Our Dental Client Kept Putting Personal Money Into the Practice. We Needed to Find Out Why.
By ProfitWise - a Visa Business Plans company
One of our dental clients had been open for about a year when the same problem kept coming up.
The practice was seeing patients and generating revenue, but there never seemed to be enough cash to comfortably cover everything. Whenever the bank balance became too tight, the owner transferred more of her personal money into the business.
At first, she viewed those contributions as part of starting a new practice. She knew it would take time to build a patient base and didn’t expect to be profitable immediately.
But after doing this several times, she started wondering when it would stop.
Because we handle the practice’s specialized bookkeeping, we could see exactly what was happening with the money coming into and leaving the business.
Before she put another significant amount of personal savings into the practice, we wanted to understand what needed to change.
She Thought She Needed More Patients
The owner’s first instinct was to increase marketing.
That made sense. If the practice needed more money, attracting more patients seemed like the obvious solution.
But before increasing the marketing budget, we wanted to know whether patient volume was actually the main problem.
We looked at how many patients the practice was seeing, what it was producing from those visits and, importantly, how much of that production was actually turning into collections.
Those numbers don’t always move together.
A dental practice can be busy while reimbursement levels, insurance adjustments, or collection issues keep that activity from producing the profit the owner expects.
If that is happening, spending considerably more on marketing may bring additional patients through the door without solving the underlying financial problem.
We Needed to Know the Practice’s Real Break-Even Point
The owner knew the obvious monthly expenses: rent, payroll, utilities, supplies, and the practice loan.
But we wanted to put the entire cost structure together.
That included staff compensation and payroll taxes, dental supplies, lab fees, insurance, software, merchant processing, professional fees, marketing, debt payments and the other expenses required to keep the practice operating.
Once we understood what the business was actually spending each month, we could determine approximately how much it needed to collect before the owner could stop subsidizing operations with personal money.
That number gave the conversation much more direction.
Instead of saying, “We need more patients,” we could determine how much additional revenue was actually needed and then look at what would realistically produce it.
More Patients Only Help if the Economics Work
Suppose the practice needs another $15,000 in monthly collections to consistently cover its obligations.
Now we can work backward.
How many additional patients would be required at the practice’s current average collections per patient? Does the existing schedule have enough capacity to accommodate them? Would additional staff be necessary? What would it cost to acquire those patients through marketing?
Those questions matter because growth itself costs money.
If the practice spends heavily on marketing, adds staff, and increases supplies to accommodate more patients, the additional revenue needs to cover those costs as well.
This is why we wanted to understand the economics before simply telling the owner to grow.
Then We Looked at the Money She Was Putting In
The owner’s personal contributions were keeping the practice operating, but they were also making it harder to see how dependent the business had become on outside cash.
We separated the money generated by the practice from the money the owner had contributed personally so she could clearly understand the difference.
Then we could ask a much more useful question:
If she put another $50,000 into the practice, what would need to happen for her not to be in the same position six months later?
Maybe that money would give the practice enough time to reach the patient volume it needed.
But if collections per patient were too low, expenses were higher than the practice could support, or debt payments were consuming too much cash, another contribution could simply postpone the same problem.
Before putting more personal money at risk, we wanted to know which situation we were dealing with.
This Is Where the Books Become a Decision-Making Tool
Accurate bookkeeping allowed us to see how much the owner had contributed, how much the practice was collecting and where the money was going.
During our monthly meetings, we could walk through those numbers with her in plain English and explain what had changed from one month to the next.
When the question became whether she should invest more personal money into the practice, we could take that financial history further through our Fractional CFO work.
We could model what the next several months might look like under different assumptions about patient volume, collections and expenses and determine what would need to improve for the practice to become financially self-sufficient.
That is very different from simply hoping another six months will solve the problem.
Personal Money Can Buy Time. It Doesn’t Automatically Fix the Business.
There is nothing unusual about a new dental practice needing working capital while it gets established.
The important question is what that additional money is accomplishing.
For our client, we wanted every additional dollar she invested to have a purpose tied to a realistic financial plan.
If another personal contribution could provide the runway needed to reach a clearly defined break-even point, that was something we could evaluate.
If the numbers showed that the underlying economics needed to change first, we wanted her to know that before putting more of her savings into the business.
She had already invested heavily in building the practice.
Before asking her personal bank account to support it again, we wanted to understand exactly what needed to happen for the practice to start supporting itself.
