You’ve formed the business. The equipment is ordered. Construction invoices are showing up. Maybe you even have an opening date circled on the calendar.
Now comes a less exciting question:
What happens to all the money moving through this thing?
Opening a practice requires a long list of setup tasks. But checking those boxes doesn’t automatically give you a good financial system.
That system should tell you three things pretty quickly:
What is the practice earning?
Where is the cash going?
What needs to be set aside before you spend it?
Here’s how we’d build it.
Start With Books That Tell You Something Useful
You need bookkeeping. But you don’t just need bookkeeping that produces a tax return at the end of the year.
You want books that help you run a dental practice.
That means expenses should be organized in a way that lets you see what’s happening with payroll, dental supplies, lab fees, occupancy costs, marketing, software and other meaningful areas of the business.
Here’s a simple example.
Say your practice collects $1.2 million and spends $84,000 on dental supplies.
That’s 7% of collections.
If the same practice were spending $60,000, the difference would be $24,000 a year.
You want your accounting system to make a difference like that easy to spot.
This is also why a giant category called “Other Expenses” isn’t particularly helpful. Technically, the money is accounted for. Practically, you still don’t know what happened.
Know the Difference Between Profit and Cash
This one surprises a lot of new owners.
Your practice can show a profit and still feel short on cash.
There are plenty of reasons.
Take a practice loan.
If you make an $8,000 loan payment, the entire $8,000 doesn’t necessarily show up as an expense on your profit and loss statement. The interest portion is generally an expense. The principal portion reduces the loan balance on your balance sheet.
Equipment purchases can create a similar disconnect because the cash leaving your bank account and the deduction appearing on your tax return don’t always happen the same way.
Then add owner distributions, debt payments and other cash movements.
Suddenly the P&L says you made money, but the checking account doesn’t look nearly as impressive.
Nothing is necessarily wrong.
You just need to understand that profit and cash are telling you two different things.
That distinction becomes very important when you’re deciding whether the practice can afford another hire, a piece of equipment or a larger owner distribution.
Keep Pre-Opening Spending in Separate Buckets
Before opening day, everything can start to feel like one giant startup expense.
It isn’t.
You may have organizational costs associated with creating the business. You may have startup costs incurred before the practice begins operating. Then you have equipment and other long-term assets.
Those categories can receive different tax treatment.
Under current federal rules, a business can generally elect to deduct up to $5,000 of qualifying startup costs and $5,000 of qualifying organizational costs, with the deduction reduced once costs in the respective category exceed $50,000. Remaining qualifying costs are generally spread out over time.
Equipment follows its own rules.
For example, a CBCT machine or dental chairs may qualify for depreciation provisions that allow some or all of the cost to be deducted faster.
But here’s the bigger point:
A tax deduction should be the result of a good business purchase, not the reason for one.
If you spend $80,000 on equipment just to get a deduction, you still spent $80,000.
Talk through large purchases with your tax advisor before signing whenever possible. You want to understand both the tax impact and what the purchase does to your cash.
Give Tax Money Somewhere to Live
There’s another habit worth establishing early.
Don’t treat every dollar in the checking account as spendable.
Practice owners often have tax obligations that aren’t automatically withheld the way they were from an associate paycheck. Estimated taxes, payroll taxes and owner-level taxes all need to be planned for.
That can make a healthy bank balance misleading.
Say you have $120,000 in the practice checking account.
If $30,000 needs to cover payroll and upcoming bills and another $25,000 should effectively be reserved for taxes, you don’t really have $120,000 available to spend.
One simple approach is to use a separate tax savings account and move money into it throughout the year.
It’s not sophisticated.
That’s why it works.
The tax money stops looking like practice money.
Make Quarterly Tax Planning an Actual Planning Meeting
Quarterly tax planning shouldn’t consist of receiving an email that says, “Your payment is due next week.”
The useful conversation happens before that.
Your advisor should be looking at what has changed.
Maybe collections are running $150,000 ahead of projections.
Maybe you hired an associate.
Maybe payroll increased.
Maybe you bought equipment.
Maybe you’re taking more money out of the practice than originally planned.
Those changes affect the financial picture.
Every quarter, you should be able to answer:
- What are we projecting for practice income this year?
- How much tax have we already paid?
- How much should we have set aside?
- Has anything changed that affects our projection?
- Are there decisions coming up that we should address before year-end?
You don’t need a 37-tab spreadsheet.
You need a current number and enough time to act on it.
Know When to Bring Your Advisor Into the Conversation
Some decisions are easy to clean up afterward.
Others are much easier to handle before they happen.
Talk with your dental-focused tax and accounting advisor before:
- Deciding how the practice will be taxed
- Setting or significantly changing owner compensation
- Buying major equipment
- Taking large distributions from the practice
- Making major hiring decisions that change payroll
- Setting quarterly estimated tax payments
- Making year-end tax or retirement plan decisions
The goal isn’t to call your CPA every time you buy a box of gloves.
It’s to involve them while there are still options on the table.
Build the System Before the Numbers Get Bigger
The first year of practice ownership moves quickly.
Collections grow. Payroll changes. Equipment gets added. Tax payments get larger. What started as a few transactions becomes a real business surprisingly fast.
That’s why the financial system matters.
You want clean books. You want to understand the difference between profit and cash. You want tax money set aside before it gets spent. And you want someone looking ahead instead of simply recording what already happened.
Get those habits in place early and the financial side of ownership becomes a lot easier to understand as the practice grows.
If you’re building or opening a dental practice, talk to a dental-focused tax and accounting advisor about how the financial system should work before the numbers get complicated.