Cash in, cash out: Understanding cash flow
Cash flow is the lifeblood of your dental practice. When the cash flow stops, the practice may not be able to meet its financial obligations. Cash flow is technically defined as the difference in the amount of money in a business between the start of an accounting period and the end. It seems like a simple concept, but it is really important to know how much money your practice is bringing in and equally important to know how your money is being spent in any cycle.
Having a firm understanding of cash flow is relevant for every stage of your dental career, according to the ADA Center for Professional Success. When you are buying, starting, or expanding a practice, understanding the level of investment you can make and/or the kind of financing you can qualify for will help you make informed decisions about the future of your career and practice. Cash flow analysis is also a critical part of any decision made with regard to retirement or selling your practice.
The ADA Center for Professional Success and Wells Fargo have teamed up to make it easier to manage your budget. There are business planning calculators to help you calculate loan payments, loan terms, debt load, overhead, and return on investment (ROI).
Using the overhead calculator you can enter your revenue and expenses to find out if you have adequate cash flow to meet all of your financial obligations. You can determine the cash flow generated by your practice and remaining surplus after expenses.
If you notice that your cash flow is not meeting needs, it may be indicative of a financial problem that needs to be addressed. If you are planning for ownership or growth, these calculators will help you make decisions, write up a business plan, and communicate more effectively when you meet with your financial advisors.