A growing dental clinic could be one step away from bankruptcy as soon as the cash flow stops.
If you find yourself wondering whether you are doing your dental books the wrong way, you are probably right. Lacking bookkeeping knowledge, many dentists fail to realize the ripple effects of creating major financial problems that push them to lose a hefty amount of money. When your dental clinic starts losing cash, your business operations cripple fast.
Take action to improve your dental chart of accounts. You may know everything about dental care and you may be the best in your craft. But you could still go bankrupt. There is no extraordinary joy in biting numbers for the inexperienced or those less passionate about math. Many times than you realize, dental bookkeeping can get awfully frustrating.
When it does and it will, save yourself some energy and get a qualified dental bookkeeping help.
A dental clinic is a business operation. And a dentist should also take the role of a business owner who cares about profitability. If you are not monitoring the profitability of your dental clinic, you may not find opportunities to grow your business. The worst that could happen is to realize when it is too late that your business has gone overdraft and there is nothing left to keep your dental clinic operational.
Understanding how you can improve your revenues and profit will help you better manage and control your expenses. For example, missing to record over-the-counter collections. It's approximately 35% of the clinic’s daily productivity. And if you don’t monitor the collection performance, you could lose a hefty 35% of revenue source.
It can beat you to exhaustion to do two things at the same time: practicing your profession and running your business. It’s a tedious process updating your record of dental accounts but it’s necessary for business growth. You can do both or you can hire a professional financial advisor who can keep your dental books accurate and updated.
One of the areas that require your attention is your accounts receivables. For a dental clinic, it’s all too familiar to get your front desk officer call a list of your patients and/or insurance companies who owe you.
But you can always delegate this task to a professional financial advisor. When payment from insurance companies come late, and they usually are, then, this affects your cashflow. Someone must be on top to ensure overdue accounts receivables still get paid. If you ignore this problem, your cash flow can get and will get bad. A bad cash flow is never good for business and it won’t be long until your business fails with just one challenging financial trouble.
Dentists and their latest and greatest equipment are almost always inseparable. There is always a new dental gear in the market that is appealing to have and many dentists fall into this trap of overspending.
If you don't think budget is important. Think again.
The success of your short term and long term business goals heavily depend on how you maximize your budget. It is recommended for dental clinics to have two separate budgets—
1. Operating budget. When preparing your yearly operating budget for the following year, don't forget to leave a little margin for accidental or unexpected costs that might incur. Better safe than sorry.
You can always analyze the revenue trend from the previous year but keep in mind to adjust for inflation or adjust for expected growth that will be driven by marketing efforts any other internal or external changes that can affect your operations.
It will be to your business advantage if you choose to prepare for a multi-year budget. It gives you an advance outlook to what's in store for your business in the next three to five years. Forward thinkers are always ahead of the game and almost always successfully build a financially sustainable business. It is easier to spot major changes in revenue and expenses trends that extend beyond the present year. You could have an expiring grant or you may need to re-negotiate your contract on the lease and maybe some equipment may need replacement — you can better prepare budget for all these and determine where to get the funds.
2. Capital budget. Your capital budget helps you determine your investment priorities. This usually is a plan that looks a little further forward than just one year. Your purchase of major capital assets falls into this budget; for example, you want to invest in owning a building or some large dental equipment to improve your revenue growth.
Ignoring the importance of your budget could hurt your finances at major scale and you can be certain that it will only be a matter of time when you find your business struggling with funding; and one day will close your clinic doors.
Many dental clinics are not so enthusiastic about system upgrades and adapting to technological advancements when it comes to bookkeeping systems. Not many realize that old school bookkeeping using basic bookkeeping spreadsheets and calculators doesn’t only make life difficult but can cause undetected errors negatively affecting revenue and profit. As the errors continue, you could be creating a cannon of financial problems.
Do yourself a favor and make things easy for you to manage your dental practice effectively.
Get a dental office practice management software. It will make everything easier from processing payments to generating necessary financial reports.
There is no shame in admitting to what you don’t know. But there is danger in refusing to get the necessary and professional bookkeeping help that your business needs. The consequences are costly.
Dental bookkeeping requires professional knowledge and experience, which means your dental bookkeeper should understand the dental practice as it relates to bookkeeping standards. An inexperienced bookkeeper cannot ensure accuracy of following industry-related bookkeeping standards. And a do-it-yourself bookkeeping is not a smart decision because you could make costly mistakes if you don’t fully understand bookkeeping principles and practice. Here are some early signals that your bookkeeping are not done right and requires professional attention from a qualified professional financial advisor:
Accurate bookkeeping ensures you have clean dental books of accounts and it requires special skills to accomplish task. If you can recognize early on what your business needs, the less likely you will get into financial troubles and more likely to effectively operate your dental clinic.
Profit is not cash.
If you don’t know the difference between cash flow and profit, you will have a serious problem.
If you think that the profit amount you are seeing in your financial statement is an actual cash available for you to spend, you could be making purchases that you cannot afford to pay in cash that could result in overdraft fees and other additional charges. Don’t make this mistake.
Deducting your expenses from your revenue incurred for a period of time calculates your profit. But it’s not the same as your cash flow. Cash flow is the actual money that moves in and out of your business covering a specific period usually from the beginning of the month until month end.
Accurate data recording is crucial to the accuracy of your financial records. This may be a case of incomplete recording and/or inaccurate classification of transactions.
If these bookkeeping errors remained unnoticed, your dental practice faces the risk of understating or overstating taxable income, which may results to underreporting or overreporting of taxable income.
You could get your business into deep financial troubles such as heavy penalties imposed by the IRS as a result of misrepresentation of cash. Repairing your financial data doubles your expenses.
Keep this in mind before you decide to ignore your dental practice chart of accounts. A smart solution would be to set up a reliable bookkeeping system and support.
There are industry standards in bookkeeping practice. The healthcare environment is a dynamic sphere and the dental sector requires cost data analysis to determine a dental clinic’s operating status of its practice. And tracking cash inflow and outflow along with financial report requires the use of the dental chart of accounts, which tailors the bookkeeping practice to the dental industry.
Professional financial advisors experienced in the dental industry understand that there are special accounts that must follow the dental industry standard practice of bookkeeping. If you are using the general chart of accounts or you have created an incorrect chart of accounts, that’s a costly mistake because if you skip the use of an industry standard chart of account for dental practice, you are missing profitable opportunities that should reflect in your financial report.
The insights provided in the financial report are necessary to help streamline and grow your dental practice.
It’s not always peak season in your dental clinic. You should be prepared for the uncertain changes in volume and flow of patients because it affects your revenue. It’s important that you measure seasonality and be financially prepared when it comes.
There are different factors to be considered behind the changes in the fluctuation of the number of patients visiting a clinic on a monthly period. Nonetheless, dentists should be financially ready as this fluctuation creates uncertain problems to your cash flow and could result in drying funds that will make it difficult to pay bills or invest in new equipment.
The graph above shows data collected by Sikka Software. It shows data generated from over a thousand of dental practices at a national scale that has mapped the seasonality trend for dentists.
Let’s wrap up this article with a fun material from Dr. Doug Carlsen sharing “Doctors’ Dumb Financial Mistakes.” Watch:
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