Spotting cash flow problems in your dental office.

Cash flow is one of the most important indicators of your practice's financial health. When it’s managed well, it keeps your practice running smoothly. But when problems arise, they can snowball quickly into larger issues. Here, we’ll discuss common symptoms of cash flow challenges, proactive steps to address them, and how to use your cash flow statement to better understand your practice’s financial position.

One of the first signs of cash flow trouble is uncertainty about your current cash position. Maybe you don’t know how much cash is available at any given time, or you’re constantly shifting funds to meet payroll. Stressful payroll weeks are often a red flag, as is frequently relying on overdrafts or borrowing just to cover basic expenses.

You might also notice slower growth because there’s not enough cash to reinvest in your practice. Perhaps you’re exceeding payment terms with dental supply companies, or painful slow periods each year seem harder to recover from.

These symptoms, combined with rising debt-to-income ratios, declining profits, or limited access to favorable financing rates, all point to deeper cash flow problems that need immediate attention. The good news is that cash flow problems aren’t inevitable. By understanding the risks and taking proactive steps, you can avoid many of these challenges altogether.

• Start by monitoring your cash flow regularly and maintaining a budget for your practice. A cash flow forecast can help you plan for upcoming expenses, allocate funds for debt reduction, and identify opportunities for investment or growth.
• Reviewing your key performance indicators — like overhead and profitability — can also reveal where adjustments might be needed to align with industry benchmarks.
• Think critically about big purchases. For example, before buying new equipment, calculate the return on investment to ensure it makes financial sense. Simplifying payment options for patients can also make a big difference.
• Payment links on your website, text-to-pay, or ACH payment options can improve your collections process and reduce outstanding balances.
• Optimizing inventory ordering to stay within your budget is another important step.
• Maintaining a savings account for emergencies will give you a buffer during lean periods.

These strategies are the foundation of healthy cash flow management. But to fully understand your cash flow, you need to dive into the cash flow statement itself. This statement is one of the most important parts in your financial toolkit. It tracks how money moves in and out of your practice and is divided into three sections: operating cash flow, investing cash flow, and financing cash flow. Let’s break those down.

• Operating cash flow shows how much cash is generated from the daily operations of your practice. It answers the question: is your business profitable from its core activities?
• Then there’s investing cash flow, which includes income from asset sales or expenses like purchasing new equipment.
• Lastly, financing cash flow focuses on money from debt activities, like loans or credit repayments, and whether these are being paid down or used to float the practice.

When you combine these sections, you get your net cash flow, or the total inflow minus the total outflow. What’s left over after covering expenses is your free cash flow, and this is the money you can reinvest in your practice or save for future needs. By regularly reviewing your cash flow statement, you can identify where things might be going wrong and take steps to correct them before they escalate. Negative operating cash flow could signal that your practice isn’t generating enough income from its daily operations, while heavy reliance on financing cash flow might suggest that borrowing is being used to cover basic expenses instead of growth opportunities. These are patterns you can spot and address when you have a clear picture of your cash flow.

If you’re not already tracking your cash flow, it’s time to start. Whether you work with your CPA, use a financial tool, or consult with a Commerce Bank representative link opens in a new window, taking control of your cash flow is essential to maintaining a thriving practice.