Building A Cash Cushion

Episode 044

Do you have a plan to pay for unexpected expenditures in your practice? Do you have cash reserves? Check out today’s show where we discuss a concept about building a cash cushion to make those emergency expenses less painful. It’s all here on episode 44 of Business of Dentistry!

More About This Show

Having a cash cushion for emergency situations isn’t a groundbreaking topic, but it is a lesson I’ve learned and have found it to be a useful resource. Do you have one for your practice?

On this episode, I’ll share my suggestions for creating a cash cushion, why you should do it and a story about how it helped during an unexpected situation in the early days of my practice.

To set up an emergency fund, take a percentage of your profits at the end of every quarter and set it aside. You’ll have to decide what amount works best for you. It could be 1%, 3% or 5%. Crunch your numbers, figure out what you can afford and do it.

And ideally it would be best to have three months of funds set aside, but do the best you can if you can’t reach that goal. Anything saved is better than nothing, especially if you are a solo practitioner! If you are sidelined for any reason you are out of income, unless you have this fund set up.

Personally I keep this cushion in the same account as my business, I haven’t created a separate account for it but I have been told it’s a good idea. Again, that’s up to you.

And I’ll tell you why it’s such a good idea. I started practicing in 2002, and during my residency I was told to expect it would take three years to get my practice up and running. Then in 2004 I was recalled into active duty with the Navy, and had to leave my practice. Now that I was two years in I was about to hit my stride, so the timing wasn’t ideal!

Fortunately I had set aside an emergency fund. From the get-go I was conservative in what I paid myself and that allowed me to create this fund. And I was thankful I had done that because when I was recalled to active duty I had to find a way to repay the $350,000 practice loan I had taken out.

Of course the military would give pay me, but the emergency fund was there to keep my practice afloat and avoid financial ruin. Because of that cash cushion, because I had planned and saved, I was able to weather the financial storm.

And that’s exactly what I wanted to share this topic with you today, so you know the value and importance of having a cash cushion. Now I’d love to hear from you – do you have an emergency fund? If not, when will you be setting yours up? If you do, has it ever saved you like it saved me? Leave a comment, send me an email and let me know!


Tweetable: I weathered the financial storm because I planned and saved!

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