We work with dentists all over the country, and there’s a common problem we run into over and over: “I know my practice is profitable, but there’s no money in my bank account.” The underlying problem is that there’s a great deal of confusion around cash flow, and in order to have a Better Practice and a Better Life, you must eliminate it! A healthy practice needs clarity, confidence, and control when it comes to money, and we can help make it happen!
The key is understanding how money moves through your practice, which is an aspect that many dentists are unsure about. They often rely on their P&L statement, but that doesn’t tell the whole story, because there are gaps where money leaks from your practice.
Understanding the Cash Flow Gap
Your P&L shows your Net Profit, but that’s not the same as your True Profit, or the cash you have available. The difference between these is your Cash Flow Gap, and understanding it will help you put more money in your account. A few factors contribute to creating this gap:
- Taxes
- Debt
- Owner Draws and Distributions
It creates confusion because while your P&L says the practice is profitable, your bank account doesn’t reflect the same story. If you just rely on your P&L, it’s easy to find yourself in a bad situation.
Take Control of Your Cash Flow Gap
Seizing control means learning to look beyond your P&L to define profit. You must take an in-depth look at your last three months and actually track where the cash went. Your P&L tells you if you were profitable, but to learn what actually happened to your money, you need to look at:
- Your Cash Flow Statement, which tells you where the money moved.
- Your Balance Sheet, which tells you where the money is sitting and what is owed.
Once you can clearly see the gap in your financials, you can work on leading it by creating structure and intention around:
- Taxes. Set a consistent percentage and track it as a liability or reserve.
- Debt. Know your balances and have a clear payoff or leverage strategy.
- Owner Pay. Shift from reactive draws to a defined compensation approach.
Clarity comes from consistent interaction with the right reports, so I recommend establishing a monthly review. Like Kirk says, “Accountability requires accounting,” so calculate your Cash Flow Gap, track the numbers, and report on the results.
Remember, the Net Profit you see on your P&L is not the full story — your cash flow is, and to track it, you must use both your Cash Flow Statement and Balance Sheet. As you review, understand, and plan around the numbers, you’ll clear up any confusion around your cash flow, and finally take control!
To learn more about ACT and how we can help you build a Better Practice and a Better Life, reach out to Gina!
Tune in next time and learn how to prevent finger-pointing in the practice!
