[MASTERY] Phase III: Managing Your Cash Flow

MANAGING YOUR CASH FLOW

In our practice management technology, VALUOCITY, Step III is 'Manage by the Margin.' In the history of dental practice, and what most consultants typically promote, is management by 'Income Statement.' We work with our clients to manage by the 'Balance Sheet,' not the Income Statement.

For the near future and maybe a lot longer, double digit growth will be very difficult to achieve. When you are in the flow of double digit growth, the Income Statement is all you need since you could have always make more money. But those 'golden years' have turned to silver.

As a business, you need to deal with the realities of today, not the hopes of tomorrow or the fond memories of yesterday. To make money, you need to Manage buy the Margin. In order to manage your margin in a tough economy, you need to really understand your cash flow.

In our last newsletter we distinguished the basic areas that determine your margin and what to do when the OP (and your margin) decreases.

We offered that you should lower the MP to sustain your margin. That means you'd need to reduce your budget requirements even further, tighten expenditures, be rigorous in where and how you spend.

Now, how do you manage your MP so it is under tight control and can be managed in such a way that it becomes a constant focus of the practice? The only way to sustain your margin when revenues are shrinking is to carefully and thoughtfully manage your cash flow. To this end we have developed the Mastery Cash Flow Management Utility. We have developed an Excel document in which all worksheets are self- calculating. As you enter expense numbers on the cascading worksheets, the numbers are automatically updated on the 'Bottom Line' worksheet.

We place your spending into three distinct categories, each category on a separate worksheet. The three categories are 1) Fixed Monthly Expenses, 2) Variable Monthly Expenses and 3) Variable Annual Expenses.

Fixed Monthly Expenses are those expenses in which you write a check each month for the same amount to the same vendor. Rent, debt, loan repayment, salaries, leases, items of that nature. This is a fairly short list. In today's economy, if the contract or agreements are long-standing, we ask clients to call each vendor and ask for a reduction in the interest or the monthly payment. The worst they can say is "No." Many clients have done pretty well in this area with their leases, loan repayments and rent.

The second category is Variable Monthly Expenses. This will be your longest list. These are the expenses that occur each month, but the amount varies. The expenses in these columns include lab, utilities, dental supplies, office supplies, hourly wages, etc. This is one area in which you can immediately impact by working with your staff to reduce costs.

The third and final category is Variable Annual Expenses. These are expenses that occur once a year, i.e. ADA dues, Study Club dues, Insurance; twice a year or once a quarter. These expenses can vary, i.e. repairs, CE or equipment purchases. You enter in your figures and our document automatically calculates your average monthly expense in this category. This is the category that most surprises dentists, "Man, I didn't know I spent that much!"

Our utility automatically calculates the total amount spent on a monthly and yearly basis and that is the number you had to have collected to pay these bills. All the collections above this number reflect your margin.

Looking ahead to next year, we ask our clients to adjust these numbers as required and this provides them with the overhead number and what they need to collect to pay the bills. This is the MP, management projection. Now you know, anything above this is your margin. Therefore, an essential part of the game is to lower the MP by reducing expenses.

Dr. Marc B. Cooper
The Mastery Company
MasteryCompany.com

VALUOCITY; A Fable for Dentists

The 'first ever' fable written for dentists! PREORDER NOW!

This book is so inspiring; it puts it all together in a great story. I wish I could have read this book before I started the Mastery of Office Manager program. To fully grasp the verbiage used and to clarify the purpose and future of what we as managers will bring to our office after going through this program. It paints a future of excellence and success. It brings motivation and excitement back into managing. I am ready to manage and am inspired to make a difference in our practice, patient's and staff's lives. These skills learned are life skills. Great book! I know it will change, inspire and bring profit to many practices. Thank you for caring and seeing a future in having everyone succeed.

-Diana Brink

Copyright © 2004-2010 Dr. Marc B. Cooper & The Mastery Company - All Rights Reserved.

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