Compared to the average business, dental practices have more intricate financing requirements. They have to keep track of numerous collections from various sources (i.e., patient payments and insurance reimbursements), dental and lab expenses, practice collections, payroll and office equipment, accounts receivable, and ordinary business expenses. Dental bookkeeping encompasses all the aforementioned financial activities of a practice in addition to the collection and reconciliation of practice expenses. The process also includes variations in patient insurance and the tracking of practice collections.
What Is Dental Bookkeeping?
Dental bookkeeping keeps the financial records of a dental office accurate and up to date. A dental bookkeeper may:
- Record and categorize financial transactions
- Track patient and insurance income
- Monitor dental expenses
- Reconcile bank and credit card accounts
- Track insurance payments and adjustments
- Monitor accounts receivable
- Maintain financial statements
- Prepare records for tax professionals
What’s the Difference Between General Bookkeeping and Dental Bookkeeping?
It can be tricky to separate revenue and receivables in dental bookkeeping. Bookkeeping should include not only routine practice revenue but also numerous types of revenue (collection of patient balances and insurance receivables, for instance) and expenses (production, for instance) associated with the provision of dental services. Additionally, dental bookkeeping may require tracking the salary for the dentist and staff, dental supplies and lab expenses, equipment and other assets, and business and service activities relevant to the practice.
The Importance of Precise Dental Bookkeeping
Dentists who keep accurate books are better able to make sound financial judgments. It can assist a practice:
- Enhance cash flow visibility
- Improve cash-flow visibility
- Monitor profitability
- Reduce financial errors
- Prepare for tax reporting
- Identify unnecessary expenses
- Manage accounts receivable
- Support expansion and hiring decisions
- Improve practice valuation
Effective dental financial management underpins strategic business decisions about earnings, revenue, and practice efficiency. Analysis and management of cost, staffing, and practice expansion are included.
What Should Dental Practices Track in Their Books?
Dental Practice Revenue
Revenue records may include:
- Patient payments
- Insurance reimbursements
- Other income
- Relevant treatment categories
- Adjustments
Separating these categories makes it easier to understand where practice revenue comes from.
Dental Practice Expenses
Common expenses include:
- Dental supplies
- Lab fees
- Payroll
- Rent and utilities
- Equipment
- Equipment maintenance
- Marketing
- Insurance
- Professional fees
- Continuing education
- Software
Using correct categorization helps make useful dental practice financial reports.
What Dental Practices Need to Know About Production vs. Collections
Production and collections are not the same. Dental production represents the value of services performed. Collections show the money the practice has actually collected. A practice might provide $100,000 in services in a month. There are a number of reasons that may have caused the practice to collect less in that month. The insurance companies may not have processed the claims and made reimbursement, the patient may not have paid, or there may be contractual modifications
Additionally, the final collection may be affected by the terms of the insurance company and how the adjustments are made. Collection adjustments occur long after the service was provided. Analyzing both production and collections helps practice owners understand the gap between services rendered and collection
10 Best Practices in Dental Bookkeeping
By knowing and using the best practices in dental bookkeeping, you can ensure that you have an accurate and complete financial report.
- Keep company and personal funds separate. Transaction practice should be treated differently from personal spending.
- Utilize a dental-specific chart of accounts. Arrange income and expenses as practice requires.
- Track production and collections separately. This gives a better picture of revenue performance.
- Keep track of financial reconciliations. Reconcile bank, credit card, and merchant accounts.
- Follow up on insurance payments/adjustments. Properly record reimbursement and contractual modifications.
- Monitor AR aging. Review outstanding patient and insurance balances.
- Categorize dental expenses properly. Differentiate between clinical, administrative, and other costs.
- Properly track equipment and capital purchases. Don’t automatically consider equipment a typical expense.
- Review the financial reports monthly. See changes in income and expenses with reports.
- Keep up with your bookkeeping. Update your records now, not during tax season.
How to Set Up a Dental Practice Chart of Accounts
Your dental practice chart of accounts should mirror how you make and spend money in your practice.
A dental practice chart of accounts should reflect the way the practice earns and spends money.
Income Accounts
- Patient collections
- Insurance collections
- Other revenue
- Adjustments
Direct Dental Costs
- Lab fees
- Dental supplies
- Implant and prosthetic costs
Payroll
- Dentist compensation
- Hygienist payroll
- Dental assistant payroll
- Administrative payroll
Operating Expenses
- Rent
- Utilities
- Marketing
- Insurance
- Software
- Professional fees
- Continuing education
Equipment and Fixed Assets
Equipment should be tracked separately from regular operational expenses so as to make the financial reports show a clearer picture of the cost of operations and of long-term assets.
How Dental Practices Can Improve Receivables and Cash Flow
Managing Cash Flow in a Dental Practice Managing receivables in a dental practice is more complicated than in other types of practices because dental practices have receivables from both patients and insurance companies. Analyzing accounts receivable aging helps identify past due receivables from both patients and insurance. It also helps in anticipating cash inflows from collections.
Cash inflows are often anticipated in a dental practice because a dental practice earns the income before collecting it, i.e., from patient collections and/or insurance reimbursements. That is why it is important to manage cash inflows and outflows of a dental practice
Dental Bookkeeping KPIs and Financial Metrics to Track
Useful dental practice KPIs include:
| KPI | What It Tells You |
| Gross production | Value of services performed |
| Adjusted production | Production after adjustments |
| Collections | Cash actually received |
| Collection rate | Effectiveness of collections |
| AR aging | Outstanding receivables |
| Overhead % | Operating cost efficiency |
| Payroll % | Labor cost efficiency |
| Hygiene production | Hygiene department performance |
| Production per provider | Provider productivity |
| Net profit margin | Overall profitability |
Tracking these variables helps tie bookkeeping to the bigger picture of dental practice accounting and financial management.
Avoiding Common Mistakes in Dental Bookkeeping
Common dental bookkeeping mistakes include:
- Mixing personal and business expenses
- Treating production as collections
- Ignoring insurance adjustments
- Not reviewing AR aging
- Misclassifying equipment purchases
- Using generic expense categories
- Delaying bank reconciliation
- Ignoring monthly financial reports
- Treating profit as available cash
- Tax season delay in book cleaning
By avoiding these pitfalls, the reliability of financial reporting can be enhanced throughout the year.
Top Accounting Software & Tools for Dental Practices
The choice of the best accounting software for a dental practice depends on the dental practice’s needs and how it integrates with other software used by the practice. As such, QuickBooks Online and Xero are ideal because of their broad practice management features. Other dental practice management systems also integrate other software to automate practice workflows. Consequently, a dental practice can use a variety of bookkeeping and accounting software to effectively manage its bookkeeping tasks.
Monthly Dental Practice Bookkeeping Task Checklist
Weekly
- Review bank transactions
- Monitor AR
- Review insurance claims and payments
- Check unusual expenses
Monthly
- Reconcile bank and credit card accounts
- Reconcile merchant deposits
- Record insurance adjustments
- Review the P&L and balance sheet
- Review AR aging
- Compare production and collections
- Review overhead
- Close the books
Quarterly
- Review financial trends
- Review tax estimates with the CPA
- Review equipment purchases
- Analyze KPIs
- Update the budget or forecast
Dental Bookkeeping for Different Types of Practices
Dental bookkeeping services can be structured around different practice models, including
- Solo dental practices
- Multi-dentist practices
- Dental startups
- Multi-location practices
- Specialty practices
Orthodontists, oral surgeons, pediatric dentists, endodontists, and periodontists are all examples of specialty practices. Each practice has its own ways of making money, spending funds, paying employees, and filing paperwork.
When Is It Time to Outsource Dental Bookkeeping?
A practice may consider outsourcing bookkeeping when it is consistently behind on bookkeeping.
- Books are consistently behind
- The dentist spends several hours each week on bookkeeping
- Financial reports are unreliable
- AR is not being monitored
- Insurance adjustments are not reconciled
- Tax preparation requires significant cleanup
- The practice is adding providers
- Another location is being opened
- The owner lacks clear monthly financial information
Outsourcing can enable a dental business to get regular bookkeeping without the practice owner needing to oversee every financial operation in-house.
How to Choose a Dental Bookkeeping Service?
When comparing a dental bookkeeping company, consider:
- Dental industry experience
- Practice management integrations
- Financial reporting capabilities
- Insurance adjustment processes
- Reconciliation procedures
- Data security practices
- Pricing and scope
- Support and communication
Ask if the provider knows the financial workflows unique to dentistry practices and isn’t just providing general bookkeeping.
How Much Do Dental Bookkeeping Services Cost?
The cost of dental bookkeeping services for dentists can depend on:
- Monthly transaction volume
- Number of providers
- Number of locations
- Payroll complexity
- Practice-management integrations
- AR requirements
- Reporting requirements
- Bookkeeping cleanup needs
- Reporting frequency
There is no single price that fits every practice. A provider should define the scope and pricing based on the practice’s actual requirements.
How Velan Bookkeeping Helps Dental Practices?
Velan Bookkeeping can provide outsourced dental office bookkeeping support focused on the practice’s ongoing financial needs. Services can include:
- Monthly dental bookkeeping
- Bank and credit card reconciliation
- Accounts receivable support
- Financial reporting
- Expense categorization
- Tax-ready bookkeeping
- Outsourced bookkeeping support
Record keeping and scheduled reporting provide dental clinics with more flexibility to use financial information rather than spend most of their time managing finances day by day.
FAQs
How to do bookkeeping in a dental office.
Begin by segregating business and personal finances, establish a dental-specific chart of accounts, record patient/insurance income, categorize spending, reconcile accounts, and monitor accounts receivable (AR) regularly and examine financial statements weekly.
How do you track the money in and out of the dental practice?
Separate patient collections, insurance reimbursements, adjustments, and other income. Link expenses can be grouped into common types, such as lab costs and supplies. Rent Payroll Software Equipment Professional Fees
Why is it important to track production and collections separately?
Sales reflect the value of services rendered . Collections show cash actually collected . The comparison of both helps to determine the date of reimbursement, balances to patients, and insurance changes.
What should be included in a dental practice chart of accounts?
It may include patient, insurance, adjustment, lab, supply, payroll, rent, utilities, marketing, insurance, software, professional, and equipment collections.
What are important dental practice financial reports?
Common reports include the profit and loss statement, balance sheet, AR aging report, and reports comparing production with collections. These provide different views of financial performance.
What does dental practice overhead percentage show?
Overhead percentage represents the proportion of revenue that dental practices use to cover operating expenses. Monitoring it over time can reveal fluctuations in spending levels.
When should dental practices consider outsourcing bookkeeping?
Maybe it is working on bookkeeping not being up to date, AR not being checked often enough, unreliable financial reports because you never have time to reconcile the ledger, practice growing too fast, or the owner doing too much work for bookkeeping
What to consider before hiring a dental bookkeeping company?
Look into its experience in the dental industry, how it reports data, whether it is reconciliation-ready (deny and post), how it handles insurance adjustments, integrations with your practice management software, and security practices/certifications.
Our Dental Bookkeeping Experts are here to help.
