This blog is the last in our 3-part series dedicated to helping you gain more insight into the financial inner workings of your dental practice. Specifically, we’re diving into the three most important financial statements that every dental practice owner should be comfortable with (and actually use!) on a regular basis.

In part 1, we discussed the basics of the balance sheet: What Financial Statements Are MOST Important for Dental Practices? Part 1: The Balance Sheet.

In part 2, we covered the income statement: What Financial Statements Are MOST Important for Dental Practices? Part 2: The Income Statement.

If you missed either of these posts, we encourage you to link through and review these prior to reading further.

So let’s dive into our explanation of the cash flow statement!

 

The Cash Flow Statement: What Is It and How to Read It.

First off, it’s important to know that not every dental practice uses cash flow statements. But if you use the accrual method of accounting, a statement of cash flows is essential for measuring your financial health.

Neither the balance sheet or the income statement tells you everything you need to know about your cash balance. It’s the cash flow statement that fills in any blanks. The cash flow statement reconciles the beginning and ending cash.  Gives you a complete picture of where your money is going in your practice.  Essentially, the cash flow statement brings together your expenses and your profits to give you a number that’s hopefully positive – meaning you have enough cash to cover your operations.

One useful feature of the cash flow statement is that it reverses those transactions where you don’t actually have cash on hand, so you get a real idea of how much cash you have to work with during a period of time.

Here are the key parts of the cash flow statement (you can refer to the example below as we cover each area):

Cash, beginning of period is the cash the practice had on hand at the beginning of the month.

Net income is total income for the report period. Some or all of that income may be subtracted on the cash flow statement, depending on what portion is in accounts receivable (not paid) or in the bank (paid).

Additions to cash reverse expenses that are listed on the books but haven’t been paid out yet. For instance, accounts payable is money owed, but is not paid.

Subtractions from cash reverse any transactions that were recorded as revenue for the month, but not actually received.

Cash flow from investing activities covers assets like real estate, equipment, or securities.

Cash flow from financing activities lists money earned collecting interest on loans, credit, and other debt. It can also include draws or additional capital contributions from the business owner.

Cash at end of period represents starting cash amount, plus the money earned this month.

That concludes our series on the most important financial statements for dental practice owners. If any of this information was unclear, don’t worry. That’s normal. Mastery of these financial reports (and managing finances for your practice in general) comes over time and with practice.

Sometimes, however, the best course of action is to bring in an expert to help clarify things and guide you based on best practices of other dental practices who are experiencing healthy growth and profitability metrics.

As a Greater Houston-based team focused exclusively on the needs of dental practices, we’re uniquely positioned to help you grow your practice while increasing profitability! We’d love to have an initial conversion to see how we may be able to support your practice. To learn more, visit us at https://stacbiz.com or call us at 844-424-9637.

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