5 Strategies to Help Protect your Dental Practice from Economic Downturn
Stay Ahead of the Game with Strategic Planning and Proactive Options
As a dental practice owner, you understand the importance of staying ahead of the curve and preparing for potential challenges that could impact your business. Inflation and economic downturns are two such challenges that can significantly affect your practice’s profit margins and overall sustainability. As of May 2023, U.S. inflation rose about 5% annually. It’s crucial to proactively implement strategies that can help mitigate the negative effects of these circumstances. Here are strategies dental practice owners can implement to prepare for an economic downturn:
- Monitor Key Performance Indicators (KPIs) & Set Benchmarks
Gather your practice advisors, including those inside your office, such as critical associates and managers to discuss KPIs, benchmarks and goals. Successful businesses pivot when the data points in a specific direction. Therefore, it is important to proactively drive your dental practice forward, increase efficiencies and tightly manage your revenue cycle.
- Build a Healthy Cash Reserve
It’s always a good idea to have cash reserves in case of unexpected events. In an economic downturn, having a cash reserve can help you cover expenses. Each practice will have a different amount they are comfortable with as a cash reserve depending on the timing of insurance payments, payroll needs and amount of supplies on hand each month. A strong savings account will provide you with financial stability and peace of mind, allowing you to weather the storm without compromising the quality of patient care.
- Understand your Payer Contracts.
To protect your dental practice from inflation, it’s crucial to have a clear understanding of your payer contracts. Review your contracts with insurance providers and identify any potential reimbursement gaps that could impact your revenue. Early communication with payers about payment requirements can help you minimize any negative effects on your practice’s finances. Additionally, consider collecting payments upfront whenever possible to improve cash flow and reduce the risk of non-payment.
Effective communication with your front desk team is essential. They play a crucial role in ensuring patients understand their financial obligations, collecting co-pays and deductibles and explaining insurance coverage. By empowering your team to have these conversations early on, you can enhance patient understanding and reduce potential payment delays or disputes.
- Identify your Employees’ Needs & Optimize Benefits
Your employees are a valuable asset to your dental practice, and their satisfaction and well-being are vital during challenging times. Take the time to understand their needs and preferences regarding employee benefits. Consider conducting surveys or having open discussions to identify the benefits that are most important to them.
This understanding will help you tailor your employee benefits package to align with their needs. Some practices will have employees who value a 401(k) plan, while you may find others would prefer a payroll increase or additional health benefits. You won’t be able to satisfy everyone, but optimizing your benefits package based on your employees can foster a positive work environment and retain talented staff members who are essential to your practice’s success.
- Monitor Cash Flow & Manage Accounts Receivable
Cash flow is the lifeblood of any business, and dental practices are no exception. Monitoring your cash flow becomes even more critical during times of inflation and economic downturns. Stay vigilant and keep a close eye on your billing and accounts receivable processes.
Ensure your billing procedures are efficient and accurate, minimizing any delays or errors that could hinder cash flow. Regularly review your accounts receivable and take proactive steps to collect outstanding payments promptly. Delayed reimbursements from insurance companies can significantly impact your cash flow, so follow up on any outstanding claims and address any issues promptly.
An economic downturn can cause significant harm to a business that is unprepared for one. By implementing these strategies, dental practices can prepare for an economic downturn and help the practice remains sustainable and profitable.
All the above areas can be part of a productive discussion with your dental CPA. They know your business and have seen the successes and tribulations of many other companies during good and bad times. Contact an Adams Brown advisor if you have dental finance and management questions.