Key Takeaways

• BAM, or Basic Amount of Money, is the amount a dental practice needs to collect each month to cover operating expenses, debt payments, owner compensation, taxes, retirement funding, and other financial goals.
• BAM is a cash flow number, so it is different from net income, production, or a traditional break-even calculation.
• A useful BAM calculation should account for anticipated changes such as new hires, raises, equipment purchases, rent increases, and retirement contributions, not just historical expenses.
• Practices that use BAM as the basis for team bonuses need to set the number carefully. A BAM that is too low can result in bonuses being paid before the practice has generated enough cash to meet its obligations, while an unrealistic goal can discourage the team.
• Because every practice has different expenses, debt, and owner goals, BAM should be calculated based on the individual practice and reviewed annually. 

On a recent episode of Beyond Bitewings, Robert Edwards, Managing Partner of Edwards & Associates, talked about a number every dental practice owner should know: BAM. Here’s what it means and why it matters to your practice.

Dental practice owners track plenty of numbers: production, collections, overhead, hygiene performance, accounts receivable and profitability. But there’s another number that can provide a much clearer picture of what your practice actually needs to generate each month: BAM.

BAM stands for the Basic Amount of Money your practice needs to collect. Unlike a traditional break-even calculation, BAM goes beyond covering operating expenses. It takes into account debt payments, the doctor’s compensation and taxes, retirement funding, and other financial goals the practice is expected to support. In other words, BAM answers a practical question: How much cash does this practice need to collect each month to do everything we expect it to do?

That distinction matters because BAM is not the same as the net income shown on your financial statements. Depreciation and amortization, for example, reduce accounting income but don’t require cash to leave the practice that month. Loan principal works in the opposite direction: it requires cash, but generally doesn’t appear as an expense on the income statement. Calculating BAM requires making adjustments for those differences so the resulting number reflects the practice’s actual cash needs. 

A useful BAM calculation also needs to look forward, not simply rely on last year’s financial statements. If you recently hired a hygienist, expect to give raises, plan to add an associate and supporting staff, are equipping another operatory, or know your rent is about to increase, those changes need to be considered. The same applies to retirement contributions and other known financial commitments. Historical numbers provide a starting point, but BAM should reflect what the practice realistically expects to spend in the coming year. 

Getting that number right becomes especially important when BAM is used as the foundation for a team bonus program. If monthly collections consistently exceed BAM, a practice may choose to use a portion of that excess to reward the team. But if BAM is set too low because future expenses or cash requirements weren’t included, the practice could find itself paying bonuses without generating enough cash to comfortably cover its obligations. Set it unrealistically high, on the other hand, and the goal can become discouraging rather than motivating. Robert recommends calculating BAM annually and keeping it stable whenever possible rather than continually moving the target. 

There is no single BAM formula that works for every dental practice. A doctor who owns the practice building has different considerations from one who leases space. A startup with deferred loan payments has different cash needs from an established practice paying down acquisition debt. Retirement goals, planned hiring, equipment purchases and even the owner’s financial priorities can affect the calculation. That’s why BAM should ultimately be both comprehensive and realistic. 

Knowing your BAM gives you something more useful than another financial metric: it gives your practice a target. Once you understand how much cash needs to come through the door each month, you can make better decisions about production goals, staffing, spending, bonuses and your own financial expectations.

At Edwards & Associates, we help dental practice owners understand the numbers behind their businesses and use them to make better decisions. If you don’t know your practice’s BAM, it may be time to calculate it.