Australasian Dentist Magazine Sept-Oct 2021

Category Australasian Dentist 135 columnists W e’ve all heard the saying ‘cashflow is king’, but how many of us really understand and live it? I liken cashflow to the oxygen a business needs to live and grow. A bit like the base of a hierarchy of needs, cashflow is located at the bottom of the pyramid. Just as humans can’t live without oxygen, a business cannot survive without cashflow. Valuable lessons taught by COVID The most recent challenge to cashflow management – the COVID-19 pandemic – has demonstrated just how important it is to sustain a healthy business cashflow. As a practice owner who came through the mire of the GFC in 2008, I have seen a likeness to what many have experienced over the past twelve months. Much like what occurred over a decade ago, when the good times roll, there’s a tendency to believe they always will, and that’s where the error lies. By neglecting the principles of planning for the proverbial rainy day, it is easy to be caught out. Cash flow management principles are not new. Popularised in personal finance books, like the Richest Man in Babylon, the ideas have also been applied to business by authors like Michael Michalowicz who wrote Profit First. The general principle highlights the importance of having a rainy day account, as well as bank accounts for taxes, profits, expenses and so on. This approach is based on the premise a business must operate within its means. In short, it shouldn’t reinvest every last cent into the business. Instead, it’s vital to build a financial moat. Good cashflow management fills your financial moat In his typically ironic way, Warren Buffett says when the tide goes out, you can see who’s swimming naked. It’s a great analogy for the cashflow management dilemma facing many dental business owners, particularly in wash up from COVID. If nothing else, the experience of 2020 has shown just how critical it is to sustain cashflow. It also pays to understand that in business, we need two cashflow systems; one for generating cashflow and another for Build a financial moat for your business Why effective cashflow management builds confidence in practice and life By Dr Jesse Green managing cashflow. What this means is having systems that allow us to earn money in a stable way while simultaneously implementing cashflow management practices that allocate cash to wealth creating activities outside the practice. Within this framework, we want to create what I call a ‘financial moat’. Think of it as a rainy day bank account. Ideally, your financial moat bank account covers a minimum of three months expenses, but preferably more, so that if you cannot work, or are forced to shut, you have a buffer. It means you can stay in the game when unexpected shocks, like the GFC, COVID, or other life events happen. Regardless of the crisis, it’s unrealistic to expect there will always be access to government support packages like JobKeeper and loans to help work through these events. Good cashflow management grows value Apart from providing peace of mind and fulfilling a higher purpose to create intergenerational wealth, approaching cashflow management this way informs a key business metric: Stability of Earnings Growth or STAEGR. When I recently attended a stock valuation training by a mathematician, he mentioned this as a key metric Warren Buffet looks at when investing in companies. In simple language, this means the more stable earnings growth for a business is, the more value that is likely to be assigned to it. Ultimately, thismakes your business amore attractive investment. In many respects, the principles of cashflow management are simple. The challenge is with implementation, and that’s where the right support and accountability can make a difference. u Dr Jesse Green is Australia’s leading business coach for dentists, author, speaker, and founder of the Savvy Dentist Academy. He is the creator of the Practice Max™ Scaling Framework and many other tools, including the implementation of effective cashflow management strategies, to help dentists increase value in their business and create multigenerational wealth. Learn more at https://savvydentist.com Jesse Green