Tim Brown explains why “cash is King” in this video interview with Dr. Suham Alexander. Cash flow helps to determine the value of a practice and its debt-serviceability. In short, cash flow directly impacts its sale price.
However, cash flow varies according to the stage or life cycle of the dental practice. Early on, especially as a start-up, a dental practice may cash flow negatively due to large initial investments in equipment and supplies. Between 5 to 10 years, it is not uncommon for a practice to cash flow upwards of 15-20% of revenues and even as high as 35%. Practices that are well-established for over 10 years can cash flow at 40-45%. Some well-run and highly efficient practices can cash flow at even higher rates; however, this can cause concern amongst some buyers who may not be able to replicate the existing efficiencies to be as profitable as the existing owner(s).
It is important as business owners to be aware of opportunities to increase cash flow other than increasing production. Low hanging-fruit that can help the bottom line of a practice include evaluating expenses such as employee wages and dental supplies.
Full Interview: How Important is Cashflow for the Dental Practice?
Oasis Moment: How Important is Cashflow for the Dental Practice?