To know your financial opportunities is to know where your profits are coming from.

Accounting for dentistry in its most basic form is very simple relative to most other industries. 

There is no inventory to keep track of or complicated revenue recognition procedures. It’s very easy to put accounting systems in place to bring visibility to your cash flows and understand your greatest financial successes and obstacles on an organizational basis. 

The Most Common Mistake

The largest misstep most often occurs when the organization grows with additional practices. It’s important to evolve your accounting structure to ensure that you don’t lose transparency in your financials to be able to identify and take advantage of operational opportunities that can translate to greater financial successes. 

Having the financials in the correct format will help you best structure your incentive and accountability tools to drive profitability.

Often, when dental organizations grow organically, they don’t have large growth ambitions and try to keep things simple. Most commonly, this is in the form of keeping all operations under one legal entity, or employer identification number (EIN), and/or not separating out financial reporting by office, or profit center. 

Why This is an Issue

These elements are very much interrelated. Putting everything together reduces the number of tax returns to be filed, simplifies entering accounting entries, and keeps a vision on the “whole”. However, in trying to keep things simple, it makes it impossible to identify your opportunities, and more importantly, low-hanging fruit. 

When properly structured, your financial reporting will help you succinctly identify these opportunities:

• Which practice is overstaffed relative to production? 
• Who is spending too much on dental supplies? 
• Which practice needs to expand its capacity to keep rent and overhead costs in line? 

This information helps to set expectations of results and measure successes. Without proper segregation of collections and expenses by practice, you will be shooting in the dark. 

Typically, dental groups that move from a single location to 2 or 3 locations try to create workarounds to overcome these challenges. However, this creates a lot of extra work. It becomes a band-aid rather than a scalable solution.

Additionally, your growth will force you to look at other profit centers you may not have considered before: 

• Do you have an internal lab embedded in a practice that creates lab cases for other offices inside or outside your group? 
• Do you have a location with multiple specialties that are largely segregated physically and can be more or less segregated operationally and financially? 
• As you grow, you will have overhead or support costs. How do you account for these expenses and allocate them equitably to the other profit centers in a manner that fairly represents who benefits from them?

Putting This Information to Good Use

How you answer these questions ultimately boils down to how you plan to share the information with key leaders and stakeholders. This information will help incentivize them to drive profitable growth. 

Accurate, organized numbers will also make it easier to hold providers, team members, and leaders accountable to the organizational directives. 

The earlier you start sorting out this information and organizing your financials, the easier it will be. 

It’s impossible to have all the answers on day one. What works for one office won’t work for 5 offices, and what works for 5 offices might not work for 10. 

The key is to communicate clear goals and expectations to all involved in your accounting processes and to make sure your accounting function evolves and grows with the organization.

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