Are You Ready for the Next Recession?
Even though the economy has never been better, all economists predict another recession is in our futures. Unfortunately, no one can predict when it will start, how long it will last or how severe it will be.
As you may recall during the Great Recession (2008-2009), the stock market crashed by 59%, real estate values dropped by 30% and unemployment soared. Millions of people lost their savings, their jobs and their homes. Practice owners saw their incomes drop by 30% or more. The bad times seemed to never end.
We might be in the beginning stages of a horrible recession right now. It might even be a mild recession that does not really hurt you at all. No one knows.
However, thanks to the lessons we learned during the last recession, you can lessen the pain of the next one while strengthening you and your practice’s current financial condition with steps like these.
1. Calculate your bare-bones overhead.
Add up your current monthly overhead costs. Subtract unnecessary costs to see how much you and your practice need to survive, in case of a sudden income reduction.
If you could cover your bare-bones overhead, despite a 30% income reduction, you are set.
If you and your practice might fail with a 30% cut in income, look for ways you can phase out some of your overhead costs, especially high-interest loans.
Survival of your practice during a recession must be your highest priority.
2. Update your patient financial policies.
In 2008-2009, patients were more resistant to paying their portions of their treatments. Even if they had not lost their jobs, they did not want to pay a dime toward their treatment.
Practices that had not established a firm financial policy with their patients had greater difficulty collecting from these patients. They had to either be “bad guys” and demand patient payments or they did not collect this important source of income.
Practices that had already established and consistently enforced good patient financial policy had less resistance when collecting from patients.
We recommend you establish or review your Patient Financial Policies. Have every patient sign the policy that applies to them. Keep these signed documents on file to help your staff enforce them, as needed.
3. Slow down on large purchases, overhead increases and new loans.
If you can wait to buy your new building, your vacation cabin or new office equipment, better deals may be coming. During the last recession, desperate sellers were offering incredible prices for all types of things.
4. Prepare to buy.
If you diversify your investments (as we recommend) put a higher percentage into cash investments, such as money market funds. For example, if you normally keep 15% in cash, increase this to 20-25%.
If the stock market crashes, you will be ready to invest at the bottom of the market. Investors who bought stocks or real estate near the end of the recession (February 2009) did EXTREMELY well.
5. Invest in yourself.
Practice owners with outstanding treatment, management and marketing skills were barely bothered by the last recession. They had invested in themselves and knew what to do. You should do the same.
Learning new treatment procedures, improving your practice organization and finding reliable marketing strategies will strengthen your bottom line, in good times and bad times.