Dental Practice Working Capital: Plan Your Closing Cash

What dental practice working capital means in a purchase

People use working capital to describe different things. In accounting, net working capital means current assets less current liabilities. Those assets can include receivables and inventory. They are not all spendable cash. A buyer may also hear the term in a purchase agreement, where the parties define which balances enter a closing adjustment. That definition depends on the agreement.

For operating planning, the immediate question is narrower: what funds can the buyer use, and when? BMO's capital-needs resource connects working capital with the need to forecast operating funding. Its framework is useful, but it does not set the right reserve for your acquisition. (Source: BMO: Preparing for the capital needs of your dental practice; checked September 5, 2026.)

Ask each adviser which meaning they are using. Put the agreed definition at the top of the worksheet. A reserve discussion can otherwise stall because the lender means a loan allocation, the accountant means a balance-sheet measure and the buyer means a bank balance.

Reconcile the funds left after closing

Start with the final sources and uses of funds. Include the buyer's contribution, each funded loan and each payment from those funds. Use actual closing instructions when available. A headline financing amount can cover the purchase price, fees and other uses that never enter the operating account.

This invented example assumes all listed funds are available at closing and all listed uses come from them. The repair amount is set aside and unavailable for routine operations. The figures are teaching inputs, not a financing quote or recommended budget.

Do not add an undrawn credit facility to that last row. It may become a source later, after draw conditions are met. Likewise, a seller note that reduces the closing purchase payment is not automatically a separate cash deposit. Model how it changes the actual funds flow.

Confirm whether fees are already netted from a loan disbursement. If so, using the net deposit and subtracting the same fees again understates cash. Reconcile the worksheet to the closing statement, the lender's funding notice and the receiving bank account.

Forecast cash by receipt and payment date

Build the opening forecast around due dates. Payroll, rent, lab invoices, supplies, insurance, software, taxes and debt payments belong in the periods when cash leaves. A monthly profit statement is a useful source, but it is not a substitute for this calendar. Equipment purchases can use cash without appearing as the same month's operating expense.

For inflows, distinguish treatment performed, charges posted, payments entered and cleared deposits. Open Dental's production and income definitions illustrate why report dates and measures matter. Check the actual software and settings before importing figures into a forecast. (Source: Open Dental: Production and income definitions; checked September 5, 2026.)

Use separate rows for the buyer's new work, purchased receivables and other expected receipts. Money collected for seller-retained receivables may belong to the seller. It should not fund buyer expenses just because it passes through an account the buyer can see. Resolve that ownership and remittance process in the receivables closing guide.

Record the evidence behind each date: a payroll calendar, signed loan schedule, vendor invoice or observed collection history. If a date is only an estimate, label it. Forecast uncertainty should be visible in the file, not buried in someone's memory.

Find the low point before choosing a reserve

The following invented four-week forecast starts with $50,000. There are no additional borrowing draws, owner contributions or transfers in the model. All operating and other modeled cash payments are included in the payments column. Amounts are rounded teaching inputs.

Each closing balance becomes the next opening balance. Across the period, receipts total $170,000 and payments total $195,000. Final cash is $25,000, but the lowest weekly balance is only $5,000. Looking only at the last row hides the tighter period.

Suppose this buyer chooses a $20,000 minimum cash floor for the exercise. That is an invented planning choice, not a lender rule or industry recommendation. The base forecast needs $15,000 more opening cash to keep every displayed week at or above that floor. The calculation is the chosen floor less the lowest forecast balance.

Weekly buckets can still hide a shortage inside a week. If payroll clears before the week's large deposit arrives, break that week into days. Choose the time scale based on the payment risk, rather than treating a weekly spreadsheet as proof of daily liquidity.

Test a collection delay without changing total revenue

In this illustrative delay scenario, move $10,000 of expected receipts from week two into week four. Everything else stays fixed. This isolates timing. It does not assume lost patients, a permanent loss of revenue or a reduction in expenses.

Total receipts and final cash match the base case. The lowest balance is now negative $5,000. A negative figure means the modeled payments cannot all clear from the assumed funds; it is not permission to overdraw the account. Keeping the same illustrative $20,000 floor would require $25,000 more opening cash.

This test gives the buyer a specific funding question: what verified source covers the gap before the delayed money arrives? If the proposed solution is a credit draw, add its date, fees and later repayment. Then rerun the forecast. Filling the first gap can create another when repayment falls due.

Match each funding source to its conditions

Available cash, a committed but undrawn facility and a hoped-for loan increase have different reliability. Ask the lender what remains before funds can be used. Record the permitted purpose, draw mechanics, availability period, security, fees and repayment terms from the actual documents.

The ADA's purchase-confidence resource explains that financing review involves both the dentist and the practice. Approval discussions should therefore use the acquisition's real cash needs and evidence. A generic prequalification should not be treated as proof that this reserve is funded. (Source: ADA: How to purchase with confidence; checked September 5, 2026.)

Do not treat credit limits as free reserves. Borrowed cash brings future obligations. A buyer also needs a personal budget: household spending, taxes and outside debt can compete with the same savings used for the practice. Show personal contributions and withdrawals explicitly so the model does not count those funds twice.

Make transition costs visible before accepting terms

Check costs created by the ownership change. A vendor may require a deposit, a software account may need a new agreement, or a lender may fund certain items only after proof of purchase. The point is to ask for evidence, not to presume that every acquisition faces the same charges.

Separate essential opening needs from improvements that can wait. A repair required to operate safely belongs in the closing plan. A cosmetic upgrade can have a different timing decision. Record who judged the need, what quote supports the amount and when the cash will leave.

Bank of America's acquisition-planning resource stresses preparation and assembling advisers. Use that team to reconcile the lender budget, purchase documents and operating plan. This guide does not adopt the article's numerical rules of thumb as standards for your practice. (Source: Bank of America: Tips for a successful dental practice acquisition; checked September 5, 2026.)

Assign one person to maintain the current funds-flow version. If the purchase price, closing date or loan terms change, update the cash plan too. A spreadsheet based on last month's proposal can look precise while missing the payment obligations in the final agreement.

Compare actual cash with the plan after closing

Keep the original forecast so differences remain visible. Add actual receipts and payments alongside it, then roll the remaining forecast forward. Replacing every old estimate with the actual amount destroys the record of what the buyer misunderstood.

In a separate illustrative check of base-case week two, suppose receipts are $27,000 instead of $35,000. Opening cash remains $25,000 and payments remain $55,000. Actual closing cash is negative $3,000, which is $8,000 below the planned $5,000. The receipt variance explains the whole difference in this simplified example.

Determine whether the missing cash is delayed, disputed, collected elsewhere or permanently unavailable. Each explanation calls for a different forecast change. A delayed deposit moves to a later date only when there is a credible basis for that date. Do not shift it forward every week just to keep the projected bank balance positive.

Reconcile bank cash separately from posted receipts. An unresolved bank difference should stay on an exception list with an owner and next action. The production and collections review explains the reporting bridge in more detail.

Common mistakes that distort the cash requirement

Counting the seller's entire receivables balance as opening cash is a frequent modeling trap. First establish ownership, then expected timing and collection risk. Another trap is assuming a full appointment book will produce immediate deposits. Scheduled work, clinical capacity, billing and payment are separate steps.

Avoid using annual debt coverage as the only liquidity test. Annual earnings can support a loan while a near-term timing gap still causes a problem. Equally, do not solve every gap by cutting costs without considering what the cut does to treatment capacity or the patient experience.

Watch for double counting. Loan proceeds used to fund a reserve must not be added again as a second funding source. A repair already paid at closing must not appear again as a future cash payment. Seller-retained collections should not appear in buyer revenue and then also be used to justify the operating reserve.

Finally, keep the assumptions readable. A reviewer should be able to identify what is confirmed, estimated and conditional without opening hidden cells or decoding unlabeled abbreviations. Clear inputs make the conversation with the lender and advisers more useful.

Summary: bring a cash plan to the financing decision

A useful working-capital plan starts with the money left after closing, follows cash dates and tests the lowest balance. It names the funding source for any gap and shows the obligations that source creates. There is no universal reserve amount in these examples.

Before accepting financing terms, bring the funds-flow statement, dated forecast, delay scenario and unresolved cost list to the lender and accountant. Use the lender underwriting guide to connect that cash plan with the broader credit review. Update both whenever material deal terms change.