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4 Ways Dentists Make Cash Flow Mistakes In Dental Business


Starting and managing a dental business comes with quite a lot of responsibilities. Dental practitioners; in addition to providing stellar and comfortable dental treatments for a wide range of issues, need to come up with ideas to keep the patients satisfied, learn marketing strategies, deal with human resources and staff, handle the inflow and outflow of cash, deal with the administration and IT and so on. 

The dental treatment part of the job is often carried out smoothly as dental professionals have spent years in education and have undergone extensive training to be qualified. They are well-acquainted with the ins and outs of dentistry, which makes it easy to tackle any challenge that comes up with regard to the profession. However, what often gets difficult to handle in a dental practice is the business aspect of it. Most dental professionals are not business savvy and are often unaware even of the basic concepts that revolve around it. 

One of the major elements when it comes to running any successful business is cash flow. Cash flow is a measure that gives an insight into the cash transferred into and out of your business at a particular duration. It helps in knowing the precise incoming and outgoing capital, allows for comparison, helps determine the budget, reveals areas where change is required and so on. 

Although cash flow management is not really complex; dentists being the least exposed to the business world often make mistakes when it comes to this. These errors not only hinder short-term growth but may cause long-term issues as well. This is why you need to proceed with caution when handling cash flow management. 

You can make use of billing software to manage cash flow as this will be devoid of errors and accurate in keeping track of dental payments.

Below are mentioned 4 commonly made cash flow mistakes in the dental business that you must avoid: 

1. Incorrect payment of taxes.

Each practice has a tax-paying structure such as a sole proprietorship or S-corps that determines how you should pay your taxes. Taxes are not taken out of money a dentist gets from distribution but are pulled in from W-2 earnings in the paycheck. If you run a practice in the combination of sole proprietorships and S-corps to cover the amount owed from distribution payments, you need to pay extra taxes. In case all your income is coming from distributions in a sole proprietorship, then all your taxes are to be paid this way, which might cost you more. 

Review your business structure and contemplate which type of tax payment works the best for you. Choosing the wrong formula can have massive negative implications on your cash flow. Therefore, choose wisely. 

2. Overhead costs too high.

Overheads in simple terms are the expenses that a business undertakes. This could incorporate staff salaries, equipment, workplace maintenance, marketing, and so on. Ideally, you should have half your costs invested in overheads, which if put in percentage, can be around 55-60%. However, if your business has higher overhead costs; then you need to realize your business is not functioning efficiently and you need to bring about a modification. 

Some businesses have their overhead costs closer to 90% or even 95%, which is completely preposterous. Huge overhead costs can disrupt your cash flow significantly thereby leading to severe financial problems.  Make sure you don’t make such an error. So, review your expenses, cut down wherever possible and keep your overhead costs within the 50% range. 

3. Not having cash for unforeseen situations.

Most businessmen are striving to grow their business and set their practice apart from the competition. For this purpose, they have to get their hands on advanced technology, and the latest tools and equipment that enhance the patient experience. Purchasing these is undoubtedly beneficial. Although in most cases what happens is all these purchases are done at the same time. 

Impulsive, unplanned and large stock buying is something you completely must avoid. Divide your purchases over time so your cash flow is not disturbed. A sudden big purchase can deplete your account and cause issues. 

There can be situations where you need urgent funds and might not possess them because of your unthoughtful spending. For instance, an in-use, crucial apparatus starts dysfunctioning and needs immediate repair. It is vital that you always have the funds to deal with such situations that are unpredictable.

4. Decision-making in terms of purchases.

Most dental professionals make small purchases from time to time under the cover of cheap purchases. However, justifying spending just because the items are cheap is no excuse. Small expenses add up in no time and will ultimately take a hit on your cash flow. So, it is crucial that you think twice before you make any purchase. Be an informed decision-maker and avoid impulse buys.

Cash flows are a great determinant of the financial health of your business. Although the above-mentioned mistakes might sound minor; know that they have the potential to take a toll on your business. So, proceed carefully when it comes to finances and avoid making abrupt decisions at all costs.