Whatever the size and complexity of your practice, a robust financial dashboard is an essential management tool. While you will have an intuitive sense of direction and momentum, precise data becomes critical when briefing financial stakeholders, planning strategic investments, or managing the transition from associate income to practice ownership. Above all, you must keep a close eye on the all-important cash flow.
Effective cash flow management is all about staying solvent, understanding how your practice functions financially day-to-day, and using that insight to plan with confidence, respond to risks, and drive sustainable growth.
What is cash flow management?
Cash flow management is the process of tracking how much money is coming in and going out of your practice.
Unlike profit, which is often a long-term measure of success, cash flow focuses on the here and now focusing on key levers including can you meet payroll, pay your suppliers, cover your tax obligations, and service your practice acquisition debt? Questions to ask yourself are do you have enough liquidity to invest in new equipment, manage insurance premiums, or weather a seasonal downturn in patient flow?
Having good cash flow management means:
- Anticipating peaks and troughs in patient income, particularly during holiday periods or economic uncertainty
- Managing payment terms with laboratories, suppliers, and associate dentists
- Controlling cash outflows while maintaining a buffer for unexpected expenses such as equipment failure or regulatory compliance costs
- Accessing appropriate finance when needed, whether for working capital or strategic investment
- Servicing student debt and practice acquisition loans without compromising operational capacity
For dentists who have transitioned from predictable associate salaries to the variable profits of practice ownership, mastering cash flow becomes a defining factor between steady growth and constant financial firefighting.
Why cash flow matters to your stakeholders
Briefing your senior team, reporting to partners or shareholders, and explaining your strategic plans to staff are all considerably easier when you have accurate data on both financial performance and operational metrics. Lenders do not simply want to know that your practice is profitable. They want assurance that you can meet your financial obligations by servicing your debts and responding swiftly if circumstances change. This is especially pertinent for dental practice owners, many of whom carry significant acquisition debt alongside student loans, and whose net worth is substantially tied to the value of their practice.
External stakeholders, for example banks, private equity investors, or specialist healthcare lenders, cannot experience the day-to-day rhythm of your practice the way you do. They depend on a regular flow of information in an agreed format to gain confidence that the practice is performing to expectations.
Tracking fee income, gross margins, overhead costs, and net profit is also vital. However, some find it wise to also monitor operational indicators such as patient retention rates, average treatment values, appointment utilisation, new patient enquiries, laboratory turnaround times, or staff productivity. Anything that, in your view, underpins practice performance can and should be measured.
KPIs that are measured and reported regularly tend to drive better business outcomes, but only where accurate data can be extracted easily, compared to past performance, and benchmarked against management targets. Financial stakeholders such as lenders and investors are typically hungry for regular financial information and KPI data. As external parties, they do not have the benefit of experiencing the day-to-day rhythm of the practice and are therefore dependent on a regular flow of information in an agreed format to reassure them that the practice is performing to agreed parameters.
Responding to their forensic questioning with vague assurances that “the practice is doing well” or, worse still, uncertainty when asked direct questions about liquidity, will inevitably damage confidence and strain relationships. In contrast, a well-prepared practice owner who demonstrates command of the number (even if they are not ideal) is far better positioned to have a constructive discussion.
Linking cash flow to financial covenants
In many lending arrangements, financial covenants are agreed. These are measurable conditions that must be met to stay compliant with the terms of the loan. They might include maintaining a minimum level of liquidity, a maximum level of borrowing, or hitting profitability targets, for example.
Missed covenants can impact your loan by trigger penalties, increasing interest rates, or even calls for early repayment. This is particularly concerning for dentists managing both practice acquisition debt where covenant breaches could jeopardise the entire financial structure of the practice.
By managing and reporting on your cash flow regularly, you reduce this risk significantly. A robust cash flow management process means you identify issues before they become problems, and you can communicate proactively with your lender.
What good cash flow management looks like
Typically, good practice when designing a Management Information (MI) report is that it should be appropriate to the scale of the practice, easy to compile, accurate, and available within the quickest possible time after the period end.
Make sure it meets the objectives of the practice but also the requirements of external stakeholders, and is presented in a format that allows the reader to quickly draw conclusions about the direction and speed of travel of the practice. The report should also clearly show whether there is sufficient cash available to allow the practice to trade effectively and make whatever investments are necessary in tangible assets and to ensure liquidity.
Here are some actionable considerations to think about:
Timely reporting
- Monthly reports are standard; practices with variable income streams should monitor weekly or daily
- Track treatment income (NHS and private), variable and fixed costs, and net profit
- Mixed income models (NHS contracts plus private fee-per-item) require closer monitoring due to claim processing delays and seasonal volatility
Clear format
- Use graphs and tables showing cash inflows, outflows, forecasts, and budget variances
- Reports should be digestible at a glance, allowing you to maintain financial oversight without compromising clinical focus
Historical and forecast data
- Compare current performance against prior periods and forecasts
- Present year-on-year comparisons and variances against budget with narrative commentary
- Produce quarterly balance sheets and cash flow statements where possible
Scenario planning
- Model best-case and worst-case scenarios for your projections
- Test resilience against unexpected costs (equipment failure, indemnity increases) and revenue drops (patient flow reduction, delayed reimbursements)
- For debt-carrying practices, understand your capacity to withstand a three-month revenue reduction or significant unplanned capital expenditure
Link to business objectives
- Align cash flow management with strategic goals including team expansion, practice acquisition, technology investment, or transitioning to private work
- Your cash position determines what’s achievable during your peak earning years whether that’s growth, debt reduction, or wealth diversification
Would you like to learn more? Our experts are on hand to help you manage your cash flow effectively.
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Operational KPIs that support cash flow
While financial figures are key, operational KPIs can provide early warning signs of cash flow pressure. For dental practices, these might include:
- Average time to receive patient payments (both private and insurance)
- Number of new patient enquiries per month
- New patient conversion rates
- Appointment utilisation rates (percentage of available chair time filled)
- Average treatment value per patient visit
- Patient retention and recall rates
- Laboratory costs as a percentage of treatment income
- Average time taken to pay creditors
Tracking these alongside financial KPIs such as gross margin, variable costs, and net profit gives you a rounded picture of performance.
Avoiding the confidence gap
Too often, we see practice owners downplay their financial position in front of stakeholders, either due to lack of data or confidence. Phrases like “it’s going OK” or “we’re a bit behind” do not instil trust. Worse still is silence or uncertainty when asked direct questions about cash flow.
By contrast, a practice owner who can clearly explain cash movements, link them to practice activities, and describe next steps with confidence earns credibility even if the numbers are not perfect. It demonstrates maturity, control, and leadership.
This is particularly important for dentists who have recently transitioned from being associates to practice owners. The shift from predictable salary to variable profits brings with it a new level of financial responsibility.
Cash flow management for practice growth
When you have control over your cash position, you can make strategic decisions. For example you can:
- Plan recruitment and expansion with confidence, knowing you can sustain additional payroll costs
- Invest in marketing or patient experience improvements without jeopardising operational stability
- Manage tax liabilities and pension contributions without stress
- Negotiate better terms with suppliers and laboratories
- Reduce reliance on expensive short-term lending or overdrafts
- Service your acquisition debt and student loans efficiently
- Build personal wealth outside the practice, reducing your reliance on a single asset
Moreover, for dentists whose net worth is substantially tied to their practice, effective cash flow management is directly linked to long-term wealth creation. A practice that consistently generates strong cash flow is not only more valuable on exit, but it also provides the owner with options for diversification, retirement planning, and financial security.
Is your management information fit for purpose?
One of the key non-financial factors lenders consider is the quality of your financial reporting. A clear, consistent Management Information pack, including detailed cash flow reports, helps reduce the perceived risk in your practice.
Our experts regularly review MI packs for dental clients and identify areas for improvement. This might include making the reporting more timely, aligning it better with strategic goals, introducing benchmarking against industry standards, or tailoring reports to meet the specific requirements of healthcare lenders who understand the unique characteristics of dental practice finance.
If you are unsure whether your cash flow management and reporting would meet a lender’s expectations, now is a good time to get it reviewed.
Get in touch
Final Thoughts
Cash flow management is a business-critical discipline that underpins every decision you make and every relationship you hold with lenders, investors, and staff. Knowing your numbers, and particularly understanding your cash flow position, allows you to run your practice confidently and with credibility. When it comes to growth, funding, or succession planning, it puts you in the strongest possible position.
For dentists who have invested years in training, accumulated significant student debt, and taken on further borrowing to acquire a practice, the stakes are high. Your practice likely represents the largest single component of your net worth. Managing it without robust cash flow oversight is akin to performing complex clinical procedures without adequate diagnostic information – possible, but unnecessarily risky!
If you are unsure as to whether your MI pack meets the quality thresholds a lender might require, please do get in touch and speak to one of our experts.
Martin How
A Just4Dentists expert
FAQ
What is cash flow management?
Cash flow management is the process of tracking, analysing, and optimising the movement of money into and out of your practice. It ensures that you have enough liquidity to cover operating expenses, repay debts (including student loans and practice acquisition finance), invest in growth, and manage financial obligations as they arise. Unlike profit, which is often calculated annually, cash flow focuses on the day-to-day financial health of your practice and your ability to meet short-term commitments.
Why is cash flow management important for dental practices?
Cash flow management is essential for maintaining stability and avoiding financial stress. It allows you to anticipate shortages, plan confidently for the future, and make informed decisions about investments, hiring, or expansion. For practices seeking funding, strong cash flow reporting builds stakeholder confidence and reduces perceived risk for lenders and investors. It is also vital for meeting financial covenants, should your lending arrangements include them.
For dental practice owners who have transitioned from the predictable income of an associate position to the variable profits of practice ownership, cash flow management becomes even more critical. Many dentists carry significant debt burdens (student loans and acquisition finance) and have substantial net worth tied to their practice, making liquidity management a key determinant of both operational success and long-term wealth creation.
What are the common cash flow issues faced by dental practices?
Some of the most common cash flow challenges for dental practices include:
- Late payments from patients or delayed insurance reimbursements
- Seasonal fluctuations in patient flow (notably during summer holidays and the December/January period)
- Overestimating revenue or underestimating costs when transitioning from NHS to private work
- Unexpected large expenses such as equipment failure, professional indemnity premium increases, or regulatory compliance costs (e.g., CQC-related expenditure)
- Over-investment in stock or laboratory materials
- Rapid growth or practice expansion without the infrastructure to support it
- Lack of visibility into actual versus forecasted cash flow, particularly when managing multiple income streams (NHS contracts, private fee-per-item, and plan patients)
These issues are manageable with clear reporting and timely forecasting.
How can I forecast and predict my cash flow?
Start by mapping out expected income (based on current patient lists, NHS contract values, private treatment pipelines, and historical trends) and anticipated outgoings (including salaries, laboratory costs, rent, suppliers, tax liabilities, loan repayments, and insurance premiums). Factor in seasonal variations and potential risks such as changes to NHS contracts or economic downturns affecting private work.
Forecasts become more powerful when tied to operational KPIs such as treatment uptake, patient numbers, appointment utilisation rates, and average treatment values, which help explain trends and provide early warning of potential issues.
How can I reconcile my cash flow forecast with actual cash flow?
Reconciling forecasted cash flow with actuals involves comparing what you expected to happen with what actually occurred. This helps identify:
- Variances in timing, such as delayed insurance payments or slower patient payment than anticipated
- Missed assumptions, such as overly optimistic projections for private treatment uptake
- Gaps in the forecast model, such as forgotten expenses like professional subscriptions or indemnity renewals
Add commentary to explain the variances and use the insights to adjust future forecasts. This process is essential for improving the accuracy of your predictions over time and demonstrating to lenders that you have a firm grasp of your practice finances.
How can I deal with cash flow problems or a cash flow crunch?
If you are experiencing cash flow challenges :
- Find the cause: Late payments? Overspending on materials? Revenue dip due to reduced patient flow?
- Prioritise payments: Focus on essentials like payroll, tax obligations, professional indemnity insurance, and loan repayments
- Speak to stakeholders in good time: Lenders may offer temporary relief or restructuring if approached proactively. This is far preferable to missing payments or breaching covenants.
- Assess costs: Are there non-essential expenses you can pause? Can you renegotiate laboratory terms or reduce discretionary spending?
- Explore short-term funding options: This could include invoice financing (particularly useful if you have delayed insurance reimbursements), overdrafts, or a working capital loan
Remember, lenders are more supportive when you are transparent and demonstrate control, even in a tough period. For dental practices with complex debt structures (student loans plus acquisition finance), early communication is critical to maintaining lender confidence.
