Dental school prepares dentists for all types of scenarios … except the accounting necessary to run a dental office.
When many dentists choose to open their own practice, they soon realize they have another learning curve to cover. Like other businesses, every dental office encounters its own unique challenges in its accounting systems. And how you handle those challenges can lead to your office’s success or failure.
Here are the most common accounting issues for dentists we see on a daily basis.
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Furthermore, accounting issues for dentists can sabotage a growing practice more than cash flow problems. Even the simplest bookkeeping mishaps can cause a ripple effect that could land a practice in a severe financial crisis. Finding an experienced dental accountant for your practice is vital!
1. Hiring an Unexperienced Dental Accountant
Without a bookkeeper with dental office experience, you can run into major issues. One of the most common is confusing profit with cash flow.
The best way to ensure an accurate view of your dental office’s financial condition is to hire an accountant who specializes in dental bookkeeping. Otherwise, you can find yourself in complex yet avoidable situations.
When interviewing accountants for your dental practice, cover the following subjects.
The Difference Between Profit and Cash Flow
When dentists come to us to get their finances on track, we often see a lack of accounting know-how in their books. This is because hiring an inexperienced bookkeeper results in colossal misunderstandings.
For example, before making a big purchase, a dentist will request financial figures for a particular time period. And far too often, the bookkeeper will provide the profit figures only. Without taking debts and overhead into account, the dentist assumes this dollar amount reflects available cash flow funds.
Making sizable purchases without having the actual cash flow results in overdraft fees, extra charges and overall financial strain. That’s why it’s important to understand the difference.
The bookkeeper should calculate profit only after completing a profit and loss statement. Then, the bookkeeper should compute cash flow only after completing the cash flow equation while factoring in accounts receivable, inventory and depreciation expenses.
The Industry Standard Chart of Accounts
One of the most common accounting issues for dentists we see is when they or their bookkeepers use a general chart of accounts or create an entirely inaccurate chart of accounts.
Dentists or their bookkeepers use the industry standard chart of accounts because it’s already designed for dental practices. This allows for an easier process of establishing a solid accounting system. Furthermore, you need to create and track special accounts according to dental industry standards.
Without the industry standard chart of accounts, you won’t have the appropriate insight needed to streamline and grow your practice effectively.
Recording Transactions in Correct Time Periods
A huge part of bookkeeping is closing the books monthly. This includes reconciling accounts, preparing financial statements and completing other tasks. However, this can be tricky for inexperienced dentists and their bookkeepers.
For example, how do you handle past-due payments coming in after you’ve closed the month they were due? Some might say to enter the payment in the month the payment was made.
If you’re on an accrual basis, that’s incorrect. If you’re on cash basis accounting, then you may be in the clear.
The key here is to record the transactions according to the basis of your accounting so that you have accurate financial statements. Moreover, if this type of error goes unnoticed, all future cash figures, tax reports and more will be incorrect. The results can include cash flow misrepresentation, harsh IRS penalties and increased cost to repair financials, to name a few.
[Related: Healthcare Financial Statements: Doctor’s & Dentists Guide To Managing MO]
Business Owner’s Involvement With Reconciliation
No matter what type of business you run, you should never hand over the books to another person without your involvement. Instead, you need to be hands-on.
It’s incredibly important to reconcile your books with your bookkeeper once a month — at the very least. After all, your bookkeeper is human. And human error accounts for most accounting mistakes, especially among inexperienced bookkeepers.
You’ll not only be more likely to catch an employee error but also be able to see evidence of employee theft before it gets out of hand.
2. Skirting Insurance Red Tape
Insurance — love it or hate it, the people of our country’s health depends on it. Unless you operate on a cash-pay basis, you must understand how insurance companies operate. Not understanding this process can be one example of accounting issues for dentists.
When it comes to patient care, a doctor’s expertise trumps insurance policies. For example, dentists can perform some dental procedures in one sitting. But insurance companies might require a procedure to be split into two appointments.
So, how do you handle pediatric or high-anxiety patients? This is an example of how prolonging a procedure to meet insurance requirements could actually harm a patient.
Some dentists will choose to write off part of the expense as a business loss. But it’s how you report both the payment and loss that’s so critical. Otherwise, patients may receive invoices for a procedure they were told had been handled.
This can result in frustration, loss of patient trust and unbalanced books.
[Related: The Importance of Healthcare Accounting]
3. Investing in Expensive Equipment That Loses Value Quickly
Like new cars, dental equipment depreciates in value with age and use. And you certainly need the appropriate equipment to perform exams, but you don’t necessarily need to buy the latest and greatest.
Especially when getting your dental practice off the ground, you need to stock your office with appropriate equipment that won’t push you further into debt. Instead, you should consider more expensive purchases over time when you truly have the cash flow available to cover the costs.
Consider options to rent equipment to protect your cash flow and ability to run your practice. Plus, renting equipment has benefits. You won’t be on the hook for maintenance and repairs, and you’ll have the option to upgrade equipment when you renew your lease.
4. Being Noncompliant With Industry Regulations
Medical laws are constantly changing, and dental laws are no exception. The procedures you and your office are accustomed to must evolve with these ever-changing regulations.
If your practice doesn’t remain compliant, you’ll increase your chances of an audit. Having an accountant who understands and stays up to date with compliance regulations can help you concentrate on growing your practice.
Avoid Accounting Issues for Dentists With Martin, Bircher, Thompson, PC
Martin, Bircher, Thompson, PC is the accounting firm dedicated to helping dentists and physicians build profitable, well-managed practices to achieve their personal financial goals.
By providing dentists like you with prompt and proactive accounting, tax, consulting and financial planning services tailored to your needs, we allow you to focus on running and growing your practice.
Contact us today to get your dental practice’s financials on track.
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