By Practice Integration Advisor Brian Roemke
For many dentists, buying a practice is a career milestone they begin envisioning as early as dental school. It may also be one of the largest investments they will ever make, which is why guidance from a qualified financial advisor who understands the dental industry can be so valuable. But before focusing on the purchase price or the appeal of ownership, it’s important to evaluate what the practice may generate for you over time.
Look Past the Surface-Level Numbers
When searching for a practice to buy, it's easy to get excited about annual collections, modern equipment, or an updated office in a desirable location. Those factors are certainly important, but they don't necessarily tell you whether the practice is going to help you achieve financial success during your career.
That is why every prospective buyer should ask one essential question: How much cash flow will this business generate after I own it?
As a financial advisor who works with dentists, I've found that cash flow is often misunderstood by first-time buyers. Many aspiring dental practice owners assume that if a practice produces strong revenue, it will automatically create high levels of personal income. The reality is that two practices with identical collections can generate dramatically different financial outcomes for their owners.
Revenue is simply the money coming through the front door as collections. Operating cash flow is what remains after the practice pays staff, overhead expenses, debt obligations, and taxes. Ultimately, after practice-related expenses are paid, the remaining cash flow is what drives your income and allows you to fund retirement accounts, make after-tax investments, build cash reserves, and work toward long-term financial freedom.
Understand What the Practice May Generate for You
When evaluating a practice, it's important to look beyond the seller's reported income. The seller's financial statements tell you what the practice generated for them under their ownership structure, not necessarily what it will generate for you. As a new practice owner, you will likely be taking on a new practice purchase loan, replacing aging equipment, increasing staff compensation, or investing in technology and marketing initiatives that the seller postponed prior to retirement.
In other words, you should not assume the previous owner’s success will translate directly to your ownership experience. A historically successful practice can provide useful insight, but the additional costs of new ownership should be factored into your cash flow planning. A practice that consistently generates healthy margins year after year is often far more valuable than one with high production that struggles to convert revenue into profit.
Question Every Adjustment
When reviewing the financial statements of a practice you are considering, pay close attention to the adjustments in the valuation report. Many reports include various “add-backs” that increase reported cash flow. Some of these adjustments are entirely reasonable, such as one-time legal fees, unusual repairs, or employer contributions to a retirement plan. However, buyers should carefully evaluate every adjustment and ask whether the expense will truly disappear after closing.
To take a more conservative approach, if you're uncertain whether an expense will continue, assume that it will. Building a conservative cash flow projection provides a much more realistic picture of ownership.
Model the Debt Before You Commit
Debt service is another area where buyers can unintentionally create financial stress. Banks are generally eager to lend to dentists because dental practices have historically demonstrated strong repayment performance. However, just because a lender approves a certain loan amount does not mean that level of debt will support the lifestyle and financial goals you envision.
Before purchasing a practice, build a realistic post-acquisition cash flow model. Include loan payments, taxes, retirement contributions, student loan obligations, family lifestyle expenses, and any anticipated future investments in the practice. This type of modeling can reveal whether the opportunity will genuinely improve your financial position or simply create a more demanding version of your current financial situation.
Use Trends to Separate Momentum From Noise
Trends can also provide valuable insight. A single year of financial results rarely tell the whole story. Review several years—ideally three or more—of production, collections, operating expenses, and profitability. Consistent financial performance generally indicates a healthier and more predictable practice than one that experienced rapid growth shortly before being listed for sale. Understanding these patterns can help you distinguish sustainable cash flow from temporary increases.
See Cash Flow as a Wealth-Building Engine
Understanding cash flow isn't just about determining whether you can afford the practice loan. It's about understanding the wealth-building opportunity that ownership can create over time.
One of the many powerful aspects of dental practice ownership is that a successful practice can generate strong income, allowing you to meet personal financial needs while saving meaningful pre-tax dollars in a properly designed retirement plan. It can also help mitigate tax liability during your career. Additionally, as you pay down your practice purchase loan, you build equity in the practice that may eventually be realized when you sell it to the next generation of aspiring dental practice owners.
Strong cash flow creates options. It allows owners to invest in retirement accounts, build taxable investment portfolios, purchase real estate such as your practice building, and comfortably pay down debt. Over a 20-year career, these opportunities can compound into significant wealth creation.
Some of the highly successful dental practice owners I have worked with accumulated substantial net worth not because they had the highest production numbers, but because they consistently converted practice cash flow into long-term investments. They viewed their practice not just as a place to work, but as a business that generated capital that could be deployed elsewhere. This is why buyers should think beyond the purchase price and focus on the practice's ability to generate sustainable, repeatable cash flow. The acquisition itself is only the first step. The true financial benefit comes from what cash flow allows you to accomplish over your career.
Conclusion
Practice ownership remains an effective wealth-building opportunity available to dentists, but only when buyers fully understand the cash flow dynamics of the business they are acquiring.
Before you fall in love with the production numbers or the appearance of growth, spend time understanding where the cash comes from, where it goes, and how much will ultimately remain after all obligations are met. Review the financial statements carefully, challenge assumptions, stress-test your projections, and build a realistic ownership budget.
The goal is not simply to buy a practice. The goal is to buy a practice that generates enough cash flow to support your lifestyle today while creating meaningful wealth for the future. Revenue tells you how big a practice is in terms of collections. Cash flow tells you how valuable ownership may be for you as the owner.
About the author
Brian is a practice-integrated wealth management advisor, providing comprehensive financial planning services to help clients understand and achieve their financial goals. Brian is enthusiastic about his role and strives to deliver an exceptional client experience. He appreciates the importance of a well-rounded team working collaboratively to develop, implement, and monitor a plan that helps clients achieve their distinct goals.
Services are offered through Focus Partners Wealth, LLC (“Focus”), an SEC registered investment adviser with offices throughout the country. Registration with the SEC does not imply a certain level of skill or training and does not imply that the SEC has endorsed or approved the qualifications of Focus or its representatives. Focus has been part of the Focus Financial Partners partnership since 2011. The information in this communication is educational and general in nature and is not intended to be, nor should it be construed as, specific investment, tax, or legal advice. Individuals should seek advice from their wealth advisor or other advisors before undertaking actions in response to the matters discussed. No client or prospective should assume the above information serves as the receipt of, or substitute for, personalized individual advice. This represents the opinions of Focus and presents information that may change. Nothing contained in this content may be relied upon as a guarantee, promise, assurance, or representation as to the future. Services and investment advice are only provided pursuant to an advisory agreement with the client. RO-26-5759654
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