Are You Tracking Your Dental Practice Finances the Right Way?

Many dentists focus on production and patient care but often overlook hidden financial pitfalls that can significantly impact profitability. If your collections fluctuate, overhead seems too high, or you’re unsure why your cash flow isn't where it should be, you're not alone. In this blog, we share how a real practice overcame financial struggles in dentistry. Additionally, we provide actionable steps to help you maximize profitability and improve cash flow!

Understanding the Financial Struggles in Dentistry

At Dental A Team, we work with practices to identify areas where they can optimize financial performance. Recently, we helped a high-producing practice struggling with an 80% overhead rate, fluctuating collections, and inconsistent cash flow. Despite producing $140,000-$160,000 per month, they were barely breaking even. Sound familiar?

We dug deep into their P&L, collections, and billing processes, and what we uncovered was shocking. The root cause wasn’t just overhead or collections—it was credits sitting on patient accounts that had accumulated unnoticed.

Key Lessons from a High-Overhead Practice

1. The Dangers of Inconsistent Pre-Collections

Pre-collections (charging patients upfront before treatment) are an excellent strategy—if done consistently. However, this practice was only pre-collecting for large cases, leading to wild fluctuations in their collections:

✅ January: High collections (pre-collected for February’s cases)

❌ February: Low collections (cases completed but no new pre-collects)

Solution: Always pre-collect for all procedures—not just large cases—and track these funds separately to avoid distorting monthly collections.

2. Hidden Credits Were Draining Cash Flow

One of the biggest surprises? Thousands of dollars in patient credits that were never refunded or applied correctly. Because previous billing staff had estimated copays inaccurately, the practice had over-collected from patients, leaving money “sitting” instead of flowing into cash reserves.

Solution:

Implement a credit audit process to track and reconcile patient balances monthly.
Automate fee schedule updates to ensure accurate patient estimates.
Establish a clear refund process to manage credits proactively.

3. Separating Funds for Lab Bills & Overhead Control

Labs were consuming 20% of revenue—far above the industry benchmark. The practice was using collected pre-payments to cover past lab bills, creating a financial cycle they couldn't break.

Solution:

Implemented a separate bank account for lab costs.
Created a profit-first system to allocate funds appropriately.
Reduced unnecessary lab expenses and negotiated better rates.

Steps to Master Your Dental Finances

If you want financial clarity and stability, here’s how to apply these lessons to your practice:

1. Audit Your Collections & Pre-Collections

Ensure pre-collections are applied consistently across all treatments.
Create a separate account to hold pre-collected funds for future services.
Track real monthly collections (excluding future pre-collections).

2. Identify & Manage Patient Credits

Run a monthly credit report to see unused patient balances.
Establish a refund policy to return overpayments timely.
Train front office staff to accurately estimate insurance and patient portions.

3. Optimize Your Overhead & Lab Costs

Keep overhead below 60% of total revenue.
Use group purchasing networks for supply and lab discounts.
Implement a profit-first allocation system for cash flow control.

4. Understand Your Key Financial Metrics

Production vs. Collection Rate: Aim for a 98%+ collection rate.
Profit Margins: Target 20-30% true profit after expenses.
Payroll Efficiency: Keep payroll at 25-30% of revenue.
Supplies & Labs: Maintain 4% supplies and 9-10% lab costs.

Transform Your Practice's Financial Future

Understanding how your money moves is the key to long-term financial success. Whether it’s refining pre-collections, monitoring patient credits, or reducing overhead, small changes can lead to massive financial improvements.

Need expert help? Schedule a free Dental Practice Assessment with our team.

For more tips, check out our latest episode!

Solutions to Financial Struggles in Dentistry