Why You Need To Stop Treating Profit And Cashflow As The Same Thing with Shishir Khadka [CPD Available]

Check if your dental practice qualifies for capital allowances here >>> https://www.dentistswhoinvest.com/chris-lonergan

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UK Dentists: Collect your verifiable CPD for this episode here >>> https://courses.dentistswhoinvest.com/smart-money-members-club

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Feeling profitable but strangely broke? We dig into the hidden gap between production and collection that trips up so many UK dentists, then show how to fix it with clean bookkeeping, correct revenue recognition, and a simple 13-week cash forecast. You’ll hear why tax hits in late December and January drain liquidity, how deposits can inflate reported profit and accelerate tax, and what it takes to line up costs with completed treatment so your numbers tell the truth.

Together we reframe the whole picture: profit is teeth, cash flow is gums, and both must be healthy. We break down common accounting mistakes in Xero and QuickBooks, explain when revenue should be recognised, and map out a weekly process to track net cash collected versus total outflows, including assets and loan payments. You’ll learn to ringfence working capital for the next 90 days, set aside tax with confidence, and identify genuine excess cash you can deploy into growth without fear.

We also tackle mindset and habit. When the bank balance is high, owners overspend; when it’s low, panic kicks in. Data replaces emotion. With a living forecast, you can choose the right lane for your practice, avoid nasty surprises, and time investments like scanners, marketing, or training to match your cash runway. If you’ve ever asked “Why do I feel broke when my accounts show profit?”, this conversation gives you the clarity, language, and tools to change it.

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Disclaimer: All content on this channel is for education purposes only and does not constitute an investment recommendation or individual financial advice. For that, you should speak to a regulated, independent professional. The value of investments and the income from them can go down as well as up, so you may get back less than you invest. The views expressed on this channel may no longer be current. The information provided is not a personal recommendation for any particular investment. Tax treatment depends on individual circumstances and all tax rules may change in the future. If you are unsure about the suitability of an investment, you should speak to a regulated, independent professional. Investment figures quoted refer to simulated past performance and that past performance is not a reliable indicator of future results/performance.

Chapters

• 0:00 CPD And Smart Money Club Perks
• 3:18 Why Profit Feels High But Cash Is Low
• 5:03 Profit Versus Cash Flow Explained
• 8:03 Revenue Recognition And Tax Traps
• 12:53 13-Week Cash Forecasting Basics
• 17:23 Using Data To Fund Growth Safely
• 20:23 Working Capital Defined For Dentists
• 23:53 Habits, Cash Discipline, And Toothpaste
• 28:23 Mindset, Education Gaps, And Decisions

Transcript

Dr James: 0:53

Lots of analysis and other possible food. So there are some cases a lot of people connectivity. And you know what we have to speak a little bit more than you know what you would expect. You have to do with how you want business. I've got to stick here with me today, and we're gonna be talking often capital, opening possibility, really getting done in the degree of how to make your business, whether you're an associate or principal, more profitable in 2026. As ever, you can claim your CPD for this episode within the official Dentists Who Invest Smart Money Members Club. Smart Money Members Club also includes multiple mini courses and webinar series on finance for dentists, including how to become as tax-ficient as possible, as well as understanding investing. All this content comes as verifiable CPD, and you can download your certificates there and then on completion based lesson. In addition to this, we also include a whopping 10% discount on your dental indemnity and a 5% discount on lab bills for dental principals, amongst other perks and discounts for members. Please use the link in the description to claim your verifiable CPD for this episode. So that's gonna be an interesting thing to delve into. Why does that happen?

Shishir: 2:27

James, one of the common like uh question I get from dentists is like, why is my business profitable, but I feel broke? Is then I say to you like it's come down to two main things. One is a timing, and the second one is a logic. Uh the first one, if I cover the timing element, say for example, most of the dental practices, what is the year in? January, March. And they're limited companies. So when they need to pay the corporation tax, end of December. And when they also need to they pay their self-esteem taxes, end of January. So between the end of December and Jan, they have to pay two big amounts of you know taxes. See when you come so this timing element alone makes it like makes it feel like, oh my god, I have nothing left in the bank account. Why do I even ball setting up the business? That's the timing part, just one aspect, James. Then comes logic, you know, like so uh and because production is one thing, but collection is this other thing. Production is not equal to collection. This is why there's a difference between profitability and and healthy cash flow. So when you don't understand these differences and uh and then it creates a uh this uh you know uh in your head that my business is profitable, but why don't I see the cash? So these these two things need to be addressed.

Dr James: 3:51

Interesting. So let's just dive in on that second one for a little moment, if we can, because I feel like a lot of dentists out there will just equate profitability and cash flow. And it's like, okay, we look at the end of the year and we've made a hundred thousand pounds. So why does it feel like we were broke the whole time? And it's usually because cash flow it well, it's it's it the the answer lies in the distinction between those two terms. So I guess how would you distinguish those two terms from each other?

Shishir: 4:25

So here um the way the way I explain this to my dentist, uh only clients is is that um uh you know profit is like uh healthy teeth and cash flow is like healthy gums. You both need to be like be healthy. You know, not profit that's why profit is not cash flow because cash flow is holding the holding the profit hold of the business because we have to spend cash in the business to in the business, just like the gums is holding the teeth. So we need to understand this nuance difference between collection and production. So what you collect from a patient, whether you have performed the treatment or not, that is from that is going to the cash flow bucket. But from whether you have done the work and whether you have consumed the services uh or received the the lab uh lab things, then that is a cost attributed. So that is towards the profit bucket. So you have to understand these differences so that you can understand the difference between profitability and cash flow.

Dr James: 5:34

Interesting. So the cash is when it cash flow is literally when it arrives in the bank account, right?

Shishir: 5:40

Yes.

Dr James: 5:41

And profit is when we've we've rendered the services, but we haven't yet seen the cash, and that's the difference.

Shishir: 5:49

Yes, that is part uh correct. Uh and uh you may have, for example, if someone has come to do uh like emergency treatment and say say in today and they do the treatment and they they walk away in 45 minutes time, so they had the service, they paid the money, it's done and done, and uh that that's profit and cash flow is recognized in the same month. But it may also be the case that someone has booked in business treatment, say for 3,000 pounds and they paid a 300 pound as deposit deposit, and for the balance to pay 2700 across two or three months, uh in uh depending on when they are booked again. So that means uh you book the revenue when you have actually completed the treatment. So that is that didn't happen in this month. So you cannot recognize this as a revenue, which means that it is not part of the profit in that month. However, from a cash point of view, you have received 300 pounds, and that is attributed from a cash flow statement. So that's this is why the timing and the logic is important here.

Dr James: 6:55

Interesting. Okay, so the profit it only becomes profit whenever you've rendered the entirety of the treatment.

Shishir: 7:01

Yeah, and generally most part of the treatment, uh, most part of the treatment, and and uh especially uh when we prepare the quarterly account management accounts for the clients or the year-in accounts, and one thing that we will look at for our clients, James, is the if any of the treatments are straddling the next financial year or not, you know, like because we have to book the revenue and hence the cost uh attributed accordingly so that we are seeing the right profit.

Dr James: 7:29

Oh, I okay, I know I get why that's the case. Uh right, understood. Because it's more an attribution thing. You're more you're more trying to weigh up how much have we spent at this exact moment, at this exact point in time, time, and how much money have we made, which is almost independent from cash flow because people could have paid for further treatments in advance, but that's gonna artificially inflate the profit if you include those as a factor. I think I I think I get that now. Yeah.

Shishir: 7:58

And one thing that I've seen as a mistake, or you know, well, I've seen that when a client comes to us uh is that they recognize the revenue, James, based on collection. So if you look at the zero accounts or quick discounts, you'll see revenue based on collection. When the bank money comes in and comes to the zero account, they record this as straight as a revenue. And it has two problems. Number one, yeah, you are not following the actual revenue recognition policy and gap, uh, you know, like this accounting terminology, like uh we have to follow uh the account revenue recognition policy in the UK. You only recognize the revenue based on when you have completed the service, when you have when you have delivered the goods, uh goods. So that is not happening. And and the and another problem, but but dentist might say what what what's wrong with that? I don't care about that. And and I said, like you would care, but when I tell you the next point, which is generally uh when you are recognizing revenue based on money received in the bank in a zero account, a quick account, that means generally you are uh accelerating your revenue faster. Because you receive money for the you know the high-end services before you do the treatment generally, which means that your revenue you reported is higher than what it should have been, which means that you're showing higher level of profit, which means that you're paying higher and higher and accelerated the the tax than you shouldn't have. And now we're saying, look, I've done like 1.3 million sale, you know, last year, and I made like 150,000 non-profit, and you know what? I had to go and buy uh borrow money from uh Bremer or like you know uh finance providers to for my tax loan to pay my personal tax. Um I hate my life right now.

Dr James: 10:00

I see. Okay. So apart from the example that you've just given, how else does this trip dent this up and how does it directly lead to them feeling broke?

Shishir: 10:12

Because they think they're much richer than they are. That's the number one thing. Because if you look at say, oh, I've got this much uh you know revenue and I've got this much profit, and I've got this much cash uh that in the bank, but that will be taken away in the coming months, it it will catch up. Yes.

Dr James: 10:32

Okay, yeah, no, fair enough. Understood. So this is this is why this primarily happens. And then I guess the flip side is also true because if you've delivered the services but the patients have an actual pay due, then you've got the profit, but you haven't got the cash flow.

Shishir: 10:46

Yes, and and that is uh, but I've not seen that as a material amount. Uh, you know, uh unless the US is a different different story, but the in the UK, it generally uh I've not seen that as a significant amount of uh debt or balance. Um uh so that must have impact on the overall cash flow. But yes, there is uh some some element there.

Dr James: 11:09

Yeah, theoretically that could happen, but in your experience, dentists are pretty good at getting the money that they're owed out of their patients, or the patients are pretty good at paying, depending on what way you slice and dice that one, depending on what side of the coin you look at it from. Okay, fine. Cool. So we now know that what the problem is on that side of things, and what can we do to address it apart from just get a really good accountant? Is that the main thing?

Shishir: 11:37

Well, accounting is uh daily uh bookkeeping accounting is a bread and butter of in terms of feeding the information uh into this, and I call it think of this like a proper hygiene is required for like healthy maintenance of your overall health, right? So proper bookkeeping is works just like that, but but the uh but mostly the clients they are doing some are doing the once a year, once a year, and saying, I just want to file my taxes, and that doesn't really help. And um and the second thing is also you need to have some kind of uh you can do this manually, like you don't need any uh you know um uh financial software and like Osman Denpulse. You don't need that. You can just create uh a simple uh 13-week cash or forecast on tool and in Excel on Google Sheet, like that, and you can track like how much you're spending on a weekly basis on based on like my fixed cost uh ABCD, like premises and my staff and my loans and and and my drawings, uh these kind of things. You can you can you can even like uh say this is a bulk amount, you can add up and see that. Well, what does it look like from my cash point of view? Saying, well, this is my current cash position. So if I go and spend if I have to spend this much money on a weekly basis, what does my cash position look like in 13 weeks' time? So they can do this so that they can see that what is going to happen to the future cash flow today. That's important.

Dr James: 13:10

Yeah, that is super important. Okay, cool. And how do UK dentists go about because you usually when we get this information, I mean we're kind of either deducing it from our banking app or our accountant is filling us in at the end of the year, right? UK dentists, Dentists Who Invests now has an official platform where you can learn about finance and obtain UK compliant, verifiable CVD at the same time. The only platform that exists on which you can do both. The Smart Money Members Club has hundreds of hours of mini courses, webinar series, and live day recordings on all things finance slash tax efficiency for UK dentists. This includes complete courses on how tax works for UK dentists, finance so that you can invest and grow your own money, business so you can improve your profitability as an associate or principal, and for those out there that want it, there's also a mini course and how you can responsibly enter the crypto space using measured amounts of capital. I've gathered this content from the best of the best I could find in each respective area so that you know that this is how people at the forefront of each field advise their clients. The Smart Money Members Club also contains discounts on common things that UK dentists need to pay for on a regular basis. This includes a whopping 10% discount on dental indemnity, the offer to beat your income protection deal no matter what you're paying, and for the principals out there, 5% discount on lab bills and 10% discount on practice insurance. These are designed to offer hundreds, if not thousands, in annual savings. The purpose of this members club is to not only boost your monthly income but also manage your outgoings as much as possible and therefore create more profit. To celebrate the launch of the Smart Money Members Club, and given that the CPD deadline is coming up soon, I've decided to offer the first month of this platform entirely for free. This offer will end in the coming weeks as soon as the current CPD cycle is up. To collect your CPD for this podcast episode using the Smart Money Members Club, feel free to use the link in the description of this podcast.

Shishir: 15:19

Yeah, it's generally um uh uh as as a dentist, they they do not get involved in this in this kind of thing, like uh doing like forecast and uh understanding the difference between that net cash flow versus net profit. And one thing that I and I so uh for my clients and I I I uh I I tell them exactly how do you track your net cash flow and net profit trend. Because every month you are making profit, right? Every month you're making profit, or roll offs could be, and making profit, but every month you also need to be tracking net cash flow also, which just means that how much cash you have collected in that month, how much money you have paid out in that month, regardless whether you're paying for PL item of expenses or you're paying for some assets and building something like that also. So both are so if you are looking at the trend, then you'll understand that where we're actually going wrong. So generally I just say like go go back three to six months time so that you can you can rinse and repeat and you can find out what's going to happen to your next three months.

Dr James: 16:30

And how can this does this data enable dentists to make better decisions overall in their practice?

Shishir: 16:37

Oh yes, and and you you now you're thinking about making decisions like how do I ensure I have enough working capital to maintain my financial obligations in the near future and also what money do I have right now I call this excess cash flow to invest that you can reinvest in a business right now so that you can go faster because you need to be safe, but you also need to be scaling at the same time.

Dr James: 17:12

Well, uh yeah, I mean that that that's the idea, right? So you you have more when you have this data at your fingertips, you can make better decisions and you know exactly how much that you have uh ready to go. I love that little distinction that you give us, the distinction between profit and cash flow, because these are the things that we we just don't know as dentists, you know, and we're really at the mercy of our accountants. Can you think of any other examples where it's good for dentists to be able to that's a really great example of how getting a handle on your numbers can really help you understand how much working capital you have. And can we just take a side tangent? What does that term working capital mean? I'm interested to know how's that defined?

Shishir: 17:54

Yeah, so working capital means uh capital that you need, because capital is funds, right? That you need to do something that working means that you need for daily purposes. Ah the sample working, you you uh you're needing something on a daily basis, you're paying from you're paying for uh like you know, something to buy from Amazon, you're buying you're paying staff uh salaries, you're paying uh EMIs to the um the loan providers, you uh maybe you have a practice loan, you have a uh equipment loan, you have a refurbishment loan, uh, or maybe an you you have to pay with associates and therapists, hygienist. So these are all like part of the working capital that needs to be paid uh at different dates in the month. So you want to be protecting for the next three months. And and and rest, and what you can and and and rest, what you can do is say, okay, I need to reinvest this money right now, which acts as a fuel for growth. And the way and the way I've always done um James, uh different verticals uh is that uh some of some of the biggest clients in the dental sector, they have six dental practices, one dental lab, one dental education academy, academy. And I say to them, look, think of like business always like the next three months. Then the next three months, you're protecting for the next three months, even after one year, you're still talking about the next three months. You're protecting that. So if you have this kind of discipline, then it will work for you. Then you're not confined to, hey, my other like my competition just bought a new scanner or something like that, and the other one, and you know, and they're not uh making decisions based on you know this um uh in the latest as latest like hype, you know, uh assign you objects, you know.

Dr James: 19:52

Well that's that's why data is so valuable. If you're not making a decision out of data, you're making it out of emotion, right?

Shishir: 19:59

Yeah, I say like data does not lie, James. It is what it is, it is what it is. And I think always think like it comes down to the main thing, it's come down to habit. And is habit plays a crucial role on this one. And my experience with with uh dentists and James is they treat gas flow like consuming a toothpaste.

Dr James: 20:26

Like what, sorry?

Shishir: 20:27

Like consuming a toothpaste. Yeah. What do I mean by this? So imagine that when you have plenty of you know fluid in the toothpaste, you don't really care like in how much you push it out and from which angle you push it out. You just use it and you just start brushing, right?

Dr James: 20:43

Yeah.

Shishir: 20:44

But when you you start to run out, you're trying to you'll you'll squeeze the life out of it. Like, I just want to be a bit so like I just I just want to just get it. Done in the same way. In the same way, when they have plenty of money in the bank, they don't really care about oh, I need to do cash flow projection, I need to do this. I've got money in the bank, you know. Yes, when they when they start to lose out, when they start to uh you know uh not having uh the level of money that required or they're expecting, then they start to reach out to accountants saying, hey, what's going on? Like what do I need to do? And etc. etc. etc. For me, it's a bit like uh, you know, when I have slight pain in my my you know uh my oral health, and I don't reach out to the dentist, and when I have severe pain saying, hey, I need to book a call, you know, the same thing here. So I can't it's come down to habit. And how do you monitor, how do you set up accountability to look at your review your cash flow on a regular basis, you prepare a regular cash flow statement, you do regular cash flow planning so that your business remains financially stable, as well as you have you work out the excess cash flow to invest in the business right now to scale much faster.

Dr James: 22:03

So important. And especially whenever it comes to tax as well, like knowing how much you need to set aside for tax, like that is genuinely something that is quite hard to do unless you have the sort of data at your fingertips. And it what it goes one of two ways, right? You've either saved not enough, which is bad for obvious reasons, because then you're paying more than you expected, um, or sometimes what happens is you've saved too much. But that's also a problem as well, because that is capital that was A, could have been there for peace of mind purposes, and B could have been there as well, the opportunity cost of not having it to reinvest in your business effectively. So getting these numbers right is so important. We've covered this one, you know, that's a great one that you covered just then. What other reasons, in your opinions, in your opinion, do dentists, how can I say this, get a little bit flummoxed whenever it comes to this stuff, or get a little bit, how can I say this? Um maybe maybe they they have that feeling that they're not making as much money as they as they like. What is there any other reasons, or would you say that's the main one?

Shishir: 23:08

Well, uh, I think it it comes down to belief that um they inherit. Um because as as a dental practice owners and as a dentist, and you go to dental school and and invest significant amounts of your time and and and money to become, you know, have education, training, and and it takes eight, nine years, good years to do that, but none of them parties you're learning about the business side of the dentistry. So if you're not being exposed into this area and suddenly and you are, you know, uh you become a dental practice owner by an by an accident or by an opportunity saying, well, I've been always been a dentist, so I think I can do this now. I I want to have time freedom, I want to build on something of my own. That's great. But if you're not exposed into the business side of dentistry and especially by the finances, and then you and then the belief around that would be something different. And uh I think that's where they need to be aware of, and and and it's crucial. And uh, you know, like uh you may have heard a quote from Warren Buffett, like you know, accounting is the language of business. You got to learn you you got to be fluent in the language of business.

Dr James: 24:25

Yeah, it's so true. It's so true. It's um I always remember at the start, whenever it came to learning about accountancy, it literally felt like that at the beginning. I was just like, I'm never gonna get this. But then it just becomes more and more uh second nature with time, and that is what dentists need to do in order to hit the next level or really go stellar whenever it comes to their company, really get it to a point where it's hands-off and it can run itself and everything along those lines. Like, this is literally the upside, this is literally what's at stake. And it's interesting because with a lot of these things, I've always found, yeah, it's a little bit of a knowledge gap sometimes, but it's also it's also psychological to a degree as well, uh, as in how the perception that you don't have enough cash makes you behave in terms of you becoming more scarcity-oriented and restrictive in your spending can limit you and hold you back. And again, conversely, when you have overabundance, you're way more likely to splash out and do things that are a bit lavish with your cash and probably spend your way back to a certain level. Uh, so it's really interesting whenever you say these things, because I can definitely there's definitely undertones of that as well. Cischer, would you say that we've done a good job of covering all of the reasons or the the the high the the headline reasons why dentists feel like they're not making enough money?

Shishir: 25:48

Yeah, I think we have uh touch on the uh the main things um uh without actually going to much deeper level than uh yes we have. And and one thing that I always say to dentists is uh when it comes to advisory programs, and I I asked them a question, uh James, you know, imagine that you are driving on a three-lane motorway. Okay, yes, and you are your business, you are your dental business. I ask them, which lane are you driving right now? Someone say, Well, I don't know. And someone say, I think I'm on the slow lane. I think someone says, I think I'm on the middle lane, someone say I'm on the fast lane. And I asked a question like, how do you know that you are on the right lane? What makes you believe that you are on the right lane? And do you have some kind of data, some kind of credibility, some kind of credible answers to give that? And um, well, actually, I don't know. I I just feel that's where I am. The reason I ask James is that if they if they say I didn't know what uh which lane I'm driving, it just means they're flying blindly, they're driving blindly, there's a lack of clarity there.

Dr James: 27:04

Yes.

Shishir: 27:05

If they say I'm I'm on slow lane, you could have been at least been a middle lane, but you could be going much faster, and you know what, by going in the slower lane, your competition is eating your eating your patience right now. And if you are in the fastest lane and you haven't realized that actually there's a traffic, you know, like something's happening happening ahead of you, you haven't planned for that, you're gonna hit an accident. So without data, none of this is possible. This is why I ought to say if you don't know your data, you lose because you don't know what to focus on.

Dr James: 27:48

Powerful words and something to think think on and digest. And Sishir, it is worth mentioning that we do have a webinar uh that we're hosting for the Dennis Invest community on this topic, and that's on the 14th of January. And let me just get the time up for that. I believe that is at 7 30 pm as well. So we're gonna go into way more detail on this stuff, that's correct, isn't it? Yes, we are.