What’s the reason for financial projections?
When it comes to your dental practice – your view of the future determines your current behavior. This is why financial projections are critical for the success and growth of your business.
Consequently, projecting your income and expenses over the next 12 months is today, mandatory for your success. It will give you a better understanding of your business and what it takes to make it profitable.
It’s important to remember that creating projections is not a precision instrument but instead a compass that is used to direct energy and effort over the course of time. By thinking about where the practice assets will be applied for the next 12 months, the practice priorities and direction will be able to be seen by the entire team. Since it is a general statement of the picture that we would like to see at the end of the year it cannot be too restrictive, it must allow for flexibility and changes along the way.
By creating the best guess of costs along with the profit or cash flow that is needed for the practice, we will determine the ideal performance for the practice at the end of the year. Consequently, it’s important that the doctor and team regularly review actual performance compared to the financial projections which are over or under budget, and determine why and what to do about it. Obviously, the goal is to arrive at the end of the year with targeted profitability actually realized.
Through the monthly review process, changes in habits in behavior, as well as management, will be identified and action called for if the end of year goals are to be achieved. In this effort, it is important that each team member have their mind on the day-to-day operation of the practice to ensure that we come as close as we can to achieving what we started the year out thinking would be best.
Creating financial projections is only a tool but it provides additional profitability through applying the process of analysis and planning. All of dentistry is determined by plans, i.e., each dental procedure is planned out in advance in a step one, step two fashion. Similarly, the act of managing your business should be planned as well and that is the purpose of reviewing projections monthly.
To create financial projections and not review them until the end of the year is like taking a trip without using a map and wondering if you are going to get to your destination.
Participation in the monthly analysis of the projections creates familiarity with all the places the practice spends money in order to provide services to your patients. It is important that everyone understands where this money goes and that not a lot of it really ends up in the doctor’s pocket.
The effort will begin to identify to you the most profitable aspects of your business and what controls and management is needed to direct the efforts of the team.
Creating financial projections forces the management of the dental office to plan ahead and anticipate the future. There should be very few surprises if everything has been thought through properly.
It assists in placing economic and human resources in the most financially
rewarding areas and makes employees aware of the scarcity of resources.
Having performance targets against which actual results can be prepared.
There is an awareness for everyone who participates in the process of how the activities of the office contribute to the overall operation. It’s important that everyone knows that they count.
It is a stimulus to work hard and maintain enthusiastic attitudes toward our jobs.