Hiring a financial planner, just like going to a dentist, has two approaches: preventive and reactive. Most clinics fall into the reactive category. They usually stumble upon an incident that serves as a trigger: a cash shortage, a bad investment, or stagnant collections. Such triggers prompt clinics to consider bringing in some extra help.
Because dental clinics typically resort to this guidance during a moment of “crisis,” they risk neglecting the importance of “timing” and “circumstances” in deciding when to hire a financial planner for dentists. What ends up happening is that they fail to benefit from the strategic edge a reliable financial planner has to offer.
To take advantage of a financial planner to the fullest, dental clinics must identify pain points to know when to hire one to assess stability and maximize profit.
This blog presents potential pain points that indicate when a dental clinic should hire a financial planner for dentists. The moment clinics find themselves facing such situations, to immediately consult a financial planner.
The Right Time To Hire a Financial Planner?
A clinic may encounter various situations that require the expertise of a financial planner, such as managing healthcare finance challenges or navigating complex business models. Though a good rule of thumb is to always have some form of financial expertise, in the start-up phase itself, typically after the first six months.
This is because having an expert financial oversight from the start lets clinics avoid many common financial mistakes. It also allows them to create a financial strategy that grows alongside the growth of the clinic’s operation, expanding over its lifetime. A financial planner for dentists can help develop strategic financial plans tailored to the following specific circumstances, supporting the clinic’s long-term stability and growth:
Equipment Upgrades
When the costs of dental equipment and maintenance rise, a planner helps determine the right time to invest in new areas for the clinic. This can include investment in newer, more advanced equipment, such as 3D scanners or digital imaging, while ensuring they do not jeopardize operational cash flow. They guide the clinic on leveraging strategic tax deductions to write off the purchase price of the equipment in the year it is placed in service. Outside of analyzing asset valuation, they provide cost-benefit analysis. They decide whether to lease, to conserve working capital, or to purchase, to maximize long-term equity and depreciation benefits.
Cashflow Shortfalls
Running out of cash flow is one of the most common reasons for clinics to seek out the services of a financial planner. If a clinic struggles to cover payroll, supplies, or equipment, a financial planner has the ability to restructure debt to lower interest rates and extend their maturity dates, to improve liquidity for the short-term. They help bridge the gap during slow periods by performing a 90-day cash flow snapshot and analyzing reimbursement structures. They also reduce overhead costs and create a cash reserve for unpredictable future financial strains that might fall on the clinic.
Rapid Growth and Staff Hiring
Just as the best time to visit a dentist is when there is nothing wrong for preventive care, the ideal time to hire a financial planner for dentists is when the clinic is financially on an upward trajectory. Because as clinics expand to multiple locations or increase their staff to meet patient demand, a financial planner is crucial for managing the increased capital and overhead. They develop strategic growth plans and set a budget for staff salaries and benefits.
Additionally, they ensure that the expansion rate aligns with the clinic’s long-term profitability goals rather than merely increasing overhead. This includes optimizing the EBITDA and identifying the right financial options for the real estate and other major expansions.
Clinic Acquisition
Acquiring a new clinic is a high-stakes move that typically consumes around 60% to 80% of the annual gross revenue, making professional guidance essential. Having an expert ensures accurate valuation, proper credentialing, and a smooth, successful transition of ownership. A specialized financial planner for dentists helps in this transition by conducting strict due diligence. This includes analysing tax returns, cash flow, and existing payer contracts. They evaluate equipment costs, assess the quality of patient records, and structure the acquisition deal.
The goal with such actions is to identify any hidden risks or unrealized value assets before the transition is solidified. During this exchange, a crucial way they help ensure the clinic is profitable is through using a mix of debt and equity. This approach is especially important immediately after closing, as it maximizes tax depreciation on tangible assets.
Tax Optimization
As a clinic continues to expand, its tax liabilities increase alongside that growth. In such cases, clinics need a financial planner as their tax burden grows, and they can no longer rely on just the standard deductions to manage their liabilities. Because clinics, especially during their start-up phase, rely on a cash basis, a planner can help them adapt to more complex proactive strategies to help navigate their newer tax burdens.
Such strategies can include a proactive approach, such as accelerated depreciation on high-cost equipment and strategic timing of income and expenses. They may also involve establishing specialized retirement plans like defined benefit plans. A competent financial planner for dentists may also suggest restructuring the type of entity, such as transitioning to an S corporation, to reduce self-employment tax liabilities.
Unclear Profitability
Profitability is not the most straightforward financial metric to determine. A clinic can have a high gross revenue but a low net profit; it’s also not directly correlated to a clinic’s productivity. In such cases, a financial planner conducts an in-depth financial analysis and compares overhead spending against the current industry standards. This helps clinics in identifying potential inefficiencies in fee schedules or low-performing service lines. By analyzing revenue cycles, they help optimize the practice’s “hygiene-to-doctor” production ratios. They also improve insurance reimbursement strategies to ensure maximum income retention.
Insurance Changes
If there are changes to the reimbursement rate for dental insurance, this can be an important factor for a practice to consider when hiring a financial planner. A financial planner who specializes in dental practices can help analyze how the decrease in reimbursement is affecting the practice’s profitability. They can also assist in creating a data-driven plan to determine whether it would be more beneficial to go out of network, renegotiate, or drop individual plans altogether.
High Debt Levels
If a clinic faces large debts like a practice buyout loan, a big loan on digital X-ray equipment, and high leasehold improvement costs simultaneously, a financial planner for dentists is essential. They can create a managed plan for debt, ensuring the clinic can service its obligations while still growing and remaining profitable. This is achieved by structuring the clinic’s debt optimally through interest rate management and cash flow strategies.
A qualified financial planner can help clinics determine when it would be appropriate to refinance high-interest-rate debts. They ensure that this does not become over-leveraged before expanding further.
Conclusion
Hiring a financial planner for a dental clinic is a matter of taking control of their financial foundation rather than delegating to an external entity. Also, choosing the appropriate planner for your clinic cannot be done randomly. It requires a thorough analysis of the clinic’s internal workflow and identification of which areas require the expertise of a financial planner. This helps clinics establish their own expectations of a financial planner. Furthermore, having this insight leads to clarity, as those areas that require financial expertise can be compared against the skills or specialization of the service provider.
Before a clinic chooses, one of the key qualifications for an appropriate financial planner is specialization within the dental industry. Planning the financial future and ensuring profitability for clinics covers a unique set of circumstances. Additionally, the usage and goals around a financial planner for dentists will continue to evolve as the clinic’s structure and scope of service expand. This is because each new phase of growth creates new sets of requirements, expectations, financial goals, and challenges. So, hiring a financial planner must be done in accordance with the holistic circumstances of the clinic’s current situation and future plans.
