Questions for a Dental CPA

This question is from the fine folks over at the Dental CPA blog and Mr. Tim Lott.

How much should a private practice dentist keep in his business account?


Tim says:

"In my opinion you want to keep your business account as low as possible. I generally suggest 1/2 months to one month’s expenses. 1/2 should suffice as a/r should cover the other half if something happens where you need to cover a full month. If you want to have a "business" fund, we suggest you strip it out of the practice, either as wages or S-Corp divs and set it aside personally and when the time comes for a large need you simply lend it to your practice and pay yourself interest.

Every business (practice) should also have a LOC available as well, maybe as much as 10% of gross available to borrow

We believe business accounts are more susceptible to fraud and theft. Staff can see how much is there when mail comes in. Depending on how it's delivered others might have access to it. Offices are more susceptible to outside theft. When cash balances get heavy small discrepancies are less likely to be noticed. If the practice gets sued can the cash accounts be frozen.

If you prefer $100k, why not take out $50k and place it in a personal savings account? You can always give it back quickly through a phone transfer.

We just think you need to be very careful keeping excess cash laying around in business checking accounts.

Tim - Correct me of I’m wrong but the reason I think you'd like to see the Checking account balance so low is so you don't get double taxes on Biz Income at the end of the year.

No, really has nothing to do with income taxes.

But what if you wanted to keep in 100-300K for a down payment for a piece of property or a office acquisition. At some point your personal income has to take a back seat to save this capital come up right?

Do you think it isn't worth saving it to that point? - also do you believe in Work Stoppage insurance?

But having that money sitting somewhere usually means you're going to pay tax on it and if you're an LLC or s-corp, that money will usually be taxed to you anyway. So why not take it out of the business and set it aside personally for future use. I’m not suggesting you strip the cash out of the business to spend, I’m suggesting that if you want to park a cushion of cash somewhere. I’d prefer a personal account, earmarked for business."


This is territory that should be covered by your dental practice consultant and if you have any questions be sure to bring them to the attention of your CPA.