Dental Practice Cash Flow Analysis for Buyers
Understanding a practice's true cash flow is critical before purchase. This guide shows you how to calculate adjusted cash flow and determine if the practice can support your purchase price and living expenses.
Calculate Adjusted Cash Flow
Formula:
- Start with Net Income
- + Depreciation/Amortization
- + Interest Expense
- + Owner Discretionary Expenses
- - Market Rate Owner Compensation
- = Adjusted Cash Flow
Debt Service Coverage
Cash flow must cover loan payments:
- Lenders require 1.25x coverage minimum
- Target 1.5x for safety
- Include all debt payments
- Factor in interest rate changes
Personal Expense Calculation
Can you live on remaining cash flow?
- Adjusted Cash Flow
- - Annual Debt Service
- - Personal Living Expenses
- = Net Available
Example Analysis
Practice Details:
- Net Income: $350,000
- Adjusted Cash Flow: $275,000
- Annual Debt Service: $95,000
- Living Expenses: $120,000
- Net Available: $60,000 (Comfortable)
Red Flags
- Coverage ratio below 1.25x
- Negative remaining cash flow
- Declining cash flow trends
- Seasonal volatility unexplained
Conclusion
Thorough cash flow analysis prevents buying a practice you can't afford to keep.
Get Analysis Help
DentalBridge provides cash flow analysis for practices you're considering purchasing.