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Dental Bookkeeping 101

As a competent dentist, you can fill a cavity with flair and perform root canal with aplomb. But when it comes to immersing yourself in the labyrinth of bookkeeping activities, your confidence level could take a plunge.

Afterall, bookkeeping is a specialized field requiring financial acumen and expertise in organizing and preparing financial records so the numbers make sense and can be easily analyzed and interpreted. If your dental bookkeeping is not done right, you could be making business decisions with poor and unreliable information. Problems that could arise from inferior bookkeeping practices might include unpaid bills, uncollected receivables, tax delinquencies, etc.

Bookkeeping is one of the most important functions for a dental practice. Dental business owners rely on bookkeeping to ensure they are spending their money appropriately. A reliable and competent bookkeeping service is worth its weight in gold, especially a service geared toward the dental industry.

Purpose of Bookkeeping

Bookkeeping is the recording of financial transactions. The purpose of bookkeeping is to create a record of financial transactions that can be summarized and interpreted for various uses.

Bookkeeping systems range from the most basic check register used to record checks and deposits, to the complex systems of ledgers and journals used by large corporations. A small practice, for example, might design its dental bookkeeping system based on its needs, such as tax requirements and investments.

What Dental Bookkeeping Services Should Include For Your Practice?

Reconciling Financial Information

As mentioned earlier, the main purpose of bookkeeping is to reconcile financial information and make informed decisions based on those results.

When compiling financial records, you will include the following:

  1. Point of Sale Transactions
  2. PPO/Insurance Billing
  3. Accounts Payable
  4. Accounts Receivable
  5. Cash Flow

You compile and use this financial information to create a profit and loss summary, which can be incorporated into your monthly financial report.

Reconciling Your Accounts

In order to reconcile your account, you need to make sure all your recorded transactions in a financial software program, such as QuickBooks, match up to the transactions in your bank statement and there are no disparities between the two. Reconciliations are important because they can help your dental practice identify overdraft transactions and fraudulent financial activity.

Reconciling your account can also enable your practice to discover money that is being misappropriated, embezzled, as well as identify income and expense transactions that have been wrongly categorized.

It is prudent to reconcile your accounts as frequently as possible, but, at the very least, your practice should do so monthly.

Preparing Financial Reports

Once your accounts are reconciled and your practice’s bookkeeping is up to date, you are able to generate financial reports and clarify precisely how well your dental practice is doing.

There are three primary types of financial reports generated around bookkeeping.  They are:

Balance Sheets:  The balance sheet lets you know what your dental practice is worth. It provides valuable information on your business’s assets, liabilities, and the owner’s equity. The balance sheets essentially make known what your dental practice owns and what it owes. It is also important to remember that all accounts payable, loans and taxes payable come under the category of liabilities.

Conversely, your accounts receivable, cash on hand, and inventory are all grouped together as assets. It is helpful to remember that under every balance sheet, the accounting principle should remain true that liabilities, plus owner’s equity, must always equal assets.

The Cash Flow Statement:  Cash matters above all else, and the reason for this focus is every dental practice needs to have a certain amount of cash available to operate smoothly and efficiently. The Cash Flow statement enables the dental practice owner to know precisely where the cash is going while being aware of exactly how much cash the business is generating on a day-to-day basis.

The Profit and Loss Statement:  Your profit and loss statement tells you how profitable your dental business is.  This financial report contains figures detailing all your practice’s expenses, as well as all the revenue being generated.

It’s important to keep in mind that inaccurate bookkeeping practices will impact the profit and loss statement most of all. Inaccuracies can create a snowball effect with one missed transaction snowballing into a cash flow issue. Every misguided transaction will significantly affect your statement and improper bookkeeping could lead to making misinformed decisions that could put your practice at great financial risk.

Examine How You Make Financial Decisions at your Dental Practice

After the reconciliation of your accounts, your dental practice should be well positioned to make informed decisions based on those results.

In the meantime, here are some practical finance related questions, you – the dental business owner – should ask yourself:

What are your biggest expenditures?

For the majority of dental practices, the largest expenditure is employee payroll. Next is typically facility and equipment costs. But if you have observed spending in your practice is over 6% of your expenses on supplies such as Xylocaine 2 percent, polishing discs, or sterilization pouches, you would do well to ask yourself why and consider renegotiating supply costs or choosing another vendor.

How much does your cash flow line up with your finances?

As your dental practice grows and you realize more revenue, be cognizant of how much is profit and what proportion should be designated for expenditures.

Keep in mind,  even though you have more funds coming in, that doesn’t necessarily mean the money is spendable.

Where is your income coming from?

Knowing where your money originates from can assist you in evaluating the success of your dental practice.

For example, are accounts receivable being paid faster or are you really experiencing an increase in office visits?  Is there an uptick in new patients or are returning patients visiting more often?

Having the answers to these essential questions will enable your practice to allocate your time more effectively so your dental practice makes even greater progress.

Are there financial gaps?

As you examine your reconciled financial information, you should be able to identify figures that do not line up as well as find aberrations.

When you keep your books up to date, you should be able to pinpoint mistakes and establish new protocol right away before getting your practice into a situation that could take a long time to resolve.

Choose Drilldown Solution for Your Dental Bookkeeping Needs!

At Drilldown Solution, we provide dental practices with accurate and effective bookkeeping services to help you make real-time decisions that accelerate growth.

We are your one-stop shop for all financial management and business consulting for your dental practice. When you partner with Drill Down Solution, you gain access to the exceptional accountants and CPAs who can give you expert guidance and advice on all tax planning issues.

Drill Down Solution offers a full suite of financial services that includes bookkeeping, accounting, and tax preparation. We have the expert team to help any dental business thrive, even under the current COVID-19 pandemic circumstances. We accomplish this result with a three-part system comprised of patient-experience excellence, financial focused operations, and accountability.

Our goal at Drilldown Solution is to put your dental business in the best financial position possible, utilizing proactive processes and personal care!

Note: The material and contents provided in this article are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.