Economic downturns are a cyclical fact of life. Businesses experience challenging times when consumers decrease spending and experience hardship. Orthodontics is fortunate to have some resistance to downturns compared to many other industries. However, it can be affected depending on your local economy’s health. In the last recession from 2008-2009 and now in the pandemic, orthodontic practices have seen adverse effects depending on how significant the economic crisis is affecting their communities.
When McKinsey & Company looked at leading companies who showed greater recovery during the last economic downturn, they saw what separated resilient companies from those who lacked resilience. In these companies, the large differentiator was their response in earnings, not in revenues. As a result, an economic downturn can lead to a reduction in top-line payments. For example, practices can see a drop in production, especially in areas where mandated closures are most stringent. Certain communities rely on industries that will take a long time to recover such as, tourism, travel, leisure, restaurants, oil and gas, auto parts, etc.
The three steps resilient companies, including orthodontic practices, can take to build resilience, rely on creating an earning advantage. In many practices, pent up demand led to high production months after reopening. As the pandemic wears on, some communities and some orthodontists could see a reduction in patient starts as economies stagnate and capacity issues persist through restrictions. So keep in mind these three steps that can benefit a business:
1. Buffer your balance sheet
Cashflow and cash reserves are critical components of a healthy business. Many of us saw the importance of this fact during the mandated closures across many states. Cash is the lifeblood of any business. If you can restructure debt and build cash reserves during these times, you can prepare for better opportunities when economic recovery arrives.
2. Cut costs
It is encouraged to look at spending and cut deep into expenditures that don’t add value to the practice. Resilient companies focus on operational effectiveness and reduce costs on items and services that do not add significant value. Purging allows for a better review of expenses and can regain the necessary cash flow for the costs that matter most.
3. Focus on growth
Although reducing costs can help earnings and cash flow, some expenses are vital to growth. Focusing on growing the top line through marketing and keeping team-building and marketing investments is critical to building resilience. These measures do incur costs, but the upside in maintaining a healthy orthodontic practice outweighs the cost. Focusing on growth despite a downturn prepares for a faster recovery and can soften the blow of external factors affecting new patient numbers.
These three factors are important for resilience, and orthodontists should keep a close eye on their position. Digital practices have a great advantage when they behave with nimbleness and set up a structure where you can evaluate, review, and execute in a short cycle when opportunities and challenges arise.
