Maintain cash flow in 2021 by watching these metrics
Orthodontists are soon approaching the one-year anniversary of the largest unforeseen mass interruption in practice history. The pandemic has not only changed day-to-day operations, but most are still trying to ascertain the long-term financial impact on the practice.
Many would agree this has been one of the most exhausting years of practice, but with longer hours, creative work environments and a lot of hard work, many orthodontic practices are seeing strong recoveries after reopening. And with vaccines on the horizon for the general public and increasing consumer confidence, production concerns are subsiding.
However, concern still lingers around maintaining healthy month-to-month cash flow. To stay ahead of this, the CPAs at Cain Watters & Associates share a list of metrics to continue to monitor in your practice to help continue to ride this wave with confidence.
Last year, one of the main areas of focus was to ensure your contracts receivable balance was back up to pre-COVID levels by year end. During the 6 to 10 week COVID shutdown, orthodontic practices continued to collect from patients while not starting new cases. The result of this was a decrease of around 10% in contracts receivable balance for the average CWA practice.
It’s important to work hard to increase your contracts balance. We like to see this contract balance as 55-60% of your previous 12 months production. This will help stabilize what you would expect to collect in 2021. Understanding the cashflow of your practice over the remainder of the year will allow you to know when to conserve cash, make investments in your practice or pay down additional debt.
Marketing & Observation
Another thing to keep watch on is the utilization of your observation pool. If a large increase of production last year was primarily coming from this bucket, the prospect pool may start to dwindle if not proactively refilled and managed.
You should continually analyze your marketing efforts, measure their efficacy, determine new ways of learning how to reach patients differently and how to engage them once they are in your office.
New patients go hand-in-hand with the increase in your contracts balance. Many practices were able to go back and practice with limited barriers following the closure. In some regions, patients returned to their ‘old way of doing things’ when it came to case presentation acceptance rates.
Practices should target a case acceptance rate of 75%. Practices who are looking to increase this rate should consider lowering their down payment to help convert a new patient to start treatment. A lower down payment option can help grow longer-term cash flows in the business over the next 12-24 months.
Based on data collected from Gaidge Solutions, same day starts are up nearly 40% year over year. With a lot of families taking extra precautions when going to appointments, cutting back on family vacations, and stimulus checks being paid out, patients are more apt to get started same day. Lower the barriers to entry and enhance the patient experience.
For dental practice owners, reviewing your cash flow strategies can bring peace of mind and confidence during periods of uncertainty and changing landscapes. Consult with your CPA to ensure you are prepared with enough cash to cover 90 days of practice and personal expenses.
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