As a dental practice owner, you’re constantly looking at numbers—revenue, expenses, and, of course, your profit. But what if I told you that profit isn’t your business’s most important financial metric?
Sure, turning a profit is great, but cash flow is the real MVP for keeping your practice running smoothly. Without steady cash flow, you can’t pay your team, invest in new equipment, or cover unexpected expenses—no matter how profitable your practice looks on paper. Let’s break it down in simple terms.
Cash Flow vs. Profit: What’s the Difference?
Many dentists assume that their business is financially secure if their practice is profitable. Unfortunately, that’s not always the case.
- Profit is the amount left over after subtracting all expenses from your revenue. It looks good on financial statements, but it doesn’t necessarily mean you have cash in hand.
- Cash flow is the movement of money in and out of your business. Positive cash flow means you have enough money to cover your day-to-day expenses. Negative cash flow? That’s when things start getting tricky.
For example, let’s say your practice made $500,000 last year with a $100,000 profit. But if your patients take 60+ days to pay invoices and insurance reimbursements are delayed, you might not have enough cash to pay your staff, suppliers, or rent right now. See the problem?
Why Cash Flow Matters More Than Profit
A dental practice isn’t just a business—it’s a high-cost operation that depends on smooth financial management. Here’s why cash flow should be your top priority:
1. You Need Cash to Pay Expenses
Your payroll, rent, supplies, and utilities don’t care if you’re profitable—they need to be paid on time. Good cash flow ensures you can cover your overhead without stress.
2. Growth Requires Capital
Want to upgrade your equipment, renovate your office, or hire another hygienist? You’ll need available cash, not just profits on paper, to make those moves.
3. Delays in Insurance Payments Can Hurt
Insurance companies don’t always pay on time, so your accounts receivable can pile up. If you’re not actively managing cash flow, these delays can leave you scrambling.
4. Debt Doesn’t Wait
Many practices take out loans for equipment, office space, or business improvements. If cash isn’t flowing, loan payments can quickly become a burden.
How to Improve Your Practice’s Cash Flow
The good news? You can take control of your cash flow with a few strategic moves:
✅ Speed Up Collections
- Offer flexible payment options to encourage faster patient payments.
- Set up automated reminders for outstanding invoices.
- Consider third-party financing options for patients to reduce receivables.
✅ Monitor Key Financial Metrics
- Regularly review your cash flow statements.
- Work with a dental CPA to project cash flow trends and avoid surprises.
✅ Control Overhead Costs
- Negotiate better rates with suppliers.
- Avoid unnecessary expenses that don’t contribute to patient care or efficiency.
✅ Plan for Seasonal Dips
Some months may be slower than others. Creating a financial buffer ensures your practice can navigate seasonal fluctuations without stress.
Final Thoughts: Stay Cash-Flow Healthy
While profit is an important long-term goal, cash flow keeps your practice alive and thriving. By actively managing cash flow, you’ll avoid financial pitfalls, keep your team paid, and set your practice up for sustainable success.
Need help fine-tuning your financial strategy? At Dental CPAs, we specialize in helping dental practices maximize profitability while keeping cash flow strong. Contact us today to ensure your practice is financially sound and future-ready!