Dr. John and Wendy discuss different financial options with CPA Drew Schaefer for this time when faced with this crippling shut down. Listen in for different options to move forward financially as the economy is starting to move again and find resources to help if you are stuck! Drew Schaefer provides insight into how we can recover now and prepare for crisis in the future.
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"EP 65: Navigating the Financial impact of Covid-19" Transcript:
00:00:00.960 [music] Welcome to the Double Your Production Podcast with the Team Training Institute. The one place designed for dentists and their staff who want to grow their practices by following in the footsteps of those that have done it, who are in the trenches, know exactly what you’re going through. And now your leaders, the stars of the podcast, Dr. John Meis and Wendy Briggs.
00:00:29.550 Hey, everybody. I'm Dr. John Meis, here with Wendy Briggs. And this is another installment of the Double Your Production Podcast. How are you doing, Wendy?
00:00:39.210 I'm great. How are you, Dr. John?
00:00:40.760 I am doing fantastic. We have a fantastic guest today, Drew Schaefer. Drew and I are partners in business ventures, and he is my personal financial guru. And I am so excited to have you on the line with us, Drew. So do you want to tell everybody a little bit about your background?
00:01:02.160 Sure. Thanks for having me. I'm more of the traditional CPA background. I started out in audit of school and found my way to the dental industry. I guess it's coming up on 10 years ago now and worked my way up in a large DSO, large and fast-growing DSO, and became the controller there and learned a lot about the industry, the complexities, the intricacies. But, ultimately, having worked in many different industries, but accounting for the dentistry is one of the easiest. And it's all about knowing what you're looking for, what you're looking at, and looking at it regularly. So as Dr. John mentioned, I have business partnered with him now and glad to share some thoughts and feedback with you all.
00:02:08.340 Also, we are in the midst of what I like to call the COVID-19 vacation. Our practices are closed except for emergency and urgent dental care. And so when the ADA came out and recommended the practices close, a lot of people really weren't that concerned about it. It was a two week-esque, and it didn't seem like it was going to be that impactful. But as we now know, we still don't have an end in sight, and we're a month later. And people now have figured out the financial impact that this is going to be far greater than what they anticipated. And so I wanted to talk a little bit about when the cash stops coming in, what are the realizations that people have? And I warn about that as a little joke and that is, you can't tell who's skinny-dipping until the tide goes out. And in this case, the tide has gone out. We could see who has good financial systems and good financial planning and who didn't. So tell me, what are some of the gaps seen in the practices that you work with?
00:03:25.850 Yeah. I think first and foremost, this is a particularly unique event in our nation's history, dentistry, especially with the strong hygiene program has proven to be rather recession proof at least in the general dentistry perspective. And so the uniqueness of this is that it was a health crisis causing the economic crisis and a health crisis that dictated what care could be offered to patients. And so I think most dental offices and dental groups are structured to have enough cash on hand or at least access to capital through banks to pay the near-term expenses but never really expected the cash to stop coming in. So this is a very unique challenge that we're all seeing firsthand, and it exposes those that are more highly leveraged that had more debt service, and at the same time, it exposes those that have been more conservative on a cash basis and can more, for longer periods, meet some of those fixed expenses.
00:05:05.940 But I think what I've seen most is really for a lot of sole practitioners and small groups is the accounting function is generally more of a tax compliance function. I've talked with many groups that they sometimes get their numbers quarterly or just sometimes annually. They run their business more by making sure that the-- by checking the bank balance, not knowing kind of the ins and the outs of what's driving that balance. So when all of a sudden, the cash inflow stop and the cash outflows continue even at a reduced rate, it's hard for them to develop a strategy to really stop that bleeding or know where to even start. So I think that's been the biggest thing we've seen is those that have been less involved in the accounting and finances on a regular basis have a harder time developing a strategy to stay afloat especially as two weeks turns into a month, turns into who knows how long. So the ability to understand your cash flows and be flexible to adapt to the changes is just not there. And largely, once again, they're using accounts that are more tax minded and compliance minded that also can't necessarily support them from a strategic standpoint.
00:06:52.730 Sure. So, Wendy, when you and I have been talking to practices, a lot of what we've been hearing is more confusion. They just don't even know what their cash position is.
00:07:06.800 Right. Yeah. Absolutely. And when you look at the challenges, top of mind stressors for dentists right now in the midst of this crisis-- it's amazing what that looks like. 62.8% say their top of mind, the most important topic to dentists right now is financial relief for themselves. But then 34.3% are also worried about financial security for the staff. And as you mentioned, Drew, if all they really knew about their finances is what's in the bank, that's going to be scary because right now, they're probably running short on that cash flow, and they don't really understand what relief programs are out there, how they can provide a higher level of financial security. And, Dr. John, it's fascinating because sometimes when we talk to dentists, we'll say, "What's your vision? Where do you want to be five years from now?" A lot of them have never really even thought that through. We often talk about how often we're in the middle-- they take care of the most urgent tasks, not necessarily the most important. And I would absolutely love their financial situation into that category, right? That's not something that they probably ever get around to having time to focus on until we're in a crisis like this. And they realize, "Oh gosh. I probably should have focused on that," or the opposite end. We hear from doctors who reach out to us and say, "Oh my gosh, thank heavens I've worked with you guys the last few years because now I have the cash flow. I have the means to get through this crisis when I wouldn't have otherwise."
00:08:40.170 Yep. So, Drew, what we're hearing is a lot of confusion, a lot of anxiety from-- so Wendy and I both have both been speaking for a lot of different groups and getting questions from audiences that we really haven't worked with. And so there's a lot of confusion. I mean, there are hardly any dentists who have thought of burn rate and how to minimize your burn rate. And so those kind of cash management strategies just aren't something that dentists think about. So what should it look like?
00:09:18.490 Yeah. I think part of the confusion is they hear a lot about the relief programs, namely, Paycheck Protection, the PPP loans, but even that, that was rolled out so quickly. So it's supposed to be implemented a week after it was passed through Congress, and it involved all these different banks. And so depending on what bank you use, you heard different things that you read on the news, and then the banks ultimately had to work through the SBA and got kickbacks from the SBA. So I think a lot of the confusion is just the lack of coordination from trying to rush out support so quickly. But that's why I think it's especially important to your point, Dr. John, is to know your burn rate, which is how fast you're going to go through the cash on hand with these different relief programs. Nobody knows exactly when they'll get approved or if they'll get approved. And if they get approved, when they'll be funded. So it's important not to just say, "Well, I applied for this program. We'll be fine." It's important to really plot out your business for probably the next three months. So if you're open and still seeing emergencies projecting out-- assuming worst case scenario which I think is important for cash flow purposes. That way, you'll budget to run out before you might actually run out which is better than the inverse.
00:11:13.050 But I think it is important to look at kind of the trends in what you're seeing for patient flow and project that out to the best of your ability, looking at your insurance AR and working that, knowing that insurance companies are still paying. You just got to make sure to get everything submitted and follow up. We're having really good success in the insurance companies still paying everything. So cash inflow might be limited to what you already produced, but that can help cover a lot of your fixed cost. Then it's important to look at your expenses, making sure to know the timing of them, and really that's largely contingent upon your plan that you set out with your staff with any vendors that you were able to negotiate with. But really taking week by week your cash inflow and your cash outflow and seeing where that puts you and when you'll have a pressure point on cash. And that's where you'll need to either have some relief through a loan program or some other option.
00:12:34.190 So you did this analysis for us. We identified what our, maybe not the absolute worst case, but the likely worst case situation was going to be, and then we were able to find financing in case we needed to cover that shortfall.
00:12:54.380 Yeah. I think once you kind of see from week to week your cash position and that going down, it also helps you kind of define your strategy especially as it relates to people staffing which is obviously going to be your biggest expense--
00:13:13.150 So, Wendy, what are the--
00:13:14.630 --and the most challenging one to address.
00:13:17.540 Yeah. Wendy, what are some of the biggest questions that you're hearing from dentists on the CARES Act and the potential financial help for practices?
00:13:30.040 Well, the question I'm getting the most often-- and certainly, I don't know if Drew really wants to answer this one. But the question I'm getting the most often is the confusion about when to get funds, right? First it was, "Oh gosh, you got to apply, apply, apply, or the money is going to run out." And so they hurried and applied. Some posted just this week about, "Hey, my loan was done. My funds are available." And everybody said, "Oh, hang on. Don't get it soon. It's too soon." So the question I'm getting the most often is when should they actually get the funds? There's a lot of confusion out there because some people say, "Okay. Well, I thought the PPP was to actually get our team members off of unemployment. That was the whole purpose of that. But is it too soon? Should we delay? How does that work?" And the reason I said you might not want to answer that is because much like what we teach, there's not always a one-size-fits-all answer to that question. So I know there's a lot of gray area here as to what each practice should do, which I think is only adding to the confusion. But I would say, hands down, that's the most common question I'm getting is the question about when to actually access those funds.
00:14:47.560 Yeah. There's no one-size-fits-all answer. There are some businesses that can afford to wait candidly. And so, really, the only way to ensure the long-term survival is to draw on it immediately. As far as how long the money lasts, I've heard a lot of different things. I think initially when they rolled it out, the 349 million-- billion, I should say, was expected to last through mid-June. But I think what we're also seeing is that there are a lot of healthy industries out there that are certifying that they are negatively being affected by COVID or are concerned they could be that are taking advantage of the program. So I think that's where last week it kind of turned to, "Well, this program's going to run out of money real quick." And that's where the end of last week there was discussions about congress authorizing another 250 billion, but that's been slow to develop due to, unfortunately, the politics and difference of opinions on where to put the money into the economy. If you're in a more comfortable cash position, and you're not worried that the money is going to run out or won't be replenished, really, the better play is to hold off as long as you can comfortably do that, keeping in mind that if you wait too long the money might run out and not be replenished.
00:16:37.200 But taking out the loan to bring everybody back on your staff is really not efficient use of dollars. And candidly, the other part of the CARES Act that added a $600-week supplement to unemployment made it to where some of our employees can make more on unemployment than they could if we paid them through the PPP loan. So that's going to be something that we're going to continue to struggle with as we come out of this COVID vacation. But the thought process on waiting longer is that if you're able to take it out when you're able to be productive, you're going to have more of that payroll that's forgiven. So up to payroll cost, rent cost, those type can be forgiven with documentation, the eight-week measurement period after you get the funds. But if you get the funds, and then you're still closed for two months after that, you're really just floating afloat. Whereas if you're able to time it, take out the loans right before you open up, you'll be able to open up and be ideally productive and have no related payroll or rent cost. So I think you could really see profitability as sent to really compensate for some of the decreases in cash from the first month or so of this vacation. But to your point, it's no one size fits all. Everybody's in a different cash position. Everybody's got a different pain tolerance as far as-- or risk tolerance, I should say, as far as potentially missing out. And we just don't know even by state when we'll be open. So if all the money runs out and for the eight-week measurement period all those companies just pay people, but they don't have a strong foundation, then the government will have to do something additional after that to keep them in business or else all they did was pay out 349 billion to keep some companies afloat for two months.
00:19:12.620 Yeah. And that's a real danger, and I think part of the conversation now among the politicians is how do we get things opened up again because I think they fear that very thing, Drew, that we're going to end up throwing away an awful lot of money to support businesses that we're going to bail anyway because they're close to-- or have to punch a bunch more money in. So, Drew, you've been helping some practices kind of wade through these treacherous waters. Why don't you tell us a little bit about what you do that could help practices?
00:19:51.130 Yeah. So a couple of main things. First is working with them and helping them understand their cash flow, put together a cash flow both based off their current circumstances and then kind of evolving that based off decisions that they ultimately make after seeing, if you continue down this path, this is what it looks like. So I think that's the most important thing is helping to give them some clarity on what their strategy could be, not knowing how long this will continue. The other piece is in helping companies with the CARES-- or PPP application. The communication has been inconsistent between banks as they've interpreted things, guidance from the SBA differently. But we've seen multiple clients go through this now and have a good idea of what's necessary to get this quickly put through as well as tracking the expenses for forgiveness purposes which is very important not to just take the money and assume it will be forgiven. There's some tracking elements as well. And there's other loans that are available as well like the EIDL which is through the SBA. It's the Economic Injury Disaster Loan where you can get $10,000, which is essentially a grant if you just apply. And it's forgivable. It does not have to be [inaudible] if you get declined. So we can help with that as well.
00:21:50.720 If you've already taken that out, that can be refinanced into a PPP loan. You can actually have both as long as they're not used for the same expenses, so that gets back into the planning and tracking to make sure that you're not applying for loans on the same dollars twice and come crossways potentially with the government down the road but just helping them through that process. A lot of our clients-- the banks are quite literally just overwhelmed, and the relationship managers are just in process mode, working day and night for this sudden influx of applications, lots getting back being bounced back and so just trying to helping make that process go through the first time. And--
00:22:53.920 Yeah. Awesome.
00:22:56.160 Well, that was the question really then, Drew. So if they are confused about what their next step should be of when they should take the money, that's something you can actually take a look at their financial situation and give them guidance on some of that.
00:23:10.440 Yeah, definitely. And once again, acknowledging that everybody has a different risk tolerance. There's a lot of unknowns. So like Dr. John mentioned at the beginning, this is May 14th and things are still changing on a daily basis, but yeah. We can definitely help define the parameters of the businesses' current situation and help them define what the best strategy that works within their different initiatives.
00:23:48.530 Awesome. And if someone wanted to get a hold of you for this, Drew, how would they get a hold of you?
00:23:58.180 They could either email me - it's a very long email, but it's dschaefer, D-S-C-H-A-E-F-E-R, @smartchoicedentistry.com - or I could be reached at 502-718-6013.
00:24:20.450 All right. Awesome.
00:24:22.690 Fantastic. We'll also add your email and phone number on our podcast homepage. So if you're listening, and you didn't get that quite right - you want to make sure you've got it - we will add that to our podcast homepage. So you can visit that and make sure you've got the phone number and email address correct for Drew.
00:24:44.270 Great. Thank you.
00:24:45.660 Awesome. Well, thanks, Drew, for being on. That's it for another episode of the W Production Podcast. Thanks so much for listening, and we'll see you next time. [music]