Managing Cash Flow During Tougher Economic Times

In today’s climate of rising costs and a volatile economy, running a dental practice can feel more challenging than ever. With growing financial pressures, it’s essential to ensure your billing is working as hard as you are. Here are some practical steps to help you future-proof your business and weather tough economic times with confidence.

1. Forecast a range of scenarios

If the last few years have taught us anything, it’s that the unexpected can happen. Canadians have been riding a wave of uncertainty for a while – and when you’re not sure what will happen next, it becomes essential to prepare for various scenarios.

During such times of uncertainty, business scenario planning is a tried-and-true tool for business owners. Often defined as “what-if” planning, business scenario planning involves making assumptions about what the future will bring to understand how different situations may affect your business.

For example, if half of your patients decided your service was a luxury they couldn’t afford, how would it affect your cash flow? If a key supplier went out of business or the cost to service your debt rose too quickly, what impact would that have on your ability to run your practice?
Scenario planning allows you to detect pitfalls, cash gaps or cracks in your business’ foundation before they happen.

2. Understand what’s coming in and going out

The old adage “cash is king” rings especially true during an economic downturn. For any business, managing cash flow means keeping more cash coming in, minimizing what goes out, and ensuring funds are available when you need them. To get a clearer picture of your cash flow, start by asking yourself these questions:

Managing my inflows

• What terms do I offer my clients? Do my suppliers offer me the same or longer terms?
• How am I receiving payments: in cash, by cheque, by wire transfer or online?
• What monitoring systems do I have in place to ensure timely collection?

Managing my outflows

• Are my purchases having a negative impact on my cash flow?
• Do I have a system in place for making purchases?
• Am I taking advantage of supplier discounts?
• How am I paying my employees, and how often?
• What is my average payment cycle? Can I stretch it?

Managing my assets

• Do I have short-term and long-term deposit plans in place for excess cash?

3. Find ways to keep more money in your business

If you look hard enough, you’ll find opportunities to reduce the amount of cash flowing out of your business. For instance:

• Review your office space needs. If your in-person workforce has been reduced, consider downsizing your space to reduce rent payments.
• Assess whether it makes more sense to purchase assets or lease them.
• Consider gently used computers or equipment instead of buying new ones. Be sure to check that warranties are still valid to protect your investments.
• Review inventory and product lines to know what is selling and where it’s best to spend your time and money. Items that sit for too long consume cash without bringing cash in.
• Negotiate supplier terms and/or consider bartering for products and services.
• Examine your monthly expenses and see if there is an opportunity to trim utility, internet or cell phone costs.
• Run through all the publications, tools and programs you’re subscribed to and decide if there are any you can discontinue or even put on hold for a time.

4. Look at your debt

Companies with high debt levels are especially vulnerable during a recession. That’s because the more debt a business carries, the more cash is needed to make interest and principal payments. Suppose patient demand falls and less cash comes in the door. In that case, debt uses up precious resources – not only putting you at risk of defaulting but also forcing you to cut costs more aggressively, impairing both your productivity and your ability to act on opportunities.

Now is the time to closely look at your debt and cost of borrowing and find ways to either deleverage or consolidate debt to a lower interest rate product. An RBC Account Manager can help you identify ways to optimize your debt.

5. Invest in technology and digital solutions

While it may feel counterintuitive to invest in technology when money is tight, it may be a smart time to do so.
When the economy is thriving, you need to capitalize on your opportunities to care for your patients and earn as much as possible. But when you’re not operating at peak capacity, your operating budget may be freed up to fund tech investments without affecting revenue generation. Digital transformation can help make your practice more transparent, flexible and efficient.
Technology can help you cut costs and deliver improved analytics, so you can see how the recession affects your practice even quicker.

Tips to consider:

• Use automation tools for online bookings to let patients book, reschedule or cancel appointments anytime, reducing no-shows and freeing up staff time.
• Explore online sales channels like virtual marketplaces to expand your customer base.
• Tap into big data to uncover trends in your industry and market. Platforms such as RBC Insight Edge for Small Business can give you real-time insights into consumer behaviour and purchasing trends.

Bottom Line

As economic pressures rise across Canada and everyday essentials become more expensive, households are making tougher choices about where their money goes. With the right planning, though, it’s possible not to just weather these challenging times – but to thrive.

We’re here to help

Speak with your financial professional or an RBC Healthcare Specialist.