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Mastering Cash Flow Management: A CFO's Guide for Dental Practice Owners

Dental Practice Cash Flows
Understanding the Statement of Cash Flows in a Dental Practice


Running a successful dental practice isn't just about perfecting your clinical skills; it's also about managing your finances like a Chief Financial Officer (CFO). One key aspect of this is maintaining a consistent positive cash flow. In this guide, we'll break down the essentials of cash flow management using simple language that even a dentist with no financial background can understand.

Understanding Cash Flow Buckets

Think of your cash flow as having four buckets where money comes in and four buckets where money goes out.

Cash In: A. Customer payments for services or products B. Selling assets C. Taking on debt D. Owner investments

Cash Out: E. Paying bills or expenses F. Buying assets G. Paying down debt H. Owner draws

On your statement of cash flows, A and E are considered operating expenses, B and F are classified as investing, and C, D, G, and H fall under financing.

Key Drivers of Cash Flow

To effectively manage your cash flow, you need to keep an eye on eight crucial drivers:

  • Sales transactions

  • Average sales transactions

  • Cost of services/sales

  • Payroll expenses

  • Marketing expenses

  • Operational expenses

  • Days sales outstanding

  • Days inventory outstanding

Additionally, you should monitor the sale or purchase of assets, days payable outstanding, additions or repayments to debt, and investments or draws by the owner.

Steps to Ensure Consistent Positive Cash Flow

Now that you know the basics, here are five steps to guide you towards maintaining a consistent positive cash flow:

  • Measure the Drivers Regularly: Keep track of the eight key drivers mentioned earlier. This means recording your sales, expenses, and other financial data consistently.

  • Use Drivers to Measure Trends: Analyze how these drivers change over time. Are your sales increasing or decreasing? Are your expenses going up or down? Identifying trends helps you understand your practice's financial health.

  • Set Targets: Establish specific financial targets based on your historical data and industry benchmarks. For example, you might aim to reduce marketing expenses or increase the average sales transaction amount.

  • Use Key Performance Indicators (KPIs): Evaluate your practice's financial health with three important KPIs: A. Cash Conversion: How quickly you can turn sales into cash. B. Solvency and Liquidity Ratios: Assess your practice's ability to meet short-term and long-term obligations. C. Number of Months of Expenses in the Bank Account: Ensure you have enough reserves to cover your practice's expenses in case of unexpected setbacks. (Three to six months of what your expenses would be in cash)

  • Develop a Cash Flow Forecast: Create a projection of your future cash flows based on historical data and your targets. This forecast will help you anticipate potential cash shortages or surpluses.

How a Professional can help.

If it seems a little overwhelming trying to master cash flow management, consider seeking assistance and having a CFO for your dental practice. Bookkeeping Aesthetics has many years of experience in the dental field and they can make this simple for you. That way you can do what you do best, taking care of your patients.

Bookkeeping Aesthetics can help you work towards maintaining a consistent positive cash flow and have a growing and profitable dental practice.

If you would like to know more, schedule a free consultation with us.


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