Improper bookkeeping can cost dentists thousands of dollars. An accountant that specializes in dental practices can get things going in the right direction.
Nothing will cripple a growing dental practice faster than
having cash flow trouble. Simple bookkeeping mistakes can cause a ripple effect
that result in severe financial problems. Most dentists are experts at their
craft. They know how to keep teeth healthy. However, most dentists are unaware
of the proper steps to create and maintain an accurate bookkeeping system that
allows them to understand the true financial health of their business.
Bookkeeping for dentists requires an understanding of the
practice as it relates to accounting. Here are the top four common bookkeeping
mistakes made by dental practices, and the costly impact it these mistakes can
understanding the difference between cash flow and profit – Most dentists
and their in-house bookkeepers do not know how to read and understand financial
reports. When the dentist requests the figures for a particular period from the
bookkeeper, it is a common and costly mistake for the bookkeeper to provide the
dentist with the profit figures. The dentist unknowingly thinks this is the
cash available. The problem with this is that the profit amount does not
represent the cash available for purchases. As a result, the dentist makes purchases
and incurs overdraft fees and extra charges.
Profit is the result of revenue less expenses for a
certain period of time. Cash flow is the money moving in and out of the
business from the beginning of the month to the end of the month. The profit is
computed after completing a profit and loss statement. Cash flow is computed
after completing the cash flow equation and factoring in accounts receivable,
inventory, and depreciation expenses.
recording transactions in a previous period – The practice should “close
the books” on a monthly basis. Closing the books includes reconciling the
different accounts, preparing the financial statements, and more. After the
books have been closed for the period, transactions should not be entered and
changes should not be made for that closed period.
A common and costly mistake is to accidentally enter
transactions from a previous period, which results in balance adjustments that
don’t match the bank balance or financial reports. If this error goes unnoticed,
all future reports, tax documents, and cash figures will be incorrect. This can
result in doubling the cost to repair the financials, misrepresentation of cash,
or harsh penalties from the IRS.
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.
working with an experienced dental accountant – Working with an accountant
that specializes in dental bookkeeping will ensure an accurate view of the
financial conditions of the practice at all times. This guarantees that the
practice financial statements are prepared according to the General Acceptance
Accounting Principles, the IRS guidelines, and the dental industry standards.
Doing it yourself or hiring an in-house inexperienced
bookkeeper can result in costly mistakes. Dentists will notice these mistakes
when they receive a high tax bill, theft occurs due to lack of internal
controls, there is an incorrect reconciliation of cash and high receivables
figure, and there is an inaccurate and unreliable accounting system.
Sound financial management begins with understanding
the unique bookkeeping skills needed to effectively operate a dental practice. An
experienced accountant can help accurately track dental tax deductions, save
time, save money, implement an effective operation system, and provide the
dentist with peace of money.
For more information on costly
dental practice mistakes, schedule a free consultation today with Smart
Accounting Services at email@example.com
Octavia Conner is the CEO of
Smart Accounting Services. It is a virtual accounting firm that specializes in
dental bookkeeping services that will save dentists time, money, and provide
them with peace of mind in knowing their financials are accurate, reliable, and
trustworthy. Visit www.smartaccountingllc.com
or contact Octavia at firstname.lastname@example.org