59. The Money Mistakes Most Dentists Make

Speaker A: 00:00:00

Before we jump in, a quick message from KLAS accounting.

At KLAS, we work exclusively with Dennis to clean up the numbers, simplify taxes, and give you clarity on where your money is actually going. From bookkeeping to tax strategy, our goal is simple. Help you keep more of what you earn and make smarter decisions with it.

All right, let's get into today's episode. Welcome back to the Dental Business Podcast. I'm Phil Cole, and today we're talking about money.

Specifically the financial mistakes I see dentists make over and over again in their practice ownership. Before we dive in, I do want to address something real quick.

This episode was originally scheduled to include a career story in conversation with Dr. Ryan Brunworth. Unfortunately, Ryan got very sick right before recording, so we made the call to postpone that conversation.

The good news is he's recovering, he'll be back, and that episode is coming very soon. It's a great story and one that I don't want you guys to miss out on.

So today we're pivoting slightly, but honestly, this topic couldn't be more important. So here's a stat that surprises a lot of people. The average dental practice owner earns around $250,000 a year.

Now, on paper, that sounds solid, but what that number doesn't show is how much money is being left on the table because of avoidable financial mistakes. I've seen million dollar practices where the owner takes home less than the associate when we do valuations and our assessments.

This is not uncommon at all. I've seen beautiful offices, full schedules, great teams. Yet the bank account is always tight.

And it's almost never because the doctor isn't clinically strong. It's because the financial systems are broken.

So today we're going to talk through the five biggest money mistakes dentists make, at least in my opinion. And more importantly, how to fix them in a practical and I think more or less the realistic way.

So let's jump into it and let's get started with mistake number one. Mistake number one is incredibly common and it happens all the time. And that is mixing the personal and business finances together.

This usually looks like one main bank account. Money comes in, bills go out. The doctor pulls money whenever they need it. Personal expenses get mixed in. Business expenses hit personal credit cards.

Everything blurs together. And I get why it happens. Early on, the practice feels like an extension of you. And honestly, it feels easier just to keep everything in one place.

Right? They're just easy, simple. But this causes real problems. First, taxes become a mess.

I mean, your CPA has to dig through transactions to figure out what's business, what's personal. Now that might be fine for you, but that costs you time and that costs you money and it increase your audit risk.

Second, you lose visibility if you're pulling money whenever you want. You don't actually know if the practice is profitable or if you're just draining cash.

And third, it can expose personal assets to unnecessary risks if things aren't structured cleanly. So the fix is simple. But I have to tell you it needs to be non negotiable. First, separate everything.

Separate your accounts, separate your credit cards. Pay yourself, I think which is so important intentionally, either through payroll or distributions. Business money stays in the business.

Personal money stays personal. Clarity starts here and needs to end there. Now, mistake number two is not understanding the difference between cash flow and profit.

I hear this all the time, I just don't get it. My P and L says I made $200,000 but there's no money in the bank. Well, that's because you need to understand that profit is an accounting concept.

Cash flow is reality. Production might look great on paper, but if insurances haven't paid out yet, the cash isn't there.

Loan principal payments don't show as expenses, but they absolutely come out of your account. This is how dentists can feel busy. They can feel very successful and broke at the same time. So what's the fix to this?

Well, I think the most important thing. Track cash flow separately each month, look at expected collections, quit focusing on production.

Then list every expense including loan principal and this will tell you ahead of time if cash sorry will be tight. Or instead of finding out too late. Mistake number three is not having a real budget. Most dentists are reactive.

Money comes in, bills get paid and whatever's left over is what's left for them. And that's not a plan at all. A budget gives you intention. It sets expectations and highlights problems early.

For most general practices, total overhead should land between 55 and 65%. Staff around 23 to 29%. I'll let you touch 30 facilities 5 to 9%. Supplies 5%. That's it. 5%, nothing higher. And lab 8% or so.

When something drifts though, now that you have those goals and budgets, you can catch it quickly. So the fix is use a percentage based budget and review it monthly. Don't wait until the end of the year to be surprised.

Add a KPI monitoring system for your business numbers so that that can also be monitored at any time. Mistake number four is not saving for Taxes. This one hurts every year. You have a strong year. Take distribution, spend the money.

And then April hits with a massive tax bill because taxes aren't withheld automatically. You have to be proactive. The fix is open a separate tax savings account. Every time you pay yourself, move about 30% immediately.

Pretend it doesn't exist. If you over save, great. If not, then guess what, you're already prepared. Mistake number five is having no reserves.

This is once again one that I see happen all the time. Every practice needs a cushion. Even in your personal life. I tell my daughters all the time you, you have to have your rainy day fund.

Listen, in the dental world we know equipment breaks, production dips, life happens. We just had a practice that had its sewer lines back up. Guess what? A tremendous amount of cash that's going to go out the door.

And if what we see many times, doctors not having the proper insurance, then that's money that's going to come out of your profitability, your cash flow. A good target to me is six months of operating expenses set aside. If that feels overwhelming, then start small. But I mean at least do three months.

But consistency matters more than speed. The fix is automate it. Monthly transfers into a reserve account only touch it for those real emergencies.

That is something that I will say I see many, many times with doctors is the reserve sits there. And as it sits there over month after month and it's not hit, they feel it's a waste.

They feel they take it out and they start spending it as if they not ever going to have that rainy day, they're never going to have that operating expense hit. And then when it does, once again, it's not there. So let's recap. Mixing finances, separate them. Cash flow confusion.

Let's make sure that you're tracking it properly. There's no budget. Well, use percentages.

Get those budgets in place and make sure that you're doing a quarterly break even point to make sure that you're staying within that budget. No tax planning we talked about. Well start saving automatically and then no reserves. You have to build them steadily but have them always in place.

If you're dealing with any of these, you're not behind, you're normal. The key is being intentional and fixing them one at a time. Before we wrap up, a quick note on KLAS solutions lifetime practice valuations.

This isn't just a number, it's a planning tool. It helps you understand where your practice is today, what it's worth in the future and how it fits into your overall financial plan.

Retirement the growth decisions that we're talking about, the taxes that we're talking about in this episode, it all ties back to evaluation. If you want clarity, that's where it starts. Thanks for spending part of your day with me as your schedule continues to evolve.

We've got some great conversation and practical episodes coming up that focus on real decision dentists face in ownership. If today's episode helped, share it with another doctor, please, who could use it. And take one step this week to tighten up your financial systems.

Until next time, stay intentional, stay informed, and keep building a practice that actually supports the life that you want.