Why don't my books match my Practice Management Software??
Updated: Dec 30, 2019
As a dentist, do you ever scratch your head and wonder why your Practice Management Software (PMS) shows your production as one number and your books have recorded another number? It's not just a couple hundred dollars either. Sometimes the difference can be thousands of dollars.
When you look further, the money deposited in your account does not match what is in your PMS reports. How can this be? Does having different numbers suggest that there is money missing? How would you know?
So if the numbers in the accounting software do not match the PMS, how can the dentist be sure what the bottom line is or even what the practice is worth?
These are questions that have many dentists scratching their heads. What are the answers?
So let's address the first mystery, "why are the production numbers different in the PMS vs. the accounting software? There are actually two parts to this answer. The first part is that some bookkeepers and CPA's are recording your books in the cash basis vs. the accrual basis. With cash basis, only the money collected is being recorded in your books. So your books are not telling the whole story! You usually have worked for production that hasn't been collected yet, your Accounts Receivable (AR). Breaking it down, some of the collections are from past production, and your AR can range from zero dollars (not likely) to over $200,000. That's a big range or difference. Your production is not an accurate picture if you do not include your accounts receivable and your numbers will not match the PMS.
The second part to the production discrepancy, though minor compared the first discrepancy, is still worth noting. It is the deposit "timing" of collections. If collections of cash and paper checks are deposited in the bank at the end of the month, the bank might not record them until the following month, making the numbers off. I have also seen where holding the cash and checks for awhile before depositing can make a difference. I have seen checks being deposited from offices 10-15 days past issue date.
Financial reports from your PMS should be given to your bookkeeper in order to reconcile and have deposits not just from cash and paper checks, but from merchants and EFT deposits reflected in the proper months.
Once this is corrected and the production is accurate and matching the PMS, you will have more usable information. Another thing to make note of is how your expenses are recorded. These numbers, of course are not in your PMS, but still need to be recorded in the proper month also. This means that when the expense occurred it should be recorded, not when it is paid. This will give you a true picture of your net profits every month.
Payroll and how it relates to percentage of production should also be more accurate with the above corrections. On a side note, the RDH, RDA and Associate's wages should be recorded as a direct cost (COS). They are a separate category from the general expenses and wages of other staff. When benchmarking (comparing to other practices) this will be important. If you, the doctor, like to see all the payroll expenses together, a report can be customized to do this.
So you might be asking now, "why is all this so important?" When you are able to reconcile deposits and production between the PMS and accounting software you are also dramatically reducing the chance for errors or fraud. You will also be able to have a more accurate numbers to create a monthly budget.
Lastly, you will have a more clear picture and more accurate bottom line of what your practice is worth. The financial statement that is used often to show the worth of your practice is the "Balance Sheet". This statement shows what you own or "assets", what you owe or "liabilities" and what is left over which is "equity". AR is a big part of your assets, not just the amount in your bank account. If the steps above are not taken, your financial statements will not show the true picture. Which info would you like to make business decisions on?