with different companies to find the best prices possible.
3. Follow up on late payments
When payments to your practice are late, your cash flow suffers. You must ensure that you regularly reach out to insurers and patients to follow up on late payments. You can also send out automated payment reminder emails to anyone who is late paying you.
If you don't stay on top of your late payments, your cash flow will be reduced, and you may not have sufficient working capital on hand to pay your staff or your expenses.
4. Ask patients to pay the total amount and file the reimbursement with their insurer
While this may not be a popular choice among patients, it could help improve your cash flow and eliminate the need to wait for payment from insurance companies.
Dental fees can be quite expensive, and most patients would prefer not to pay these high amounts out of pocket. However, insurers can take quite a while to process the payments owing to you, having a negative impact on your clinic's cash flow. They may take up to thirty days from the date you file the claim to pay, and if this occurs, you need to have sufficient cash on hand to pay your employees and other expenses.
5. Build a cash flow forecast
Cash flow forecasts are an excellent tool that gives you a precise prediction of your future cash flow based on your clinic's historical data. They allow you the ability to anticipate busier months and slower times and can help you determine when your business might experience positive or negative cash flow situations.
If you anticipate a tighter period of cash flow in certain months based on the data in your forecast, you can proactively make plans to cut costs or reduce staffing. Or you can choose to postpone significant purchases on items such as new equipment.
It’s important to remember that a cash flow forecast will not give you 100% certainty. You will still need to compare it with your actual data and adjust it accordingly to have a more accurate forecast moving forward.
6. Review your cash flow statements every month
A cash flow statement is key to understanding where your cash is actually going. You may have some money tied up in inventory or in your accounts receivable for dental practices. You may also be paying more bills than you originally anticipated.
By reviewing your cash flow statements every month, you will be able to identify where your cash is tied up and in which ways you can improve the inflow of money to your clinic. You can look at ways to collect payments faster or negotiate new payment terms with your vendors.
7. Set aside a reserve fund
You are probably well aware that the busiest time for your dental practice is at year-end. All of your patients want to maximize their insurance coverage and use up any remaining amounts before the year is over.
You want to set aside a reserve fund using retained earnings from these busy seasons to help cover slower times when this time comes around.
Keeping a close eye on your dental clinic's cash flow and identifying methods to improve the inflow and slow down the outflow of cash from your practice can go a long way towards improving your business's financial health.