For many dentists, setting yourself up to have a successful practice can be a challenge.
How do you manage the clinical dentistry with monitoring the books.
Bookkeeping is not just simple data entry. It is also a way to determine the health and prosperity of your practice.
This then enables you to make better decisions.
However, if the data is not recorded correctly, your financial statements will not reflect the true opportunities for growth in your practice.
Here are five common mistakes made in dental practice bookkeeping.
ACCURATE REPORTING OF EXPENSES:
To have a true picture of how your practice is doing, expenses need to be recorded correctly. A couple of examples of incorrect recording are;
a. Office supplies should not be mixed with dental supplies. They both need their own category.
b. Lunch with referring doctors or with bankers would be coded to meals, where as lunch bought during company meetings would be coded to staff meetings.
2018 update - both types of meals would be classified at the 50% deduction and entertainment can no longer be deducted after 2017.
Also, not all outgoing monies are recorded in expense accounts. Loan payments are split. Part of the payment goes to a loan account set up as a liability account on the balance sheet. The expenses would be overstated if the total amount of the loan were put in an expense account. The reverse is also true, you would miss out on recording expenses if the total amount went to the liabiltiy.
This could affect financial statements needed for banks, or cause you to make poor decisions for your practice.
ACCURATE REPORTING OF INCOME
This is especially important since you would not want to falsely inflate your profit percentages. Not only would you be making decisions on inaccurate information, you could be increasing your tax bill!
Some examples of incoming money, that is not income, are the sale of equipment and/or supplies or reimbursements to your practice.
ENTERING TRANSACTIONS IN THE INCORRECT TIME PERIOD
This mistake can go unnoticed for long periods of time. It could lead to you making decisions on an inaccurate cash flow or profit. Misrepresentation of information might even lead to IRS penalties.
Trying to close your books at the end of the year when there are errors could be time consuming and costly. Your books should be reconciled and closed every month to prevent any errors from getting out of hand.
MISUNDERSTANDING FINANCIAL STATEMENTS
Financial statements provide you with management information to run your practice efficiently. They also help you make sound business decisions and prepare your taxes.
A Balance Sheet shows your assets (how much you own) and your liabilities (how much you owe). The difference between these two is your retained earnings or net worth.
An Income Statement will show where the revenue is coming in and where the expenses are going out. It summarizes your income and expenses in order to tell if you are operating at a profit or at a loss.
Statement of Cash Flow is the money flowing in and out of your accounts from month to month. Sometimes "profit" from the income statement can be misunderstood as available cash. This oversight could be costly for your dental practice.
NOT TAKING ADVANTAGE OF BENCHMARKING
Benchmarking is a way to continually evaluate your practice, your competitors and the dental industry.
It assesses your practice's strengths and weaknesses, maintains budgets and sets goals.
This is a way for you to improve patient care, improve your bottom line and make your goals a success.