Dental Practice Cash Flow Management
Keep your practice financially healthy and stable
Cash Flow vs Profitability
Profitable practices can fail from cash flow problems. Consider a practice with $80K/month revenue and $70K expenses = $10K profit. If insurance pays 60 days late and expenses are due monthly, you're constantly short $40K-$50K. Effective budgeting and cash flow management is crucial for practice stability.
Cash flow management ensures sufficient working capital to cover expenses during collection delays, slow months, equipment purchases, and unexpected costs.
A healthy practice maintains 2-3 months operating expenses in reserves ($80K-$120K for typical practice). This allows weathering slow periods, taking advantage of opportunities, and avoiding expensive short-term debt.
Monthly Cash Flow Budget Template
Revenue Streams
Fixed Expenses
Variable Expenses
Net Cash Flow
Collection Best Practices
Collect Patient Portion at Service
Request co-pays, deductibles, and non-covered amounts before patient leaves. Collection rate drops from 95%+ at service to 60-70% after patient leaves. Use treatment estimates to set expectations. Offer payment plans for larger amounts ($1,000+) but collect deposit.
Aggressive Insurance Follow-Up
Submit insurance claims electronically within 24 hours of service for faster payment (14-21 days vs 30-45 days paper). Follow up on claims over 30 days. Pre-authorize major treatment to avoid surprises and payment delays. Consider third-party billing service if collection issues persist.
Accounts Receivable Management
Target accounts receivable under 1.5 months revenue ($100K-$120K for practice doing $70K-$80K monthly). Age receivables: 0-30 days (75%), 31-60 days (15%), 61-90 days (7%), 90+ days (3%). Send statements monthly, call accounts over 60 days, use collection agency for 120+ days.
Cash Flow Warning Signs
Consistently Using Line of Credit
Operating line should be for short-term timing gaps, not ongoing operations. If you're drawing monthly and never paying down, indicates expenses exceeding collections. Need to improve collections, reduce overhead, or increase revenue.
Delaying Supplier Payments
Stretching lab bills, supply orders, or lease payments beyond terms signals cash shortage. Damages relationships, may result in COD requirements or loss of credit. Address root cause before suppliers cut you off.
Unable to Take Owner Draw
If practice can't support even minimal owner compensation ($8K-$10K/month), fundamental problem exists. Either overhead too high, collections too slow, or revenue insufficient. Requires immediate diagnostic and corrective action.
Strategic Use of Corporate Surplus
When cash flow exceeds operating needs, rather than taking excess as dividends (25-35% tax), consider corporate-owned life insurance. Surplus invested at 12% corporate tax rate vs 43-53% personally. Provides future tax-free borrowing capacity and estate liquidity through the Capital Dividend Account.
This strategy makes sense when retaining $50K+ annually after practice expenses and owner salary. Creates long-term tax efficiency while maintaining practice liquidity through policy loans if needed.
More in Practice Ownership
Continue exploring topics in this category
Explore Other Topics
Discover more resources for your financial journey
Master Your Practice Cash Flow
Strong cash flow management is the foundation of practice stability and growth. We'll help you implement systems that ensure smooth operations and financial health.
Let's analyze your current cash flow and identify opportunities for improvement.