Your Dental Practice Is Growing. How Much Can You Actually Afford to Pay Yourself?
By ProfitWise - A Visa Business Plans company
A dental practice has had a strong year. Production is up, collections are healthy and there is more money sitting in the bank than the owner is accustomed to seeing.
So the dentist asks a perfectly reasonable question:
How much of that money can I take out?
It sounds like a simple question, but the answer isn’t necessarily the balance showing in the bank account.
For a growing practice, deciding how much the owner can comfortably take out requires understanding what the business will need in the months ahead.
The Money Is There. But What Is It Already Needed For?
Suppose the practice has $180,000 in the bank.
Before deciding how much is available for an owner distribution, we would want to look at what is coming next.
The practice has payroll and benefits to cover, along with lab fees, supplies, rent, equipment payments, and other regular expenses. Perhaps the dentist is planning to add a hygienist or has already committed to new equipment. There may also be periods during the year when collections tend to slow.
Once those obligations and plans are considered, the amount the owner can comfortably take out may look very different from the bank balance.
This doesn’t mean the money needs to sit indefinitely in the business. The owner built the practice and should be able to benefit from its success. The question is how much the practice can distribute without putting unnecessary pressure on the business afterward.
Profit Doesn’t Answer the Whole Question Either
The dentist may also look at the P&L and see that the practice generated $250,000 in profit.
That is certainly useful information, but it still doesn’t tell us exactly how much should be distributed.
Some of that profit may not currently be sitting in the bank. The practice may have money tied up in accounts receivable or may already have used cash for debt payments, equipment or other expenditures that don’t appear on the P&L in the way an owner might expect.
This is why the conversation needs to include both profitability and cash.
Growth Makes the Decision More Relevant
Now imagine the dentist is considering adding another provider.
The practice expects that hire to increase revenue considerably, but it will take time to build the new provider’s schedule. In the meantime, the business will be paying additional compensation and may need another assistant, more supplies or additional equipment.
The practice may therefore want to retain more cash today to support the growth planned for tomorrow.
On the other hand, if collections are predictable, the practice has comfortable reserves and no major investments are coming, the numbers may show that the dentist can take a larger distribution without creating a problem.
There isn’t one percentage that works for every business.
This Is a Forward-Looking Decision
Good bookkeeping gives us the foundation for this conversation. We need to know what the practice earned, what it spent, what it owes and how much cash it has.
But the decision about how much the owner can take out requires us to go further and consider what is likely to happen next.
This is one of the situations where a small-business owner may benefit from Fractional CFO support.
Instead of choosing a distribution based on the bank balance or an arbitrary amount, we can look at upcoming expenses, expected collections, planned investments and different scenarios for the months ahead.
For the dentist, the question then becomes much easier to answer with confidence.
Not simply, “How much money is in the practice?”
But, “How much does the practice need, and what can I comfortably take out?”
Those are two very different numbers.
