You’re a dentist, not an accountant. Luckily this isn’t about accounting. This is about bookkeeping. Yes, there is a difference. When it comes to accounting you are better off calling in the professionals and letting an accountant handle things. But for bookkeeping all you need is a few tips on what to do or not to do and a way to track your finances.
For dental practices, there are a few bookkeeping mistakes that are common but can be easily avoided if you know about them. So, don’t despair this isn’t about accounting. This is to help you avoid the all too common bookkeeping mistakes made.
1. Not Understanding Cash Flow and Profit
This is a very common and often costly mistake for dentists. Not knowing the difference between cash flow and profit and what each one is can end up costing you in overdraft charges and late fees.
The mistake lies within the belief that the profits reflect how much money is available to be spent. This, however, is not the case. Cash flow is how much money is coming in and going out of your accounts.
Profit is what is left after overall revenue less overall expenses. Believing that profit is an accurate representation of cash flow can result in overdrawing your business account and being late on paying bills.
2. Not Working with an Experienced Dental Accountant
Often times a dentist will outsource their accounting needs and hire a professional. In most cases, this is fine, except there are special dental accountants for a reason.
When it comes to your dental practice you can’t afford to make mistakes with your bookkeeping. Mistakes can lead to an inability to purchase up-to-date equipment as well as stay within health and safety regulations. All these needed to bring in and keep customers.
Should you choose to outsource your bookkeeping needs be sure to choose a bookkeeper or accountant who specializes in accounting and bookkeeping for dentists. They will make sure all your books are kept in order and you are aware of exactly what your cash flow is like and what your profits actually mean.
3. Recording Transactions from a Different Period
This is a very big and costly mistake to make, but probably one of the easiest ones. When copying over transactions and recording them in your books, make sure you are paying attention to the date on each invoice, receipt, or transaction record.
Transactions recorded in the wrong pay period can lead to a misrepresentation of cash flow, accounts payable and receivable, and profits. This can lead to over expenditures, late fees on missed payments, and inaccurate invoices.
4. Not Following Industry Standards
Another common error made is the use of a generic chart for accounting and bookkeeping, instead of the industry standard chart of account for bookkeeping and accounting for dentists.
This can lead to problems when it comes time for the dentist to review the reports and develops plans for future growth and development. There are industry standards in place to keep everything as streamlined and efficient as possible.
5. Not Monitoring Profits
It may not seem like it at times, but a dental practice is just like any other business. Profits, while not a representation of cash flow, are necessary to track in order to gauge the success of a business.
Often dentists forget this and will ignore their profit reports. This severely limits them in their ability to be able to analyze their business and determine a plan of growth for the future.
Bookkeeping for Dentists
Dentists are dentists and are not nor will ever be accountants. And that’s a good thing. But dentists do need to be aware of certain common mistakes that can occur with their bookkeeping.
Just like any other business, a dental practice needs to have their books as accurate and true as possible. This will ensure compliance with laws, tax regulation, and policies, and provide an accurate picture of how successful your business is or not.
The biggest mistake and take away being you now know the difference between cash flow and profit. Cash flow is the money coming in and out of the actual account. This is important for determining whether or not you can afford new equipment. The profit helps to determine success in terms of growth capability.
Knowing the pitfalls to avoid can help you to ensure your books are accurate and up-to-date. Allowing you to focus on growing and expanding your practice.