Here’s the answer from medical practice growth expert, Shawna Aho.
Chances are good that you’ve heard the standard advice from personal financial advisors: “The first step to creating wealth is having an emergency fund set aside to cover your expenses should the unexpected occur”… but does the same apply to your medical, dental, or vision practice?
Our clients in the Houston area are no strangers to preparing for emergencies – hurricanes, floods, dangerous summer heat, but now we find ourselves preparing for government shutdowns and that rare winter storm! My bet is that you stocked up on food, propane, firewood, winterized your home and protected your outdoor plants, but did you prepare your practice to close for a week? Does your business have emergency savings to cover these unexpected closures? Even though your practice is closed, and no money is coming in, you know first-hand that expenses still hit the bank account.
Practices that fail to have an emergency savings account tend to find themselves in trouble. I’m always reminding my clients to set aside money to protect their practice. The last situation you want to find yourself in is permanently closing your doors because you ran out of cash. It happens more than you might think!
How Much Is Enough?
A good goal amount for your emergency savings is three months of business expenses. Run a Monthly Profit & Loss report for the last twelve months, then add up the highest three months of expenses – this should be your goal for emergency savings.
Don’t let the number scare you. You don’t need to take that full amount from your practice’s checking account today to fund the emergency savings, you can slowly fund it each month until you reach that goal. Just make sure you place a percentage of revenue each month into your emergency savings account. How much you can set aside will depend on a few things like if your practice has debt and how much profit it makes; but aim to start with one percent of revenue per month and slowly increase that amount on a quarterly basis.
Remember these are emergency savings and should be used accordingly. Place the funds in a safe and liquid interest-bearing account. I do NOT recommend placing them in the stock market or rolling the dice with speculative bitcoin or GameStop stock holdings 😊 . You need to be confident the funds will be there in full and easily accessible when needed.
If this last year has taught us anything, it’s that the unexpected can AND DOES happen. With a little financial discipline and a plan for gradually saving 3 months’ worth of expenses, you’ll be better prepared for any challenges down the road.
I hope this was helpful. If you’d like more ideas on how to grow your revenue, increase profits, and protect your practice’s future, feel free to contact us at 844-424-9637for a confidential discussion about your needs.
Shawna Aho, CEO, STAC Bizness Solutions