By: jnawali
Dental Bookkeeper
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Running a successful dental practice is as tough as becoming a dentist itself. To become a dentist, one must go through a long and strenuous process that requires a lot of hard work, determination and above all studying. All this hard work does not stop once a person graduates, and if someone desires to run his/her own dental firm successfully then the same amount of hard work is needed.
Dentists are naturally smart people, but their education does not prepare them with all the skills needed to run a profitable business. Nothing will cripple a growing dental practice faster than having cash flow trouble. Simple bookkeeping mistakes can cause a ripple effect that result in severe financial problems. Most dentists are experts at their craft. They know how to keep teeth healthy. However, most dentists are unaware of the proper steps to create and maintain an accurate bookkeeping system that allows them to understand the true financial health of their business.
As an accountant/bookkeeper who helps dentists with their bookkeeping needs, I see certain mistakes that keep on popping up when I examine the books for dental offices. In this article, I will be sharing few dental bookkeeping mistakes that need to be avoided to make sure your books are accurate.
1. Mixing personal & business expenses
2. Not understanding the difference between cash flow and profit
3. Not reconciling accounts monthly
4. Not using an industry standard chart of account
5. Not constantly monitoring your profit & loss statement
6. Not hiring an expert
1. Mixing Personal & Business Expenses
This is one of the most common mistakes that occur in all businesses and is especially present when it comes to dentists. Mixing business and personal expenses is one of the easiest ways to make sure your bookkeeping is inaccurate.
The whole purpose of bookkeeping is to keep records of your business expenditures, So you can use that data to track how well your business is performing. That same data is also used for tax purposes to deduct business expenses and make sure you’re paying the right amount of money in taxes.
Once you start co-mingling funds you automatically corrupt your books, because when you generate financial reports, they won’t be accurate as they will contain transactions that are not business-related. These reports then become useless and cannot be used for tax purposes as they do not show a realistic account of what your net earnings for that fiscal year were. It is very difficult to measure the financial health of your dental practice, you would not be able to see the real financial health of your clinic so you can not make the right decision to grow your business.
To avoid this problem one must set up strict guidelines to not use business accounts for personal use. As a dentist this might be difficult because after all you technically are the business so how harmful can it be to pay for personal expenses using your business cards? Extremely. Especially if you want to pay the right amount of taxes and not have the CRA audit you.
2. Not understanding the difference between cash flow and profit
Most dentists and their in-house bookkeepers do not know how to read and understand financial reports. When the dentist requests the figures for a particular period from the bookkeeper, it is a common and costly mistake for the bookkeeper to provide the dentist with the profit figures. The dentist unknowingly thinks this is the cash available. The problem with this is that the profit amount does not represent the cash available for purchases. As a result, the dentist makes purchases and incurs overdraft fees and extra charges.
Profit is the result of revenue less expenses for a certain period of time. Cash flow is the money moving in and out of the business from the beginning of the month to the end of the month. The profit is computed after completing a profit and loss statement. Cash flow is computed after completing the cash flow equation and factoring in accounts receivable, accounts payable. inventory, other liabilities, and depreciation expenses. Profit and cash flow are the two different things to understand. Companies have high profit that does not mean companies have good cashflow. It is complicated.
3. Not Reconciling Accounts Monthly
Reconciling an account is an important step in the bookkeeping process. Some choose to do it quarterly, some choose to do it even less, but if you want to have accurate books then you need to reconcile accounts every month or if it is possible in every two weeks.
Most dental practices do not follow this norm, it is a common mistake among dental offices as the process can be tedious and for busy firms, they may not have the time or sometimes their part time bookkeeper does not know how to reconcile. This, however, is no excuse because reconciling an account plays a vital role in bookkeeping. To reconcile an account means to match up the transactions in your general ledger to what is stated in your bank statements, credit card statements, and PayPal statement. If there are any discrepancies and you did not reconcile the account could suffer a huge loss.
This process is used in bookkeeping to find transactions that were either not accounted for or transactions that might have been accounted for more than once. Matching the data in your books to what is on your bank statement gives another stamp of approval that the bookkeeping is being done correctly.
4. Not using an industry standard chart of account
The chart of accounts is the backbone of any accounting system, it gives clear cut details of areas to be to be tracked, how money is spent or received, and to prepare the financial reports for the practice. When establishing an accounting system, special accounts should be set up and tracked according to dental industry standards. A common mistake made by dentists is to use a general chart of accounts, or having an inexperienced bookkeeper create an incorrect chart. The result of this costly mistake is that when the financial reports are prepared, they will not provide the dentist with the insight needed to streamline and grow the practice effectively.
5. Not Constantly Monitoring Your Profit & Loss Statement
Another common mistake made in dental bookkeeping is to not monitor the P&L statement. Your Profit & Loss statement is the most important business document when it comes to financial health, just using this document alone one can determine the key factors of a business.
The P&L statement is where all expenses and income are posted. It’s used to determine the net income of a business, it’s also the financial report that is the most common error. If the bookkeeper did not work properly then you can see the impact in profit and loss account, and it reflects the negative impact. If you did not monitor your profit and loss account in a certain time interval you may oversea the mistakes done by the bookkeeper. This review will help dental practice to monitor their operating and fixed costs. Making sure you have an accurate P&L is half the battle of bookkeeping and if someone inexperienced is managing your dental office’s bookkeeping then it’s that much more important to monitor the P&L constantly.
Another reason it’s good to always monitor your P&L is that it will provide you more insight into your business. Once you see all the data on your business in an organized manner you will have a better understanding of which areas you’re doing well and in which areas you need to improve. Considering that your bookkeeping is accurate one can also use the P&L to determine whether someone is committing financial fraud or stealing from your firm.
6. Not Hiring an Expert – Dental Bookkeeper
Bookkeeping is not rocket science, any business owner can manage their own firm’s bookkeeping and do a great job. But it’s not easy. It requires a lot of time and effort and if any business owner does decide to manage his/her bookkeeping then they need to make sure they can invest the time needed to do it properly.
Another thing needed for a business owner to do his own bookkeeping is a sound understanding of accounting principles. With that being said, I see a lot of business owners who neither have the time nor the knowledge to handle bookkeeping however they still try to manage their businesses bookkeeping on their own. Deciding to manage your own bookkeeping without having the knowledge and capacity to is a huge injustice to your businesses not only are your books going to be inaccurate but you’re also going to waste a lot of time, this same time can be used to help your business grow, build relationships with customers, train employees, etc.
If you run a dental practice and find yourself in a situation where you don’t have the time to handle bookkeeping, then you need to hire an expert to manage it for you. A great thing about hiring a professional dental bookkeeper is that you no longer have to worry about mistakes being made in your bookkeeping as a professional will make sure your books are accurate
Furthermore, when you hire a professional dental bookkeeper you can scratch off bookkeeping as a thing you have to worry about, this will free up your time, give you a peace of mind and it will be beneficial while filing the tax return.
We advise, focus on your core business to improve your business cash flow and hire an expert to do your bookkeeping and tax needs.
We offer dental Bookkeeping & Payroll Services in Canada
Apex Accounting is committed to providing efficient bookkeeping services for small businesses. We will maintain your books and provide you with a clear picture of the financial condition of your organization, so you know what to expect. In addition to maintaining accurate and up-to-date financials, we also offer payroll services. If you are looking for a profession dental bookkeeping services feel free to contact us at info@apexaccounting.ca or Call us 647 979 7728. You can also fill out our online contact form to know how we can help you.