The Solvency Account a.k.a. "How I learned To Sleep At Night"
On our Orthopreneurs FB group, someone asked how much one should have in cash reserves for our orthodontic practices. It’s a fair question, right? Someone said 3 months, which seems to be a fair amount. The real answer is whatever you need to sleep at night knowing that no matter what happens, you’ve got it all covered. Truth is, things like the elimination period on your disability insurance and office overhead policies will help dictate what you really need in the event of a catastrophic injury. Plus, you definitely do NOT need 3 months of reserves to protect you from a downward economy. If your non-startup practice needs three full months of reserves for non-catastrophic reasons, you’ve got way bigger problems than needing a reserve account.
But no matter how much is “enough”, the more important question is: “How do I save to get there?”
Contrary to public opinion, most orthodontists bust their butts to make a living and cash doesn’t just somehow fall from the sky. On the contrary, they are often the last ones to pay themselves and on top of that, many have some serious school loans to pay off. They genuinely believe that they don’t have a penny to spare. So, I’ll ask it again: “How does one save any, let alone enough money to have sufficient reserves in the bank?”
The truth is that you won’t miss 10% of your income if it never sits around. Years ago I learned about something called a “solvency account” when I was a student at the Schuster Center for Professional Development in Scottsdale, AZ. The suggestion (an awesome one) was to “sweep” 10% of my deposits every day into a solvency account, set up specifically as it’s name implied: to keep me solvent. It was a “rainy day” fund or something to allow me to buy equipment outright when interest rates were high, but mostly it was a cushion that let me sleep at night. Like a baby.
Nowadays, with electronic online banking being what it is, it’s so simple for you to go online at the end of the day, see the deposits for the day and simply transfer 10% of that into a separate solvency account. Maybe you miss a day or two, so do it at the end of the week. It WIL add up and before you know it, you’ll have way more than you expected to ever have.
There will be times when the month might be tougher financially and you need to draw from your solvency account. That’s perfectly OK. Skip the guilt associated with taking out from that account. That’s why you have it; To use it in times of need. Just keep putting money back, over and over again and you’ll be fine. After all, if you’re solvent, you’re not living day-to-day and that can make life and work so much less stressful.
All the best,
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