Budgeting: An Essential Building Block for Successful Dental Practices

As a dentist, you face a unique financial landscape. You’re not only responsible for managing your professional practice, but you also have personal financial goals and expenses to handle. Balancing these two sides of your financial life can be challenging—but with the right approach, it’s entirely manageable. 

Many dentists operate as business owners, running their practices while also managing personal finances. This dual responsibility makes budgeting crucial for long-term success. Without a solid budget, it can be easy to overlook important expenses, overestimate income, or misallocate resources, which can compromise your personal well-being as well as potentially risk the well-being of your business. 

Yet most dentists either don’t have a comprehensive budget, or don’t manage it. That’s a problem.

This blog post introduces some of the key concepts that are important for a healthy budget and also delivers a sneak peek at some of the initial work we typically review with clients. While this may feel basic, it is an essential practice and vital to your ability to gain control over your financial future and freedom to set the groundwork for even greater success.

Build Your Personal Budget

The first step toward creating a budget is understanding your finances, which includes accessing and collecting information. Here’s how to organize it, starting with your personal information.

1. List all sources of income. This will primarily include your salary from the dental practice, but could also include investment income or other sources. Importantly, this should include income based on time spent in the chair, patient load, etc.
2. Track your expenses. Break them down into fixed and variable categories. Fixed expenses include rent or mortgage, utilities, insurance, loan payments, childcare, etc. Variable expenses include groceries, entertainment, dining out, vacations, etc.
3. Set financial goals. This might include paying off student loans, saving for retirement, or funding your children’s education. Align your budget with these long-term objectives.
4. Save for emergencies. Dentists should aim to maintain an emergency fund of at least three to six months’ worth of living expenses to cushion against personal or business-related financial setbacks.

Layer in Your Business’ Budget 

In the same document, add the following information:

1. Estimate your income. You can do this by looking at past revenues and projecting future earnings based on patient load, services offered, and any anticipated changes to pricing or insurance coverage.
2. Categorize your practice expenses. Fixed expenses: Rent or mortgage for office space, utilities, salaries for staff, insurance, equipment leasing, and loan payments. Variable expenses: Supplies, marketing, continuing education, equipment repairs, and lab fees.
3. Plan for taxes. As a business owner, you are responsible for not only your personal taxes but also the taxes of your practice, including payroll, income, and property taxes. Set aside money from your revenue each month to cover quarterly and annual tax payments.
4. Allocate funds for growth. Whether it’s expanding your office, upgrading equipment, or investing in staff training, having a budget for professional development is key to keeping your practice competitive.
5. Monitor cash flow regularly. By tracking your income and expenses monthly, you can better anticipate seasonal variations or unexpected costs, allowing you to adjust as needed.

Crunch the Numbers

Now that you have a single view of your budget, the next step is to integrate them to get a comprehensive view of your financial situation. This should illuminate:

1.  The link between business and personal income. Your salary is likely dependent on the success of your practice, so fluctuations in business revenue will affect your personal finances. Plan for these fluctuations by setting aside funds during high-revenue months to cover lower-income periods.
2. Ensure personal goals align with business goals. If your personal financial goals include paying off debt or saving for retirement, make sure that your business is generating enough profit to support these goals. Likewise, if you need to reinvest in your practice (e.g., upgrading technology), ensure your personal finances can accommodate a temporary dip in salary if needed.
3. Plan for long-term savings and retirement. As a dentist, you need to plan for your future just like anyone else. Set aside a portion of your income for retirement, considering options like SEP IRAs or Solo 401(k)s.

Leverage Insights for a Stronger Financial Future 

Budgets reveal potential shortfalls, opportunities for improvement, and operational gaps and efficiencies. They are an essential step because they:

• Provide a clear picture of both personal and practice-related finances.
• Help you manage cash flow, ensuring that both your personal and business needs are met.
• Allow you to plan for major purchases, investments, and taxes.
• Enable you to set and achieve financial goals, both personally and professionally. 

We often find that a clear-eyed view delivered through a well-managed budget becomes the first step from dream to reality, whether that includes practice acquisitions, mergers, sales, opportunities to hire more clinicians, or better profit margins—however you define success. 

Learn more about the ways we support emerging group practices like yours.