Financial reporting and analysis can help dental practices of all sizes make well-informed decisions based upon their future goals. But what exactly is financial reporting and analysis?
Let’s look at both terms in a little more detail:
Financial reporting is when statements are produced for management and investors (among others), that effectively communicate the financial status of a firm.
Financial analysis is when information pertaining to businesses, budgets, and projects, among others, is examined by dental accounting services to guide performance evaluations and the making of important financial decisions.
Below are examples of three crucial financial statements, each of which are vital components of financial reporting:
Balance sheet
This displays the assets of a dental practice, its liabilities, and businesses value to the owners equity at a certain point in time. Basically, a balance sheet provides accountants and practice owners with essential information for financial analysis.
Income statement
In this statement, the revenue, costs and expenses of a practice over a certain period of time, are summarized. Analysts use this data to help determine the practice’s profitability.
Cashflow statement
Indicating the inward and outward flow of cash over a certain period, the cashflow statement traces net increases or decreases in cash and provides a summary of the overall liquidity of a practice.
Why is financial reporting so important for dental practices?
For dental practices, financial reporting and analysis serve a number of purposes, the primary of which is to ensure tax compliance and optimization when filing returns. Other purposes include the enhancing of communication and trust with lenders and investors, something that isn’t important exclusively for larger firms that are publicly traded. In fact, any small business seeking to receive investments or loans, has a duty to provide its stakeholders with updates to its financial status that are detailed and accurate.
Lastly, but by no means least, reporting and analysis is vital to the making of financial decisions for a dental practice, that are up-to-date and well-informed, such as deciding whether to make a large purchase, make operational changes, or hire additional staff.
How can financial analysis benefit dental practices?
Just as with financial reporting, the processes involved in financial analysis can be hugely beneficial to dental practices, including:
- Performance evaluation
In this process, trends in performance are identified, performance over different periods of time is compared, and benchmarking helps to compare a practices performance to its competitors.
- Risk management
During this process, potential financial risks and uncertainties are identified, and adequate protection is given against them.
- Strategic planning
To enable a practice to make decisions for the business that are better informed, strategic planning involves budgeting and forecasting.
If you own a dental practice and regularly engage with specialist accountants for dentists, you’ll automatically gain a much clearer understanding of your financial standing, which in turn, will help you develop a vision for the practice’s future, that is much more refined. While you can take care of your own financial record-keeping, analysis, and planning, without the guidance of experts who specialize in dental practice finances, you might misinterpret the information, or fail to gain as much clarity as you need over your current finances and predictions for the future.