Financials for the Dental Practice
Managing the ledger for any business can be tricky; a medical or dental office even more so. There are so many components that go into running the office, the lab, the treatments, and the staff, that it can be overwhelming if you don’t keep good records or have a good system.
Every month, at least, you should sit down and review your financials. If they’re well organized, you should be able to tell quickly between whether the business is profitable or if it’s hemorrhaging money. As a refresher, these are a few things you should be looking at regularly to keep up with the office expenses:
- Cash Flow
- Fixed Expenses
- Direct Expenses
- Discretionary Expenses
- Industry Benchmarks
Get Up to Date
You can manage your financials with software like QuickBooks, but are you using all of the resources to their full capabilities? When you’re familiar with the ins-and-outs of financing software, you’ll be able to better analyze your expenditures, budget, and where money might be slipping through the cracks. Consider taking a course to get up to date on the latest updates and features in the programs you’re already using.
How much money you have coming in is an important piece of data to know. You can break the number down into which treatments it came from: new patients, reactivated patients, implants, veneers, etc. These percentages are useful to compare with expenditures for those areas, but ultimately, the amount of money received each month is just the starting point. You won’t know how well the practice is doing unless you find out what those dollars are being spent on!
The Same Thing Every Month
Your expenses that are the same every month are “fixed.” This part of your monthly financial statement should not vary from month to month at all. This includes your payroll expenses:
- Insurance premiums
- Payroll taxes
And other static amounts like rent and utilities. These expenses are necessary and have very little wiggle room. You have to pay them in order to keep the business open, but they do need to be kept in check.
When Every Patient Is Another Expense
For every patient that needs a filling, you have to purchase anesthetic, disposable barriers, the filling material, and more. Each crown and set of veneers is a lab expense. Direct expenses are driven by the amount of volume your customers or patients produce. A good practice is to separate them into groupings: Lab expenses, disposable supply expenses, etc… You can also compare these numbers or their percentages to industry standard benchmarks in your area.
Variables in Expenditure
Discretionary funds tend to fluctuate from month to month. A good office manager is going to keep records not only of how much has been spent, but also know what the budget limit is for each discretionary item. These items may include:
- Office Supplies
- Travel and Meals
- Continuing Education
The key to ensuring your discretionary expenditures don’t eat at your profit margin is creating a budget for them, committing to the budget, and sticking with it for the year. After the fiscal year has ended, re-evaluate to see if the budget has been too low, too high, or needs some tweaking from one area to another.
A Competitive Marketplace
Once you have all your numbers in place, income, and expenses, you can start doing the math to get to your bottom line. But it’s important to take note of how your numbers add up compared to “industry benchmarks.”
Benchmarks are projections for how successful businesses in the industry (such as dentists) spend their money; in other words, what percentage of the cash flow gets spent on the rent, the direct expenses, the payroll. Comparing your practice financials to others helps ensure that you aren’t overspending in an area that could be cut back, and can help you determine that you are setting competitive, but fair prices for your services.
What About Delinquent Accounts?
Unfortunately, you will have patients who just won’t pay their bill for one reason or another. If you have a collections agency, its expense should be included in the fixed expenditures. Otherwise, there are a variety of ways to include bad debt on your financial statement. One is to budget an amount for write offs each year, and debit the amount written off each month from that budgeted item, at the same time crediting it in accounts receivable. Or changing your collections procedures altogether. Otherwise, you can enter the amount written off as its own line item, again, crediting the amount in the receivable portion. Both ways essentially zero out the bad debt.
Your financial reports are a good way to help see how and where your office should grow and change. Review them monthly with the assistance of a good accountant. You may be amazed at just how well you’re doing and what you can do better!
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