Are You Paying Yourself the Right Way as a Dental Practice Owner?

By ProfitWise - a Visa Business Plans company

A dentist once told us, “The practice had a good month, so I transferred some extra money to myself.”

That sounded reasonable. The practice was profitable, there was money in the bank, and after years of building the business, he felt he should be able to enjoy some of it.

A few weeks later, though, several large expenses hit around the same time. Payroll was due, the lab bill was higher than usual, and an equipment payment was coming up. Suddenly, some of the money he had taken out would have been very useful back in the practice.

This is a situation we see frequently with business owners, and dental practices are particularly interesting because the line between being the dentist and being the owner can get blurry.

You may spend most of your day treating patients, but you’re also running a business with employees, equipment, rent, supplies, lab fees, insurance reimbursements, and plenty of other expenses competing for the money the practice generates.

So how much of that money should actually go to you?

For many practice owners, the answer develops informally over time. They take a regular salary and then make additional distributions when the bank balance looks healthy. Others simply transfer money when they need it personally.

The problem with either approach is that the bank balance on a particular day doesn’t tell you what the practice will need over the next few months.

Before deciding how much money can comfortably leave the business, you need to understand what’s coming. Perhaps you’re planning to replace a piece of equipment later in the year. Maybe you know insurance reimbursements tend to slow during certain periods, or you’ve been thinking about hiring another hygienist. Even something as routine as quarterly tax payments can change how much cash you really want to have available.

This is where cash flow planning makes a difference.

At ProfitWise, when we work with practice owners, we don’t look at owner compensation in isolation. We look at how the practice is performing, what cash it needs to operate comfortably, what’s coming over the next several months, and then help the owner understand how much can reasonably be taken out without putting unnecessary pressure on the business.

There’s also a tax side to the conversation. Depending on how the practice is structured, the way an owner pays themselves can have tax implications, so these decisions should also be coordinated with the practice’s CPA or tax advisor.

The goal isn’t to leave every extra dollar sitting in the business indefinitely. You built the practice, took the risk, and did the work. You should benefit financially from its success.

You simply want to make sure that when you take money out, you’re doing it with a clear understanding of what the practice can afford.

That way, a great month can still feel like a great month a few months later.

Contact us today!