Dental Practice Working Capital Reserve

A successful first office can still be put under pressure by a second office that pays staff before collecting patient and insurance balances. The central question is not whether the new office is expected to become profitable. It is whether the owner can pay each obligation without crossing a boundary that was meant to protect the existing practice.

Reconcile usable cash, follow the dated bridge, or build the rolling worksheet.

Use cash receipts, not scheduled production

The SBA business-finance guidance distinguishes accrual recognition from recording cash when received and calls for management of accounts receivable, accounts payable, available cash, reconciliation and payroll. Those are the controls behind this worksheet. The SBA does not prescribe a dental reserve amount or validate the hypothetical collections below.

Start from when cash is expected to clear the bank, not the appointment date, claim submission date or production report. An insurance receivable can be valuable without being available for Friday payroll. Separately track patient deposits, refunds, merchant settlements and payer receipts so an expected inflow is not counted twice when a receivable becomes cash.

Start with funds that can actually be used

Independent editorial hypothetical, not the Decision Kit scenario: assume all committed opening invoices have already been paid or separately funded as of December 31, 2026. The second office opens in January 2027. The project has $100,000 cash left and the first site has $180,000 retained cash after its contribution. These starting balances resemble the wider cluster example, but this page deliberately uses different dated operating assumptions, debt service and owner distributions. Do not splice its reserve result into that model.

Actual transferable cash could be lower if an entity cannot support the other site, a loan restricts transfers, distributions require approvals or the first site has unrecorded obligations. Confirm those constraints before pooling funds in a spreadsheet. The $120,000 protected amount needs its own first-office forecast; declaring it protected does not prove it is enough.

State every recurring obligation and receipt

The new office pays $6,000 rent/occupancy and $6,000 debt service on the first scheduled payment date each month. For simplicity January's first payment date is January 4; later months use February 1 and March 1. The $6,000 is an assumed payment input, not a rate offer or an amortization result. Payroll is $18,000 twice monthly, inclusive of the assumed employer costs and remittances on those dates. Supplies are $4,000 in January, $4,000 in February and $5,000 in March. No other operating bills are assumed: a real forecast must add insurance, software, utilities, labs and other items unless expressly included in an entered scope.

The owner takes one combined $10,000 distribution on the first payroll date each month. The first office transfers $17,000 at month-end after all its own operating costs and debt, but before this combined draw and taxes covered by the separate earmark. No replacement-clinician charge is deducted again. New-site collections are $20,000 in January, $40,000 in February and $60,000 in March, received in the dated installments below. No new loan advances, capital purchases or construction reimbursements are included.

Follow cash through the dates that matter

All figures in the next table are thousands of dollars. Net movement includes only the events shown. Running balance starts at $130,000; the cumulative column starts at zero and shows how much opening usable cash the schedule has consumed. Same-date obligations are assumed settled together; use transaction order if it changes availability.

Reconciliation: receipts are $120,000 new-site collections + $51,000 first-site transfers = $171,000. Outflows are $18,000 rent + $18,000 debt + $108,000 payroll + $13,000 supplies + $30,000 owner draws = $187,000. Ending usable cash is $130,000 + $171,000 − $187,000 = $114,000. The schedule consumes $16,000 overall but requires much more liquidity before receipts arrive.

Calculate the reserve from the low, not the ending balance

Required starting usable cash = chosen floor − minimum cumulative net movement. The lowest movement is −$75,000 on March 15, so $20,000 − (−$75,000) = $95,000. Actual starting usable cash of $130,000 provides $35,000 headroom above that requirement. The resulting low balance is $55,000: $130,000 − $75,000.

Using only month-end figures would show $105,000, $100,000 and $114,000. The monthly low of $100,000 is $45,000 higher than the actual dated low. A monthly forecast is useful for the full ramp, but payroll-date detail is essential near a tight opening. Extend this bridge through stabilization and known later bills; three months do not prove a full-year reserve is sufficient.

Downside: one late receipt changes the requirement

Move the $20,000 February 19 receipt to March 19 without changing any other event. Cash is $20,000 below base between those dates. The lowest cumulative movement becomes −$95,000 on March 15, the cash low becomes $35,000 and required starting usable cash becomes $115,000 with the same $20,000 floor. March 19 then receives $50,000, and March 31 still ends at $114,000. Unchanged ending cash does not mean unchanged risk.

Separately, removing all three discretionary $10,000 draws would improve cumulative movement by $30,000 by March 15. The remaining maximum deficit is $49,000 on February 15, so the floor-based starting requirement falls to $69,000. That is a household-income tradeoff, not an instruction to change compensation or defer taxes. Obtain advice on the legal and tax treatment of any distribution change.

Maintain a rolling reserve worksheet

1. Reconcile opening bank cash. Subtract uncleared payments, committed capital uses, protected first-site funds and distinct earmarks. Do not subtract a paid invoice again.
2. Date each obligation. Use payroll calendars, lease terms, debt notices, vendor due dates and adviser-provided tax dates. Record amount, payer entity, scope and whether deferral is actually permitted.
3. Date receipts by evidence quality. Separate confirmed receipts from historical collection-pattern assumptions and unconfirmed participation dates. The new-location payer guide explains why an existing office's participation should not be assumed portable.
4. Calculate every running balance. Keep opening cash, net movement, cumulative movement, ending usable cash and distance above the floor. Update cleared transactions against the bank before extending the horizon.
5. Stress one cause, then combinations. Test lower collections, late receipts, delayed opening and reduced first-site contribution. Replace both revenue and avoidable costs when modeling a delay; do not merely add a second month of the same expense.
6. Assign a trigger and owner. Decide who acts when a forecast breaches the floor, which discretionary purchases or draws can move, and when a funding discussion must happen before a bill is due.

The Dental Second Location Decision Kit provides a longer combined-practice ramp with different stated assumptions. For financing options after the cash need is defined, review dental practice financing; a product amount alone is not a reserve calculation.

Sources and methodology

SBA guidance supports bookkeeping and the cash-versus-accrual distinction, not these balances or reserve thresholds. Every cash amount, date, floor and transfer in this example is hypothetical. The bridge is a liquidity schedule, not a GAAP profit statement or a statutory working-capital calculation of current assets less current liabilities. Protected and earmarked cash stays outside the usable pool throughout.

• SBA — Manage Your Business: Finances, Bookkeeping and Payroll

General planning information, not accounting, tax, legal or credit advice. Have advisers confirm transfer restrictions, actual obligations and appropriate protected amounts.