Managing the threats, Maximising the Opportunities

Managing the threats, Maximising the Opportunities

Roy Gilmore, CFA

The Current Situation

A new reality

I will keep the commentary surrounding the COVID-19 crisis short as we are all privy to infinite updates on the situation from every media channel and from all levels of Government on a minute by minute basis.

However if I was only to make a few observations they would be:

  1. As a country, we have controlled this crisis relatively well

  2. The Government packages to support businesses and their employees are well directed and will help our industry come through this crisis

  3. While we may see restrictions eased sooner rather than later, this crisis will persist for some time and will have lasting and permanent impacts on us and our businesses.

We are all in this together

Whilst it is no doubt a cliché, there is no disputing the fact that we are all facing similar, if not the same challenges during these difficult times. There is not only something comfort in remembering this, but even more so embracing this and working in collaboration to beat the challenges and get back to work.

This collaboration must involve business owners, employees, professional bodies suppliers and service providers, competitors and each and every community member within our industry.

Accept and adjust

We have established that none of us are unique in having to deal with the medical, economic and personal impacts of the situation. With our current reality accepted, how do we adjust to first survive and then thrive?

It should be noted that our focus from here on in will be on the impacts and strategies for dental practices and clearly there are a lot of other impacts we need to be conscious of. However, as providers of healthcare to patients and employers of some amazing individuals, our greatest responsibility is to ensure our industry continues to thrive and provide great care to our staff and patients.
As such the first thing we need to do is to assess what we can and can’t do in dentistry at present and what the impact is on our ability to carry on business.

We will be running a free webinar with a panel of wonderful speakers to cover off on safe practice procedures during this time to help with this. Please register to be part of this lecture and interactive discussion.

Financial Impact

The present restrictions are having a significant financial impact on dental practices. In part 2 of this analysis we will try to quantify financial impacts and how they can be minimised so that we can successfully navigate the present situation.

Financial Impact

Whilst every practice is unique in its size, revenue, cost base and present operational capacity, the main financial priority right now is having ADEQUATE FUNDING & CASH FLOW MANAGEMENT.
Accordingly, in the scenario below, we run though the essential analysis and plan every practice should undertake right now to create a cash flow and funding plan.

If we take a scenario of a practice that would:

    •  Normally gross $80,000 per month
    • Fixed salaries of $20,000 per month
    • Rent of $5,000 per month
    • Miscellaneous expenses of $2,000 per month
    • Loan repayments of $8,000 per month

Let’s in this scenario assume that presently revenue from emergencies only has resulted in a 75% drop in revenue. This equates to a revenue decline from $80,000 per month to $20,000 per month.

At the same time, the fixed expenses of $35,000 per month outlined above continue to be incurred.
This results in cash outflow of $15,000 per month for each month the present restrictions continue.

HOWEVER, as we explore in some of our other analysis, the Government is assisting with these expenses, most notably Jobseeker.

As you will see in the chart below we can manage the situation to reduce cash outflow in this scenario from $15,000 per month to $2,000 per month by:

i) Negotiating rent forgiveness or deferral
ii) Reducing other regular expenses by 50% by reviewing and cutting these
iii) Applying for and receiving Jobkeeper

This is before we even consider other State and Federal Government incentives and before we consider if there is potential to bring in more emergency patients in need that are going without care.

All of a sudden, this situation becomes a lot more manageable and we can get more comfort about the present so we can start working on and planning for the opportunities that are about to present.

Duration of present restrictions & preparing for the bounce back

There are many reasons why the present level of lockdown cannot continue for a significant period of time. Furthermore, here in Australia, we are doing a wonderful job of gaining control of the situation.

So, the time we have to work on bouncing back from this stronger and better than we were before may be extremely short.
Do not lose sight of this and from today, make every day count to this end. If you are ready for the bounce back that we will see shortly, there will be huge benefits for your practice in the short and long term.

We will explore this further with our commentary, tools and resources in the coming days.