Maximising Cash Flow: Strategic Planning for Dental Practices Before June 30

As the end of the financial year quickly approaches, many dental practices find themselves navigating a critical period of financial planning. The lessons from last year’s economic challenges, as discussed in my previous article, “Economy is the Watch Word,” highlighted the rising costs in areas like interest rates, labour and consumables. This year, the focus shifts to maximising available cash flow to ensure that tax obligations, superannuation payments, and potential capital equipment purchases are met without straining the business – pre financial year end.

Understanding Your Cash Flow Position

Cash flow isn’t just about the money coming in and out—it’s the lifeblood of your practice.

Without a clear understanding of your cash flow surplus or deficit, planning for the financial demands before June 30 becomes nearly impossible. To get a comprehensive picture, start by:

1. Reviewing Practice Income Streams: Analyse your revenue sources, identifying consistent income versus seasonal fluctuations
2. Assessing Fixed and Variable Costs: Distinguish between non-negotiable expenses like rent and utilities and variable costs such as consumables and marketing. Understanding these will help identify areas for cost adjustments.
3. Monitoring Debt Obligations: Ensure that loan repayments, especially those tied to recent capital expenditures, are accounted for in your cash flow forecasts.
4. Incorporating Personal Financial Obligations: Include personal family expenditures and loan servicing outgoings in your cash flow analysis. Overlooking these can lead to cash shortages, as personal financial strains can indirectly affect business stability. If your personal expenditure excess draws too heavily on the practice, you could be damaging the business.

Strategic Planning for Year-End Financial Obligations

With a clear understanding of your cash flow, you can strategically plan for key financial commitments:

1. Tax Payments: Estimate your tax liabilities well in advance. Consult with your accountant to ensure you’re not caught off guard. If your practice has experienced growth, be prepared for higher tax obligations than the previous year.
2. Superannuation Contributions: Ensure timely superannuation payments to avoid penalties. Consider whether making additional contributions could benefit both your employees and your tax position, tax an your superannuation contributions could be as low as 15%, whereas you may be paying personal taxation at over 40% !
3. Capital Equipment Purchases: If you’re considering investing in new equipment, assess whether purchasing before June 30 offers tax advantages. However, ensure that these purchases don’t strain your cash flow, leaving you short for other obligations.

Leveraging Technology for Better Cash Flow Management

Modern accounting software offers tools for real-time cash flow monitoring, enabling you to make informed decisions quickly. Automated invoicing, expense tracking, and financial reporting can highlight potential shortfalls before they become critical.

Practical Steps to Maximise Cash Flow

1. Optimise Inventory Management: Avoid overstocking supplies that tie up cash unnecessarily. Regularly review inventory levels and adjust purchasing habits accordingly.
2. Negotiate with Suppliers: Revisit agreements with suppliers to explore potential discounts or extended payment terms, improving your cash flow without compromising service quality.
3. Review Staffing Costs: Ensure that your staffing levels align with patient demand. Consider flexible scheduling to optimise labour costs without impacting patient care where possible.

Personal Financial Considerations for Practice Owners

Just as it’s important to manage your practice’s finances, personal financial health plays a role in overall cash flow management. Review your household budget, loan obligations, and adjust discretionary spending if necessary. The rising cost of living, as noted in last year’s article, continues to impact take-home income, making personal financial discipline essential. Ensuring that personal loan repayments are aligned with your overall cash flow strategy helps maintain both business and personal financial stability.

Planning for Growth Beyond Cost-Cutting

While cost-cutting is an effective way to manage cash flow, growth strategies should not be overlooked. As highlighted in our previous article, many practices neglected to increase their marketing spend despite rising costs. Investing in patient acquisition and retention can drive revenue growth, improving your cash flow position in the long term.

Proactive Planning is Key

Maximising cash flow requires proactive management and strategic planning. By understanding your financial position, planning for year-end obligations, and leveraging technology, you can navigate the end of the financial year with confidence. Remember, cash flow isn’t just about surviving—it’s about positioning your practice for sustainable growth and success.

As you prepare for June 30, take the time to review your financial strategies and consult with your accountant to ensure you’re making informed decisions. A well-managed cash flow not only meets immediate obligations but also sets the foundation for future opportunities.

Author

Heath Stewart – ECOVIS Clark Jacobs – Director & Chartered Accountant