Even when your dental practice is collecting $1M a year it can earn zero business profit. If the owner takes home about 30% of collections and an associate would step in to replace them also at 30%, the practice itself earns nothing essentially. So building wealth means starting with profit after a market-rate salary.

Once you’ve capture a healthy 25% in excess cashflow consider mid-year tax planning, re-investing right back in the dental practice, or external investments.

Many times dentists simply hit their revenue target, whether $1M, $1.5M, or $2M, and still find the bank account lighter than they expect and along with that comes a tax bill heavy. Yeah sure, maybe collections are growing, but the gap between revenue and wealth is where planning and execution matter most, and it starts with the P&L statement.

This article comes from a conversation on a podcast called Dental Unscripted with Omar Mossad, a CPA and founder of Virjee Consulting who works with more than 600 dentists nationally.

Why Doesn’t Your P&L Match Your Bank Account Statement?

Your profit and loss statement (P&L) is the X-ray of your practice. You probably wouldn’t treat a patient without one. And as a business owner, you shouldn’t be making financial decisions without understanding yours. But here is the thing that Omar pointed out on the podcast. The P&L will almost never match what’s sitting in your bank account.

About 95% of practices carry some form of debt, whether it’s an SBA loan or a startup loan or an acquisition note from buying. Every payment on that debt has two parts: interest and principal. Interest is the cost of borrowing, so it shows up as an expense on your P&L. Principal payments are repayment of money you already borrowed as debt, so it isn’t calculated as an expense on your P&L, even though it leaves your bank account. On a $9,700 monthly payment, that might mean $9,700 leaves your bank account while your P&L records only about $5,300 of it as an expense.

What is depreciation and amortization?

Depreciation and amortization are expenses on your P&L that don’t take cash directly out of your bank account. So for example, big purchases are paid for once but used for years, so accounting spreads those cost across its useful lifespan. Depreciating $150,000 of equipment over 7 years puts about $21,400 of expense on your P&L each year.

When you buy a dental practice you amortize $600,000 of goodwill over 15 years, which puts $40,000 of expense on your P&L every year, roughly. And none of that money actually leaves your bank account. Goodwill is the part of a practice you pay for, reputation or location rather than equipment or supplies. In an acquisition it is usually the largest piece.

You pay for it once, at closing, but accounting spreads the cost over 15 years, the standard period for tax purposes. So each year your profit drops by $40,000 on paper while the cash in your bank account stays where it is. The actual payment went out at closing.

Depreciation and amortization are expense with no cash leaving your bank account. To estimate the cash your practice really generates, start with net income, add back depreciation and amortization, and subtract principal payments.

So if a doctor looks at the P&L and sees $50,000 in depreciation expense. Nobody is sending you an invoice for that. There is no “depreciation bill.” It’s an accounting mechanism designed to reduce your tax burden. So in actual tax return revenue that $50,000 is money you actually get to keep or hold back, and on paper it looks like an expense. If you don’t understand that distinction, you’ll consistently underestimate what you’re actually earning.

The fix is straightforward. Three steps close the gap:

1. Have a CPA who works with dentists set up a dental-specific chart of accounts.
2. Get the books current, closed monthly.
3. Review the P&L with your CPA or consultant and mark which lines are cash leaving the business and which are non-cash entries.

Review this article if you are thinking about buying a dental practice. This article will help you prepare financially – Five financial Must DO’s Before Buying a Practice

Do You Own a Business or a Job? The Associate Replacement Test

Your practice earns business profit. Most don’t think of the business earning a profit after taking home their salary. But the business only earns a profit if something is left after you pay a market-rate dentist to do the clinical work.

Start with total collections and subtract all your operating expenses. What remains is your take-home as owner-operator, often around 30% of collections. So on a $1M in collections practice, that is $300,000 take home pay. Now price out your replacement if you wanted to walk away. An associate typically earns 30 to 33% of collections or adjusted production. On $1M, that is $300,000 to $330,000, the same money you already take home without anything left for you afterward. That’s the gap we are pointing out here.

We aren’t saying you should have a self driving practice that provides you income, but we are saying you need to think about having a “business profit.” Something tangible you can see, especially when you go to sell, this becomes extremely valuable.

Buyers and lenders run this same calculation on how dental practices are valued. They normalize owner compensation to a market associate rate and value the practice on what is left, often called adjusted EBITDA. If adjusted EBITDA is near zero, a buyer has no earnings to pay a multiple on, and the price falls toward the value of the equipment, the buildout, and the patient base.

Many owners spend 10 or 15 years believing they have a strong practice because they take home 30% of production. They would earn roughly the same working in someone else’s office, without the risk or the management load.

My co-founder, Paula Quinn, has sold two practices she owned. The ones that command strong multiples generate profit beyond what a replacement dentist would cost, because that surplus is what a buyer is purchasing. Paula had to pay a doc to do the dentistry because she was a hygienist who owned. So the multiple on EBITA was very favorable to her when she went to sell.

Look at this table. It clearly shows you how having a more profitable practice differs from one that isn’t. Practice B pays its owner more and carries sale value. Notice how the only difference came from overhead expenses.

Financial Factor	Practice A: a job	Practice B: a business
Collections	$1,000,000	$1,000,000
Operating expenses	$700,000	$600,000
Owner take-home	$300,000	$400,000
Market associate cost (31.5%)	$315,000	$315,000
Profit left for a buyer	-$15,000	$85,000

How to Use Tax Planning To Build Wealth, Through Practice Ownership

Once your practice is generating real profit, the next thing that shows up, guaranteed, is a tax bill. And the instinct most dentists have when they see that number is to find any way to reduce it.

Tax planning doesn’t happen on April 15th. Because by the time you’re filing, the books should be closed on the CPAs end. Most of the strategies that could have saved you $40,000–$80,000 in a given year needed to be executed months prior. A good CPA schedules planning meetings between August and September, they project your annual income, and lay out the best options before year-end.

How your entity structure determines taxable income

Your entity structure determines how much of your profit is hit by self-employment tax. A practice taxed as a partnership pays that tax on the owners’ full share of profit, while an S corporation applies it only to a reasonable salary, with the rest taken as distributions. That difference is why many practices save money by switching once profit grows.

Planning for profitable tax deductions

Income thresholds are the second place money can get lost. Dentistry counts as a specified service business, so the 20% qualified business income deduction phases out as taxable income rises past a set level. Omar told us on the podcast that if your taxable income is $40,000 over the QBI threshold, you lose part of the 20% deduction. but a $40,000 retirement contribution lowers your taxable income by that amount, which saves tax on the contribution and also restores the QBI deduction you were losing.

For example, a couple with $350,000 of qualified income who are $40,000 over could recover about $18,700 of deduction this way, on top of the savings from the contribution. These are illustrative numbers, and thresholds change annually, so run your own figures with a CPA.

Tax savings are one of the few returns you can count on, because they don’t depend on the stock market or real estate market to go up. A deduction saves tax at your marginal rate, which is often 24% to 37% federal for a practice owner. So a $40,000 contribution to retirement at a 35% bracket cuts your tax bill by $14,000 when you file.

By comparison, the S&P 500 has averaged roughly 10% a year over long periods, and commercial real estate about 7%, and both carry real risk. The comparison isn’t exact, since tax savings are a one-time reduction rather than a yearly return, and retirement money is taxed when you withdraw it. Even so, a legitimate deduction pays immediately and without market risk, which few investments can match.

Don’t just chase deductions, depending on your situation

Sometimes the right advice is to not chase the deduction. If you’re planning to open a second office in March and you’ll need cash to get through a six-month ramp-up, it might be smarter to pay the tax bill and keep the liquidity. Paying the IRS 25 cents to keep 75 cents in the bank is better than scrambling for cash during a startup and making fear-driven decisions because you’re short.

Why Cash Reserves Protect You from Your Own Worst Decisions

This came up in our conversation with Omar too and makes a lot of sense. Practice owners who run tight on cash or with low cash reserves in their bank, make worse decisions. Not because they’re less smart. It’s because anxiety takes over.

If collections dip for a month and you’ve only got $5,000 in the operating account, the first impulse is to start cutting your biggest expense, staff. But you’re in a people business. You spent months training those team members. They’re the reason patients come back. Cutting that now solves a cash flow problem for 30 days and then creates another problem for the next 12 months.

Most successful entrepreneurs across every industry maintain six to nine months of operating expenses in reserve. That cushion means you can ride out a bad month, hire a consultant for a front office improvement program, or hold a marketing budget spend long enough for it to actually produce good results, all without making a reactive decision that doesn’t really help in the long run.

When a doctor has adequate reserves, the decision-making quality goes up across the board. They evaluate hiring decisions based on growth potential instead of fear. They invest in equipment when the clinical ROI is there instead of waiting until they’re behind. They negotiate better because they’re not desperate.

Where Should Dental Practice Owners Actually Invest Their Money?

Omar laid out a framework that we think is exactly right for most practice owners, and it’s deliberately simple. He calls it the three-legged stool. You build wealth across three asset categories: #1 your practice, #2 real estate, and #3 broad market index funds.

Investment Type	Typical Return / Benchmark	Key Consideration for Dentists
Reinvest in your own practice	Depends on the specific investment and its incremental results	You can directly influence the outcome through improved operations, capacity, technology, marketing, or services
Real estate	Varies by property, market, financing, and investment structure	Can provide another source of asset ownership and diversification outside the dental practice
S&P 500 / broad index funds	~10% long-term historical average	Passive and diversified, but market values fluctuate and investors must remain invested through downturns

The order matters. If you’re going to invest a dollar, the first dollar should go right back into your practice where you can directly influence the outcome. Bring in a consultant to tighten up operations. Upgrade to a CBCT that opens up implant revenue. Fund a clear aligner program. Invest in marketing that fills your schedule.

A healthy dental practice keeps about 25 cents of every revenue dollar as operating profit. That figure describes how efficiently the practice runs, not an actual measurement for an investment it will return. The better test is what a specific dollar earns. If a $60,000 treatment room adds $20,000 a year in profit, that’s a 33% return before taxes, compared with about 10% a year for the stock market. When a project clears that bar by a wide margin, putting some of that money back into the practice in a smart way usually beats investing it elsewhere, as long as you account for the added risk and can see it producing results for you.

We’ve watched practices go from $600K–$700K in annual production to $1.5M–$1.7M by reinvesting strategically in technology, team training, and expanded services. The owners are working fewer chair days. They’ve brought on associates. And the practice value, the thing somebody would actually pay to acquire, went up by multiples.

Once the practice is optimized and producing reliable excess cash flow, then you start diversifying. Some of that money goes into retirement accounts. Some goes into index funds. Some goes into real estate exposure, whether that’s direct ownership, a Vanguard real estate fund, or a limited partnership interest in a commercial deal.

The ultimate goal over time is to get 35–50% of your household income coming from sources outside your clinical production. At that point, you have real freedom.

The Biggest Investment Mistakes We See Dental Practice Owners Make

They scatter. They chase the shiny thing. I literally had a client who took his extra cash and opened an ice cream parlor next to his dental office. He put $100K into it, but it made nothing.

If you study wealthy entrepreneurs, one pattern holds almost universally, they got rich doing one thing exceptionally well. They focused on what they new. They didn’t try to be great at seven different things. Jimmy John Liautaud sold his sandwich company for billions and put the money into farmland, earning a steady 5–7% because that’s what he understood. Sandwiches and farmland. That’s it.

For you, the one thing is your dental practice. It’s a cash-generating machine when it’s run well. A practice on five chairs doing a million to $1.2M, if you move the needle just 5%, that’s $50K–$60K in additional revenue you created from an asset you already own and operate. You didn’t have to learn a new industry. You didn’t have to take on a new risk profile. You just got better at the thing you already do.

Once the practice is throwing off consistent profit above your personal compensation, then you take that excess and diversify it into the other two legs of the stool. But the practice comes first.

What Does “Wealth” Actually Mean for a Dental Practice Owner

Wealth doesn’t mean becoming a billionaire. It means freedom. It means your practice earns you $300K, and your investments outside the practice earn you another $100K–$150K, and you’re working three days a week with associates covering the rest. Your overhead is healthy. Your family’s lifestyle doesn’t depend entirely on you showing up to the chair every single day.

If a dentist saves $100K a year and invests it for ten years, that’s a million dollars in principal alone. Even in the most conservative vehicles like mutual funds and real estate partnerships returning 7–8%, that’s $70K–$80K a year in passive income. Most dentists need about $200K annually to cover their household expenses outside of student loan payments. So you’re now 35–40% of the way to financial independence from your investments alone.

There’s no magic formula here. It’s discipline. It’s understanding your real numbers. It’s working with a CPA who plans proactively, not reactively. It’s reinvesting in your practice before you chase outside returns. And it’s having the patience to let compound growth do its job over the 20–25 years of productive career you have left.

You have a clinical career that generates high income and a business asset that appreciates when managed well. That combination, if you’re intentional about it, is one of the best wealth-building positions any professional can be in.

Frequently Asked Questions

How do I know if my dental practice is profitable as a business?

Subtract all operating expenses from collections, then subtract what a market-rate associate would cost to replace your clinical work, typically 30 to 33% of collections. What remains is business profit. If it is zero or negative, you own a well-paying job, and a buyer would value the practice mainly on equipment, buildout, and patient base.

What is the difference between revenue and profit in a dental practice?

Revenue is total collections. Owner-level profit is what remains after operating expenses. Business profit, the figure buyers use, is what remains after also paying a market-rate dentist to do the owner’s clinical work. Many practices collecting $1M to $2M have healthy owner pay and little business profit.

Why doesn’t my dental practice P&L match my bank account?

Loan principal payments reduce your bank balance but are not expenses on the P&L, and about 95% of practices carry debt. Depreciation and amortization reduce reported profit without any cash leaving that month. Together they make the P&L and the bank balance diverge in both directions.

When should dental practice owners do tax planning?

In August or September. By the April filing deadline the prior year is closed and most strategies have expired. A mid-year meeting with a CPA who works with dentists lets you project income, review entity structure, check your position against the QBI deduction threshold, and act before December 31.

What is the best investment for a dental practice owner?

For most owners, investments in their own practice with a measurable payback, such as technology that brings referred-out procedures in-house, team training, or marketing that fills open chair time. Well-chosen projects can return well above the roughly 10% long-term average of the S&P 500. After the practice is optimized, surplus cash should go into retirement accounts, index funds, and real estate.

How much cash should a dental practice keep in reserve?

Six to nine months of operating expenses. For a practice spending $60,000 to $80,000 a month, that is $360,000 to $720,000. Reserves prevent reactive moves like cutting trained staff after one slow month, and they let long-term strategies such as marketing or insurance credentialing run long enough to pay off.

About the authors

Michael Dinsio, MBA, and Paula Quinn founded Next Level Consultants. The team has guided more than 400 dental startups and acquisitions and brings over 75 years of combined dental industry experience, covering financial analysis, KPI tracking, operational systems, and team development.
If your practice passes on revenue but fails the associate replacement test, talk with the Next Level Consultants team about a plan to build profit you can keep and seller.