Bookkeeping is an essential aspect of running a successful dental practice. It involves keeping track of the financial transactions of the business, including income, expenses, and profits. Proper bookkeeping allows dental practices to monitor their financial health, make informed decisions, and meet their financial obligations.
Bookkeeping for dental practices typically involves recording transactions in a system of accounts, such as a general ledger or accounting software (we utilize QuickBooks Online). This is a separate system from the office’s patient management system (think Dentrix or Open Dental). While the patient management system records production and collections, the QuickBooks Online accounting system is synced with bank, credit card and loan accounts. It’s best practice to have separation of accounting functions in an office- never let an office manager have direct access to your private bank information. Using a modern cloud accounting system like QuickBooks Online (QBO) allows dental practices to classify and organize their financial information into categories, such as revenue, expenses, and assets.
One of the key aspects of bookkeeping for dental practices is tracking income. This includes recording payments from patients, insurance companies, and other sources of revenue. It is important to accurately record income in order to properly calculate the profitability of the practice. Some of this information is recorded in both the patient management system, and again in the QuickBooks Online accounting software. The final collected revenue in these two separate systems should reconcile (match) at the end of the year.
Expenses are another important aspect of bookkeeping for dental practices. This includes tracking the costs of running the business, such as dental supplies, rent, salaries, and utilities. By tracking expenses, dental practices can monitor their spending and identify areas where they can save money. Salaries are the largest expense line item in running a practice and one that the owner has the most control over. Sometimes an owner will “over staff” their office by mistake, which will result in lower profitability. Partnering with a skilled dental practice business advisor like us can help discover if you have a “right-sized” staff model for your revenue level.
Profit and loss statements, also known as income statements, are a crucial tool for dental practices to monitor their financial performance. These statements show the practice’s income, expenses, and net profit (or loss) over a given period of time. By regularly reviewing these statements, dental practices can make adjustments to improve their profitability.
Another important aspect of bookkeeping for dental practices is tax compliance. This involves accurately tracking income and expenses in order to properly report taxes to the government. Dental practices must also keep records of their financial transactions in case they are audited by the Internal Revenue Service (IRS). Income tax audits can become huge issues if you don’t have clean and accurate bookkeeping records. We recommend owners follow strict guidelines for keeping business and personal expenses separate. The IRS has increased funding and will be pursuing more audits in the next decade.
In conclusion, bookkeeping is an essential part of running a successful dental practice. It allows practices to track their income, expenses, and profits, and make informed decisions about their financial health. By properly managing their bookkeeping, dental practices can ensure their financial stability and compliance with tax laws.
