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Accounting For Dentists – Recommendations For Dental Practice Accounting

There are many facets of dental practice accounting. It requires a review of your historical and current financial data, a detailed plan of objectives and goals, and a strategic accounting budget. A well-crafted budget serves as a roadmap for business success, allowing you to allocate resources efficiently and understand the sales and expense targets needed to achieve your financial objectives. In this article, we’ll explore the essential steps and considerations for effective dental practice accounting.

1. Gather Financial Data

Before creating a budget, you’ll want to start by collecting historical financial data for your dental practice over the last two years. This includes detailed records of revenue, expenses, cash flow statements, assets, and liabilities, usually in the form of financial statements or a general ledger report. This information serves as the foundation for making informed decisions in your budgeting process, and helps with structuring your dental practice accounting setup.

2. Set Financial Goals

When looking at your dental accounting plan, it’s important to set detailed financial goals. Start by defining the following:

  • Specific objectives: For short-term goals, consider objectives achievable within a year, such as increasing monthly revenue by 20% or reducing operating costs by 5%. For long-term goals, you might think about expanding your practice to another location, upgrading facilities or equipment, or offering additional treatment options. 
  • Revenue Growth: To achieve your dental practice accounting goals, it’s important to set measurable targets for revenue growth, e.g. revenue per patient, or revenue per staff member. By analyzing historical data, you can identify growth patterns and opportunities and use this information to project realistic revenue increases over time. 
  • Patient Acquisition: Determine the number of new patients you aim to acquire within a specific period to meet your revenue and dental practice accounting goals. Using effective marketing strategies like referral programs or online advertising campaigns can help you increase patient acquisition. 
  • Profitability: Dental practice accounting involves establishing clear profit margin objectives for your gross and net profit. This could involve setting targets for increasing overall profitability by increasing service prices, or reducing overhead expenses by negotiating deals with suppliers. 
  • Practice Expansion: If you’re considering expanding your dental practice or adding new services, it’s essential to set financial benchmarks which outline the costs and projected returns associated with such expansions. 

3. Create an Operating Budget

Once you’ve gathered past financial data and set specific goals, the next step in the dental accounting process is to develop a comprehensive operating budget that outlines all expected revenues and expenses over the next 12-24 months. 

The best way to create an efficient dental practice accounting system is to separate your budget into various categories, usually broken down into monthly amounts. By understanding your dental practice expenses, you can eliminate unnecessary or exorbitant costs and set specific revenue targets to increase your profitability. Common budget categories for a dental practice include:

Dental Treatments: You want to break down the types of revenue you receive for various dental treatments, such as preventative dentistry, orthodontics, major dental procedures, cosmetic dentistry, and any other relevant items.

 

Personnel Costs: Detail salaries, wages, benefits, and training costs for your staff, including for yourself. Consider staffing changes or additions that might affect these expenses.

 

Rent or Mortgage Payments: In your dental practice accounting budget, include lease or mortgage costs for your practice location, taking into account any potential fluctuations in rental or interest rates.

 

Equipment and Supplies: List out specific amounts for purchases, maintenance, and upgrades of dental instruments, clinical supplies, plus any premises repairs or maintenance.

 

Marketing and Advertising: Allocate monthly funds for marketing campaigns, website maintenance, and online advertising campaigns to attract and retain dental patients.

 

Utilities and Overheads: In your dental practice accounting budget, it’s important to include monthly utility bills, office maintenance, and other operational overhead expenses.

 

Insurance and Licenses: Include costs for liability insurance, malpractice insurance, and professional licenses required for your dental practice.

 

Professional Services: Factor in fees for accounting, legal, consulting, or other professional services needed for your dental practice accounting setup.

 

Debt Service: If applicable, allocate funds for loan or interest payments.

 

Contingency Fund: Dedicate a portion of your budget to a contingency fund to cover unforeseen expenses or emergencies.


Capital expenditures: Budget for major capital expenditures, such as dental equipment upgrades or office renovations. Setting aside funds for these investments in advance can prevent financial strain, and is an important part of dental practice accounting.

 

4. Revenue Projections

Now that you’ve listed out all your dental practice accounting categories, you can set revenue projections to ensure you maintain a healthy profitability for your practice.

Patient Visits and Procedures: To optimize your dental practice accounting, you’ll need to analyze historical patient visit data to project future visit volumes. Review your patient retention rates when estimating visits and procedures. You can set revenue projections based on overall sales and also break them down into specific metrics like revenue per procedure, revenue per patient, revenue per day, and revenue per staff member.

Market Trends and Seasonality: Research industry trends and seasonal fluctuations in dental care demand when preparing your dental practice accounting budget. Adjust your revenue projections accordingly, factoring in peaks and troughs throughout the year.

 

5. Expense Budget

When creating your dental practice accounting budget, it’s important to categorize your costs and account for inflation.

Fixed and Variable Costs: Separate fixed costs (such as rent and insurance) and variable costs (such as dental supplies and lab costs) in your dental practice budget. Review historical spending patterns to estimate variable costs accurately.

Inflation and Planned Changes: Account for inflation rates and potential changes within your dental practice that could impact expenses. For instance, if expanding your service offering, consider how it might affect equipment purchases or staffing costs.

 

6. Monitor Cash Flow

Once you’ve developed your dental practice accounting budget, it’s important to review your cash flow report. Cash flow is the balance between cash receipts coming into the business through sales collections, and the outflow of cash used to pay for expenses, debt, and distributions to owners. Ensure that your budget considers not only monthly income and expenses but also the timing of cash inflows and outflows. Cash flow is affected by your supplier payment terms, and any dental payment plans or financing offered to your customers.

 

7. Review and Adjust

To successfully implement your dental practice accounting budget, you’ll need to regularly compare your budget against your actual financial performance. Identify any significant deviations and adjust your budget accordingly. This ongoing process helps you identify cost-saving opportunities and revenue enhancement strategies.

 

8. Seek Professional Guidance & Stay Informed

If you want to maximize your dental practice accounting success or need assistance with financial budgeting, consider working with a dental CPA experienced in dental practice management.

It’s also important to keep abreast of changes in dental industry regulations, health insurance reimbursement rates, and market trends. Adapt your budget as needed to account for external factors that may impact your practice.

 

Conclusion

Effective dental practice accounting is a cornerstone of successful dental practice management. By following these recommendations and staying vigilant in financial budgeting, you can navigate the complexities of running a dental practice with confidence and financial stability.

 

By meticulously creating financial goals, developing a comprehensive operating budget, accurately projecting revenues, and astutely managing expenses, you can establish a solid dental practice accounting foundation and work towards achieving sustainable growth and success. Contact us for a free consultation to find out more.

Note: The material and contents provided in this article are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.

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