Work with a dental CPA so that you don’t get caught in a cash flow pinch.
Over the years, I’ve experienced many instances where dental clients are surprised when they realize they have a lower cash flow, but high taxable income. What most clients don’t understand is that this is usually the result of taking substantial tax write-offs for equipment that are financed over several years.
Large tax write-offs are great, especially when you haven’t yet spent the cash. But it’s important for you to be prepared for the opposite: No tax expense, but cash is still being spent to pay down debt.
On an annual basis, one thing I do with all my dental clients is show cash flow calculations and projected taxable income calculations next to each other in an Excel spreadsheet. This immediately highlights the differences. I also find it valuable to show a 5 to 10 year comparison of depreciation expense to principal payments on debt. These two exercises help my clients understand where their money is going and helps them better strategize their next financial steps.
If you’re looking to maximize your effectiveness in managing these areas, reach out to a CPA who specializes in working with dental practices. They can help you evaluate your cash flow and taxable income and plan for the future. Email the Bright Dental CPAs at Rea & Associates to learn more.
Best practices for formatting financial statements
Did you know that there’s no “right way” to format or present your practice’s financial statement? It’s true, there are several approaches that dentists can take when crafting a financial statement. What’s most important is that the statement is meaningful to you and is easy to understand and analyze.
That’s where many dentists find it helpful (and critical) to have a CPA who specializes in advising dental practices. It can be difficult for some dentists to determine what is most important to them on a financial statement. Oftentimes, dentists tend to have a financial statement that is backward looking. It tells you the history of your practice’s performance. A CPA focused on working with dentists can help you develop a financial statement that creates best practices discussions and enables you to look forward.
Financial Statement Reporting Possibilities
Curious to know what are some commonly used items on dental practice financial statements? Here’s a quick list of some reporting possibilities:
Show only cash collections as revenue or show production with offsets for contract adjustments, write-offs, and changes in accounts receivable. The “offsets” essentially are changing the production accrual basis revenue to cash basis.
List the cost of goods sold, which could include dental supplies, lab expense and hygiene wages.
Show percentage of revenue for each expense.
Include an expected range or benchmark percentage in the expense description.
Group together common expenses, such as staff expenses, facility costs, doctor expenses, etc.
Creating Discussions To Further Develop And Build Your Practice
After you create a financial statement that suits your practice needs, you’ll have a document that can help you identify areas for improvement and areas that are performing well. Your dental CPA can help create discussions addressing these areas. Here are just some of the discussions that could come from formatting your financial statement in a way that works for your practice:
Trend analysis (for example: is your revenue stagnant or decreasing and are your staff expenses increasing?)
Retirement plan strategies
Planning for future significant cash outlays/equipment purchases
Facility lease renewals
Collections on patient receivables
Preparing to sell your practice
If you know that your financial statement could use a tune-up or a second set of eyes, don’t hesitate to contact your financial advisor for advice. Email the Bright Dental CPAs at Rea & Associates to learn more.
Rea & Associates, Inc. | Bright Dental CPAs | 7201 Center St, Mentor, Ohio 44060-4858
Ohio Dental CPA | Consultants | Advisors | CPAs - Rea's Bright Dental CPAs is an accounting firm serving the tax, accounting and practice growth needs of dentists and dental practices across Ohio and the United States. We provide dental tax, dental practice accounting, practice valuations and new dentist consulting. Copyright (c)2014. All rights reserved. Rea & Associates, Inc.