Dental practice accounting is comprised of many different facets, and typically requires reviews of both current and historical financial data, as well as a detailed strategy for goals and objectives, and a meticulously crafted accounting budget.
While it’s sensible (and strongly recommended) to hire accounting services for dentists to guide you through the necessary processes, it’s always worth having at least a basic understanding of dental accounting as a practice owner.
Below are the essential steps and considerations for effective dental practice accounting:
- Begin by gathering financial data
Before you can even think about creating a budget, you’ll need to collect your dental practice’s historical financial data over the previous 2 years, including revenue and expenses records, cashflow statements and so on.
This information is foundational for helping you make good decisions about your budget, and for structuring how your accounting will be set up.
- Then start setting financial goals
Your financial goals should be detailed, so it’s important to look at your specific objectives, such as long and short-term goals. Set measurable targets for revenue growth using historical data that will help you identify opportunities and patterns of growth.
Next you should decide upon how many new patients you would like to acquire within a certain period, in order to meet the accounting goals of the practice; marketing campaigns can help you boost patient acquisition.
It’s also important to establish clear objectives for gross and net profit margins, and if planning to add new services or expand the practice, you must set some clear financial benchmarks.
- Create an operating budget
With historical financial data at your fingertips, and specific goals set, you must work on a detailed operating budget outlining anticipated revenue and expenses for the next 1 to 2 years. By separating your budget into different categories, such as dental treatments, personnel costs, rent or mortgage payments, debt service, equipment and supplies, marketing and advertising, utilities and overheads, insurance and licenses, professional services, contingency fund and capital expenditures, you can better equip yourself for reducing costs and setting revenue targets to enhance profitability.
- Set revenue projections
Maintaining sustainable profitability is critical for any dental practice, and by analyzing patient visits and procedure numbers, and looking in detail at market trends and seasonality, you can set a series of revenue projections that will help you achieve exactly that.
- Next, create an expense budget
Begin by separating your fixed costs (including such things as insurance and rent) from your variable costs (including such things as lab costs and dental supplies); looking back at spending patterns will help you estimate variable costs. You must then account for inflation rates and any possible changes within your practice that might have an impact on expenses.
- Review your cashflow report
The balance between cash coming into the business from sales, and cash going out of the business to cover debts, expenses and owner distributions, cashflow is an essential element of any business that must be reviewed when creating a workable budget. Make sure that your budget accounts not just for income and expenses on a monthly basis, but also for the timing of cash flowing in and out. Cashflow can be affected by the payment terms of your suppliers, and by financing or dental payment plans being offered to patients.
- Review your budget and adjust as necessary
Once your budget has been established, it’s imperative that you compare it with your actual performance on a regular basis, so that you can check for any deviations of significance, and make adjustments as necessary.
- Lastly, seek professional help
Working with a specialist firm providing dental accounting can maximize your chances of achieving financial success, and help you stay up-to-date with industry regulations, market trends and rates of health insurance reimbursement.
By following the recommendations outlined above, and investing in expert accounting from industry specialists, you can run your dental practice with confidence and pride, and ultimately, achieve financial stability.
