Panic can lead us into self-destruction. When someone scared of water thinks they’re drowning they burn precious energy and oxygen flailing and hyperventilating. In the knowledge that this wild state is potentially fatal to others too, lifeguards are trained to be prepared to knock out a casualty before getting close. A punch, coming from a place of rational goodwill, might save two lives, that of the rescuer and the victim.
Perhaps a punch of reason is what dental practice owners need in this febrile moment. Fear is a powerful and contagious survival emotion, and we are a social species, as capable of mindless herd mentality as we are of intelligent foresight. You will probably be wanting to do one of two things: a) freeze; b) take action in some dramatic way. Before you (continue to) do either read the rest of this article. It sets out what I have so far found to be the case among practice owners who thought they should be borrowing a lot of money — £50k+ — to “make it through”, even though they couldn’t tell me what that would pay for.
This is how it works: your business survives if you stop panicking. You do crazy things when you don’t know what you’re doing. A lot of people feel an impulse to lay staff off, cancel all direct debits and stop their marketing budget, but they might be basing their decisions on incomplete information or using emotional reasoning. Yes you can save money in the short term via those routes. You can also cause a lot of damage quickly, destroying goodwill that has taken years to build among patients, staff and inner circles of friends.
The solution isn’t complicated. If you can accept that you don’t know everything and ask for help now you have time to put in solid foundations for your business survival and relaunch when the corona shutdown is over. Here’s how it works. I need your financial information and the best way to get it is cloud based software. This was never the sexiest thing to talk about pre-corona but now you need it, so why not? It takes a couple of days to set up. If it takes your accountant longer than that we can do it for you. You don’t have time for delays.
So, you have Xero set up. I run a session on Zoom with you and we look at an analysis of your business and expenditure. I say at the outset: “I’m going to give you peace of mind by stabilising your financial world.” And that’s what happens. We move through each category and I ask you what you think will change while you aren’t trading and help you implement each saving if you need it.
Marketing is the one category we should properly debate here. You have to plan for reopening in the future and the question is how best to do that. As a general model I believe that practices should be incurring less than £10k per month in cash burn during shutdown, around 12% to 18% of your normal revenue per annum or 1% to 1.5% monthly. If you’re still wanting to borrow £100k then something has gone very wrong because there shouldn’t be any major outlay during the shutdown period.
A lot of people agree with me in five minutes when I run through my methodology. This is simple: you shouldn’t need to borrow money. If you think you do then you haven’t gone through your finances properly. Doing so will give you absolute peace of mind. This moment marks a change of the rules in dentistry: from now on you must understand your profitability. You can’t get through this pickle with the usual trick of doing a couple of extra days in surgery to earn enough revenue to paper over the cracks of an inherently bad business model.
Join me for a webinar next week where I will talk you through how to get a grip on your profit.