This is part two of three in a series of articles about preparing for a potential recession. In each, CWA dives deep into strategies for protecting your portfolio, business and personal finances.
If you had to instantly cut back on household expenses, what would you first eliminate from your budget? For many Americans, the Great Recession caused them to dramatically re-evaluate their expenses. Declines in consumer confidence and decreased sales threaten all businesses, but some industries are particularly at risk. In our last blog article, we discussed several recent economic indicators that have led some economists to believe another recession may be on the horizon.
When most people think of the impact of a recession, they immediately associate it with the stock and bond market and their investments. However, most immediately, a recession impacts the bottom line of businesses, particularly service-based industries like dental practices.
“Your investments don’t need to be your most immediate concern if you and your advisor have risked your assets appropriately. Stock values go down preceding a recession because of a perceived risk of lower future profits. A pullback in the production and profits of your own business should be the most immediate concern,” cautions Ed Daude, CPA and financial planner with CWA.
According to a study by The Journal of The American Dental Association (JADA), for the period of 2007-2009, it was concluded that the effects of a recession resulted in more no-shows, fewer patient visits and lower practice collections.
It’s important during a recession to consider the impact upon your patients. Ed notes that “some families will consider certain dental procedures as a discretionary expense, particularly those under financial stress. They may have lost their jobs or fear a decline in their own income because of what they are hearing or seeing at their place of business. They are less likely to accept aesthetic or non-emergency procedures they can defer into the future. They may only come in for their routine oral care or may even defer those procedures as well.”
Ed notes that surprisingly few clients have called him with concerns about a potential recession—mainly due to the fact that they feel secure in their plan’s ability to mitigate natural economic ebbs and flows. However, if a potential downturn is not on your radar yet, it’s never too early to evaluate your business and personal habits in preparation.
7 Ways to Make Your Business Thrive in Tough Economic Times
To prepare your business for a potential recession, Ed suggested seven items to pay close attention to in the coming months. The good news is that all of these tips are excellent business practices – whether or not a recession hits:
Cash is king in a recession. CWA planners recommend keeping 3-6 months of cash on hand to cover expenses, for your business and yourself. While ready access to credit is helpful, the last recession proved that it’s not a surefire backup plan. Some banks unilaterally closed lines of credit. In some situations, they even reduced credit limits to outstanding balances. If you have cash, you are in a better position to take advantage of opportunities while maintaining operations and your lifestyle.
Manage your receivables. If you let them get too high or too old, it’s harder to collect. Try to collect payment at the time services are rendered.
Keep investing and marketing. When markets are down, it may be an excellent time to get a great deal on equipment or financing. Get creative and consider expanding into additional low-risk services. Make sure to balance this with savings and inventive ways to attract patients.
Consider the return on any investments in equipment or remodels: will it help me see more people? Will it help me be more efficient? The more quickly you can turn new investments into services and cash, the better.
Refocus and watch everything more closely. Ed observes: “All companies are like this: when times are good, we get sloppy because we are so busy. In booming times, we can get lazy and take on unnecessary costs.” That means looking harder at expenses, whether fixed or discretionary. Be diligent about patient scheduling, follow up and re-care.
Offer patients options. Oftentimes, patients are hesitant to accept treatment due to heavy up-front costs or high APRs coupled with inflexible payment terms. Now could be the time to consider flexible payment options or work with a third party financier like ELITE Patient Financing, which offers up to 35% lower provider fees, more favorable APRs and flexible payment plans. This enables your patients to get the treatment they need now, and you get cash without significant risk.
Keep a practice monitor. CWA works with clients to create a dashboard that gives a quick glance at the health of their dental practice. It tracks everything from production, write-offs, collections percentage, hygienist productivity and more. Tools like this are a much more reliable way to understand your practice’s health than simply observing cash in the bank. Ed notes that not only is it important to track these items but also to share and examine them with your team because “you can start to investigate what’s happening and it should help change behavior.”
As Ed looks back on the eight recessions he’s encountered during this lifetime, he reminds clients and other dental professionals: “There may be some pain involved but you’ll find a way to survive. There are a lot of things you can do, too, even if you’re not totally prepared. There are ways we get people through – as we did the last time.”
Remember: you don’t have to go at a recession alone. CPAs and financial planners can help you weather the storm, not only by crunching the numbers but also by helping you look at the big picture of how your business success impacts your personal finances. Looking to speak with someone to ensure your business is ready? Contact us for a complimentary review.
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