As the owner of a dental clinic, do you ever think about the overall health of your business? Are you or one of your staff members monitoring your clinic's revenue and expenses? If you are not properly tracking the important financial metrics of your dental practice, you run the risk of overlooking expenses, incurring hefty penalties for filing your taxes late, having difficulty paying bills, and more. It can even lead to the closure of your dental practice.
Understanding the metrics involved in keeping your business healthy will allow you to make better business decisions and properly plan for the future. Here are the key metrics you should monitor to determine the overall health of your dental office.
Cash flow closely measures and monitors the money that moves in and out of your clinic's bank account in a given period of time. For example, your patients paid you a total of $9,000 this month and you paid $3,000 in bills. By following this simple calculation of cash received − cash paid out = cash flow, your clinic’s total cash flow this month is $6,000.
Monitoring and analyzing your cash flow is important because it's a good indicator of how well your clinic is performing. Positive cash flow means your clinic is bringing in a substantial amount of money you can later use for future projects. Negative cash flow, on the other hand, means you're losing or spending more money than you're earning.
Accounts payable (AP) is the total amount your clinic owes suppliers and vendors that you haven't paid yet. Staying on top of your AP is an important aspect of managing your clinic's cash flow. As your clinic grows, you'll be spending more on products and services that will support that growth. Keeping track of your accounts payable ensures that your clinic has the resources to pay bills.
Accounts receivable (AR) is the money your patients owe you for services rendered or products purchased. It's the total of all the invoices you've given to your patients that they haven't paid yet. Keeping track of your AR will allow you to see which patients are behind on their payments. If your AR keeps growing and your patients are not paying you when they should, you may have problems paying for your operational expenses, which can lead to business disruptions.
Direct costs or costs of goods sold are the costs you incur to sell your services or products. This includes the materials and equipment you use for various dental procedures. Tracking your clinic's direct costs helps you see exactly what you're paying for to deliver your services to your patients.
Operational margin or profit margin refers to the profit your clinic makes for every dollar of sales. It’s usually represented in percentage. Here's an example: if your dental practice has a 20-percent profit margin, it means that 20 percent of your revenue is left as profit. A simple way of calculating your operational margin is by dividing your operating income with your revenue.
Operational margin is a good indicator of how well your clinic is generating income from its daily operations. A growing operational margin means that your business is quickly increasing its sales compared to its expenses.
Net profit is the amount left after subtracting all the expenses from your clinic's revenue. If your clinic is generating a good amount of net profit, this will reflect as a positive number in accounting and financial reports. If your net profit is negative, you may want to review your expenses and cash flow, as this is a clear sign your dental clinic is in trouble.
Paying attention to the metrics mentioned above will give you a greater understanding of where your dental clinic stands. If you want to book more appointments and increase your revenue, you'll need the help of a trusted dental IT provider like Pact-One. We will provide you with the tools you need to enhance your clinic's productivity, allowing you to give your patients the care and service they deserve. Call us today to learn more.