A Dentist, a CPA, and a Financial Advisor Walk into a Bar . . .

The independent healthcare practice owner is often on an island by themselves, when it comes to the business of dentistry. They might have a trusted distribution rep calling on them, a CPA that has been with them for years, and a financial advisor that is genuinely helping them pave a path to their future. Often, these trusted advisors are “siloed” or linear in their relationship with the doctor. Most trusted advisors don’t communicate and plan very well with each other on the doctor’s behalf. The doctor is left in the middle, like an old-time telephone operator – in the middle of if all and trying to keeps things together, chatting up their advisors in fragmented and sporadic ways.Business Software for dentists

The modern independent healthcare practice owner will build a more specialized team of advisors that will meet regularly – two, maybe four times per year – in a virtual planning meeting to address the financial well-being of the practice owner. These virtual Zoom meetings will include the doctor, the financial advisor, and the dental CPA. All parties have received the Profit and Loss statement automatically when it was reconciled on the 20th of the month. The P&L is dental specific and is always completed by the 20th for the immediate prior month. This way, all advisors have – in advance – the most current YTD financials and current overhead. The true Operating Cash Flow will be calculated accurately utilizing a third-party software to roll together the P&L, balance sheet, and front office data (Dentrix, Eaglesoft, DataDX, etc.). This way, loans and distribution payments are captured and considered against available cash. Now . . . . how is cash flow at home? How are collections in the practice projected to continue in the next 90 days?

  1. Determine how much cash we require in the practice business checking at all times. This number used to be generally accepted to be 30-45 days of business expenses on hand at any time in cash. With the recent pandemic and resultant impact on independent practice revenues, many advisors are stretching the recommend cash on hand to 45-60 days.
  2. Once this is cash threshold is determined, we know the practice has that cushion. Let’s move on. . . as a likely S corporation the doctor is taking a reasonable salary as an officer, estimated as a reasonable percentage to production. As a team, we discuss the projected revenue in the next 90 days for the practice and get a feel for the doctor’s cash flow needs at home. Can we take additional distributions now, what does income projection look like? Hang on . . .
  3. The financial advisor discusses funding the retirement plan and if that needs to occur now or year end for, depending on what type of plan and what it allows. At the same time, the dental CPA is able to accurately dial in taxes due by observing what the W-2 has already captured, the practice trends, and what distributions are pending. Everyone is on the same page now as we addressed a) practice cash b) doctor cash-flow personally c) practice projections d) retirement planning and e. tax projections.

By having these frequent meetings, with all trusted advisors, and ensuring the practice data is accurate and current, you can make your financial world a well-oiled machine and no longer suffer stress from feeling like your alone on an island with no solid plan. Practice cash health is good, doctor can pay the bills and have some family fun, there are no tax surprises, and the future retirement on the beach is on track. This planning is simple but must be consistent and respectful of the data. Modern technology allows the independent healthcare practice owner to run their shop like the corporate outfits do; however, they must adapt and build a trusted team to help them get there.