Matt Scherer and Joe Gordon, practice transition consultants, discuss what dentists need to know about cash flow as it relates to buying and selling a dental practice.


Matt Scherer:Hi, thanks for joining us today. My name is Matt Scherer. I’m with PMA Practice Transitions and I primarily represent dental professionals in Ohio and Western P.A. who would like to either buy or sell a practice. And this is …
Joe Gordon:Joe Gordon. And I do very similar to Matt, but I do it in Indiana and in Northern Kentucky. Today we’re going to talk about cash flow as it relates to buying and selling a dental practice.
Matt Scherer:Why do you think cash flow’s important Joe?
Joe Gordon:Because cash flow is what’s going to pay the bank back. That is what the, anyone is going to look for and what you need to look for in terms of being able to support yourself and your family. And it’s what is left over after we pay everybody else.
Matt Scherer:So we throw out that term cash flow kind of loosely. Everybody probably gets that cash flow is money coming in, right? You’ve got to have money coming in to live and pay the bills with. I think we need to take maybe a little bit deeper dive into what is, really what is cash flow.
 In a dental practice everybody knows you have your top line number, right? Which is your collections or your revenues. And then you have all your expenses figured into that. And the bottom line is your net. That’s really what we’re talking about is what is the bottom line? Net is sometimes referred to as cash flow.
Joe Gordon:Yes, it’s going to be also net after we pay back any loans that we have primarily with whatever institution leaned you the money to buy the practice and that’s what we’re really looking to see what’s there. We’ve seen instances where buyers have said the practice cash flows but unfortunately by cash flow, there was nothing left over after paying the bank which means you don’t get to take anything home. That doesn’t go over real well at the house.
Matt Scherer:Right, right. And one thing you have to look at as a buyer when you look at cash flow is you have to understand what are your personal needs? What do you need not only to pay the bank back the loan, but you also have to be able to live on a daily basis as you’ve stated. So you know, what kind of student loan debt do I have? What kind of credit card debt do I have? Do I have a mortgage and what does that look like? Or rent and things like that. So at the end of the day what happens is banks look at a, they’re looking for a certain percentage of debt to cash flow ratio. And typically if that to cash flow ratio is within their limits then most of the time you get the loan.
Joe Gordon:When we look at the same thing as acquiring new equipment, new technology, what does that do to enhance our cash flow? It’s always nice to have the newest, shiniest, prettiest out there but it’s got to make money. There’s got to be something about that technology that allows you to either be more efficient or do something different that will increase that model.
Matt Scherer:You hit a really good point there because when CEREC first came out, I can’t tell you how many times I walked into an office and somebody paid $120 000 for a CEREC machine and it’s a great bookcase right now and they don’t use it.
Joe Gordon:Oh yeah, absolutely.
Matt Scherer:So wonderful point.
Joe Gordon:Absolutely and I spent many, many years when I was in the CPA world telling my dental clients no amount of times, I did not make a lot of friends with the dental equipment suppliers.
Matt Scherer:So you got to be smart as a seller, depending on how close you are to your retirement, right, in selling your practice. Obviously you don’t want to go out and buy a bunch of technology if you’re looking to sell in the near future which is, I would say in less than a year. Now if you’re three to five years out, there could be a return as you stated but you have to make sure that that return is, you’ve looked at it with your CPA or your financial advisor and made sure that, yes, there is a return on that investment so that it is a good investment. And certainly that will help you sell your practice down the road too.
Joe Gordon:Absolutely man, cash flow is important.
Matt Scherer:So that wraps up our segment on cash flow, we appreciate your time and if you like us give us a thumbs up and we’d love if you would share it with your colleagues and friends. Thanks.