The current economic crisis seems to be so complicated it is difficult to see how any solutions can be found. At the time of writing, a fresh wave of uncertainty is impacting global markets. In simplistic terms however, as a nation we have, for many years, spent more than we have earned.
This is an unsustainable financial model, and that imbalance needs to be addressed.
If only they/we had taken the advice of Mr Micawber from the novel David Copperfield: 'Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.'
In my opinion, the simple logic contained within this Dickensian extract should become the mission statement for individuals, businesses and Governments alike.
I would like to focus in on our own business and personal situations.
Overspending can be sustained for a period, provided growth in profit is rising each year, as the expectation is that next year's increased profit will negate the overspend, and carry on in this manner. This has indeed worked for many businesses and individuals in recent years, but this model only works if profit continues to grow.
When profit levels decline, this business model very quickly unwinds, and can lead to severe financial problems for the business and individual, which in turn produces the misery described above.
So what can we do, if we want to avoid these problems?
Take control
It is surprising, but many practice owners do not know how much profit their business makes. Too many businesses rely on the dated information produced by the previous year's accounts to see if they are still in profit.
Final accounts are a useful tool but given that they are often produced 12 months after the year in question, provide dated information, and often in a summarised form. This makes spotting trends or problems difficult.
Without completely up-to-date figures, financial management becomes a guessing game, and can lead to problems building up to crisis point before being spotted.
Given the potential consequences if no action is taken, especially in the present uncertain times, it is important you take the first step towards controlling your business and not having current, accurate financial information is not an option.
If in doubt, speak to your accountant for advice on the software package that will be simple for you to operate, but produce figures that you can analyse. You should be in regular contact with your accountant, every quarter would be ideal to begin with, and with a common software platform.
If you are not sure if you can establish this type of relationship with your present accountant, consider moving to one who specialises in dentistry and is willing to work with you based on an in-depth knowledge of your market. Members of the National Association of Specialist Dental Accountants would seem a good starting point and word of mouth referrals can also be helpful.
Armed with current, accurate management information relating to your business, you can quickly spot trends, confirm which areas in your practice require most attention, plan your investments in the practice to maximise tax relief, find out how much profit is being made, and start to exercise control.
This information should lead to you producing budgets for the coming year which you can then measure performance against, and establish accurately which areas in your practice require most attention.
Proper analysis can lead to improvements across all areas of your practice and this does not mean simply cutting costs. Though a worthy exercise, it is likely that businesses which look for improvements to their income and address this through staff training and involvement; marketing; attracting new patients; retaining existing patients; and making the whole customer experience fantastic, will enjoy greater success.
Take control of your own situation, establish exactly where you are as a business and an individual in terms of your finances and make plans for the future.
If you do this, I fully expect you to be singing the Proclaimers song: 'I'm on my way from misery to happiness today...'