The economic repercussions were felt almost immediately, the shutdown of dental surgeries and the consequent cessation of treatments being no exception. Like most businesses, many dental practices will have felt acute pressure on their working capital, managing payments to suppliers, the rising cost of PPE, all with the backdrop of closed surgeries yielding little or no income from treatments. Liquidity (or cash) management has therefore became a new skill.
He says: 'A lot of these tasks will be done to varying degrees in practices already and fall under the heading of good housekeeping, but the pressures brought about by the pandemic have brought them into sharper focus. Having more structure around them will help the practice regain, or maintain, financial good health. There are really four main phases, forecast, prioritise, communicate and repeat. We’ll discuss later why this repetition is so important.
'Forecasting is where you set out the time horizon for your practice’s cash flow projections. I’d suggest at least six months, ideally 12 or even 18. Put your focus on the near future, as these are likely to be the periods you can forecast with greatest accuracy. Look at your income (treatments, NHS payments and so on) and your costs (staff, equipment and materials). Of course, you don’t have a crystal ball, and now, more than ever, the future is uncertain but this is no excuse for not preparing an estimate of some sort. In fact, you need one more than ever. If it helps you can create different versions of your forecast, perhaps optimistic, middle of the road and pessimistic scenarios, to cater for different eventualities.
He adds: 'Make sure too that you assign a time period to your projections – for example, your staff costs are likely paid monthly – so, if you are forecasting for a six-month horizon, show these as six monthly payments rather than just one big lump sum.
'Prioritise your expenditure. The output from your forecast will show you when the business is most likely to feel the pinch in terms of cash. (This is another advantage of breaking your forecast down into specific time periods). Once you have established this, look at payments and receipts around that date, it may be possible to defer some payments or perhaps hasten the receipt of some of the income. Look also at what your expenditure is for, what is driving that level of cost and whether you can make savings. Your staff and equipment costs are likely to be of highest priority, but are there opportunities for savings in other areas?'
He adds: 'Communicate – letting people know of your decisions is crucial, and the earlier these conversations are initiated, the less stressful it is for all concerned. If you are asking a supplier for extra time to pay, then an open, honest conversation ahead of a payment deadline will likely get a more favourable response than a frantic call after due date has passed.
'Lastly, and perhaps most importantly, repeat the process. The steps above may sound daunting, and it’s undeniable that the level of uncertainty in the whole economy, not just the dental sector, makes this a difficult exercise, but the benefits of repetition are multiple. Firstly, as with anything, the more often you do something, the more proficient you become, meaning the speed and accuracy with which you can project your numbers will increase. Secondly, as you incur costs and receive income you can reassess your projection, reforecast and get a more accurate view of your financial position. Thirdly, as we have said, one of the few certainties in the economy at the moment is the level of uncertainty.
'You can’t always rely on previous years’ results as an indicator of this year’s, not least because practices that were open for 12 months in 2019 won't be in 2020, and this reduced level of activity will have a significant impact on revenues and costs. Things are changing quickly, and ensuring your practice is agile enough to react quickly to changing conditions will be of paramount importance. Fourthly, if you do need to reassess your priorities around expenditure, change your decisions and/or make new ones, the sooner you know, the sooner you can plan and communicate. Never was Benjamin Franklin’s advice "Don't put off until tomorrow what you can do today' more relevant”.'
Biography
Chris Strevens is a director and co-owner of a number of companies including Frank Taylor & Associates the UK’s leading dental practice valuers and sales agent which he acquired in 2000. He co-founded & is committed to the development of the FTA group of companies, FTA Finance, FTA Financial & Wealth Management, FTA Law and FTA Medical Recruitment & they are the leading providers of business services to the dental profession. Chris has worked with dentists since the late 1980s & set up a dental unit for a bank & has assisted other banks entering the dental market. He is a recognised expert in dental valuation & finance & his opinion is regularly sought due to his wide & varied wealth of experience & he also writes articles and presented at many lectures UK wide on a range of topics from finance to sales.
For more information, call 0330 088 11 56 or email chris.strevens@ft-associates.com