If you’re a dentist working with an accounting firm who specialize in the dental industry, you shouldn’t have to deal with mistakes that could have an impact on your practice’s profitability. But if you handle your own accounting, or your in-house team are doing their best to handle it despite being inexperienced, some mistakes may creep in.
Seeking help from an experienced accounting firm who also provide tax planning for dentists, will help you avoid these 7 mistakes:
- Treating your practices’ bank account as an extension of your own
It’s not uncommon for solo dentists to blur the line between the financial activities of their practice, and their personal activities. What this does when left, is make your financial statements give false readings. Profits are no longer accurate, and preparing your taxes gets more complicated than it needs to be.
Clear boundaries are essential. Have a separate account for your dental business, and another for your personal affairs.
- Looking only at collections
While healthy collections tell a story, they don’t tell the full story of how efficiently your practice is operating. If you don’t review your numbers on a regular basis, it’s easy to feel unnecessary financial pressure. Review your profit and loss statement monthly, with expenses tracked as a percentage of collections, and you’ll start to get a much clearer picture of where your money has been going, and what adjustments you may need to make.
- Not getting to grips with reporting challenges
For dental practices, reporting conjures up many challenges, with production counting as one number, collections as another, and insurance adjustments and write-offs, yet another. When not recorded properly, revenue can look higher than it really is, which can lead to inaccurate tax estimates or overspending.
By reconciling practice management software with accounting software, seeing what your practice actually earned, becomes much easier.
- Not paying attention to tax concerns until tax season
Dentists lose flexibility when they only review their finances once a year, and opportunities to reduce their tax burden, may already have been missed. Instead of simply reacting to your taxes when deadlines loom, it’s much better to take a proactive approach, months in advance.
- Feeling profitable despite cashflow being strained
It can be frustrating for a dentist to be told that they’re practice is profitable, and yet they’re always short of cash. Cashflow forecasts help such things as quarterly tax payments, delayed insurance reimbursements, payroll and loan payments, come as less of a shock. By seeing what obligations are upcoming, spending can be adjusted accordingly, distributions can be better planned, and financial anxiety significantly reduced.
- Not coordinating major investments with your tax strategy
Most dental practices make big investments in equipment and technology, and yet how these purchases are timed and classified, is often given little thought. A quick conversation with your dental tax accountant can help you coordinate major investments so that deductions can be applied correctly, and financial statements remain accurate.
- Not working with a dental accountant
For dentists, it’s crucial that they work with specialist dental accountants if they’re to properly address the many nuances of the industry, be able to take advantage of strategic insights, and keep their books clean at all times. Specialist advice helps practice owners make long-term decisions that are based upon real-world dental data, instead of generic principles that apply to any small business.
While these mistakes may not seem dramatic in isolation, when combined with other mistakes and left to fester, dental practices can quickly begin to suffer. By treating accounting as a strategic tool instead of a mere obligation, dentists can build profitable, sustainable practices.