It takes a lot of knowledge to run your own dental practice. But you probably didn’t a take a lot of accounting classes in dental school. Keeping your books in tip top shape is just as important for your practice as knowing how to spot a cavity.
Don’t make one of these four bookkeeping mistakes in your dental practice:
1. Misunderstanding Profit and Loss
It’s essential to understand the difference between cash flow and profit. If you get profit and cash flow mixed up, you could be making purchases you can’t afford. Cash flow represents the amount of money coming in and out of your bank account each money. Profit is calculated by taking your entire revenue and deducting all of your expenses. Just because you’re dental practice is making a profit, doesn’t mean you’ll have money on hand for big purchases. Make sure you’re using your cash flow statement before you spend money.
2. Accidentally recording transactions in a previous period
Surprisingly this is a mistake made often. Unfortunately most practices do not “close the books” on a monthly basis. This means that they don’t verify their accounts and prepare monthly statements. Consequently, mistakes can go unnoticed. This means that your dental practice can face some serious consequences such as understating or overstating taxable income. This can cause issues with the IRS and even include harsh penalties. The easiest way to prevent this from happening is to close and reconcile your books monthly.
3. Not monitoring key areas of profitability
A dental practice is a business just like any other. While it’s important to keep your patients happy and to ensure that you’re giving the best care, you also need to understand where you’re making a profit. While it won’t affect your patient care, it can affect how you market and potentially how you price your treatments. Knowing where you’re making your profits can also help you decide where to invest more money. But to monitor your profitability you need to have up-to-date books so you’re working off your most recent metrics.
4. Not using an industry standard chart of account
The chart of accounts is used to track how money is spent or received, and to prepare the financial reports for the practice. When establishing an accounting system, special accounts should be set up and tracked according to dental industry standards. A common mistake made by dentists is to use a general chart of accounts, or having an inexperienced bookkeeper create an incorrect chart. The result of this costly mistake is that when the financial reports are prepared, they will not provide the dentist with the insight needed to streamline and grow the practice effectively.
Making sure your books are in good shape can go a long way to keeping your dental practice in business. If you’re doing your books yourself, monthly reconciliations will go a long way toward keeping you in the black. But if you can, working with an expert in your industry can help your back office be as efficient as possible. And that means decreased cost, increased costs, and more happy patients. If you’re thinking about getting a bookkeeper for your dental practice, get a free consultation today.