You know that as the owner of a dental practice, you need to outsource your tax requirements, but you’re not really sure quite how much you should be prepared to spend on it.
While it’s a good question and one that deserves to be asked, giving a definitive answer is often difficult as it can depend on a number of different factors. In general, the annual cost falls between 1% and 3% of gross revenue, and you can work with a dental accounting firm to try and find a more exact figure for your specific dental practice.
In the meantime, let’s take a closer look at some practical benchmarks:
Practices making less than $500,000
Smaller dental practices often find themselves spending more of their gross revenue on tax and accounting services (up to and beyond 3% in some instances), because irrespective of a business’s size and earnings, reconciliations, monthly bookkeeping, payroll support, tax filings and financial reports must all be carried out.
Practices generating between $50,000 and $2 million
For practices generating this amount in revenue, a heavier reliance on outsourced bookkeeping and accounting is to be expected. From monthly reporting and entity-level tax planning, to structured payroll and compliance, and better cashflow visibility, it’s not unusual for these businesses to spend around 1.5% to 4% of gross revenue on outsourced services.
Practices generating between $2 million and $10 million
With this type of revenue-growth, outsourcing fees typically drop to a much smaller percentage of gross income, as they may have better systems in place, more efficient workflows, and a lot more internal processes that make service delivery easier and ultra-efficient. Practices in this revenue range might spend as little as 0.7% to 2% on outsourced services, although this figure can go up when more complex tax planning is required.
What factors drive the cost of outsourced accounting and tax?
A practice whose books are clean and which has less moving parts, will typically have to pay less in outsourced fees than a business with messy records and complex reporting requirements.
Some factors that can also determine how much you might have to pay, include:
- Number of monthly transactions
- Number of bank and credit card accounts
- Complexity of payroll
- Number of owners and legal entities
- Loan activity
- State filing requirements
- Level of support requested
Are outsourced tax services worth it for your practice?
If you work with experienced dentist tax planning professionals, there’s no reason why they shouldn’t be worth the investment.
Here are some of the ways in which outsourced tax services can support your dental practice:
- Helping you to understand profitability
- Improving your cashflow awareness
- Keeping you compliant
- Reducing the risk of incurring penalties and fines
- Enabling you to make better decisions for hiring and spending
- Identifying tax saving opportunities
- Preparing your for growth or financing
When you look at just how important help from an outsourced tax and accounting provider can be for the success of your business, an investment of somewhere between 1% and 3% of gross revenue, seems a small price to pay. However, this figure can vary according to your specific needs and the complexity of your financial affairs, and is by no means a hard and fast rule, but more of a starting point.