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Surprised By Low Cash Flow And High Taxable Income?

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.

Make Your Financial Statement Work For You

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?)
  • Employee benefits
  • Retirement plan strategies
  • Insurance coverages
  • Planning for future significant cash outlays/equipment purchases
  • Facility lease renewals
  • Collections on patient receivables
  • Marketing initiatives
  • 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.

To Outsource Or Not To Outsource

Outsourced Accounting Dentists - Dental CPA

Heather McNichols, Rea’s director of accounting services, joins Mark Van Benschoten, CPA, CGMA on an episode of unsuitable on Rea Radio to talk about outsourced accounting. Listen to the podcast now.

Your dental practice exists to provide a specific service – to make people feel more confident about their smiles. And your patients expect you to be able to deliver. But, in addition to practicing dentistry, you are expected to be a business owner who sends your small business’s invoices out on time, pays your vendors, meets IRS filing requirements successfully tackles range of other duties you never knew you were expected to know are completed on time and on budget.

But before you throw your hands up and declare the task to be impossible, take a minute to learn how you can make the impossible possible with a little outsourcing magic.

When it comes to outsourcing, particularly outsourced accounting, your service options are virtually endless. You could be looking for a team to take on your entire bookkeeping, payroll or receivables responsibilities on a semi-permanent basis or you could break down a project and have only a few parts of it temporarily outsourced – it’s really up to you.

For example, if you are a new dentist who is just beginning a career in dentistry outsourcing can be incredibly helpful. Why? Because at this stage, you are likely focusing on purchasing equipment, hiring a team of assistants, and marketing your new practice. That means there’s not a whole lot left in the budget to hire an accountant; and even if you could afford it, you probably couldn’t guarantee more than a few hours of work each week. In this scenario, outsourcing your accounting tasks is an ideal solution. Read on for six more reasons why you might want to consider outsourcing for your dental practice.

6 Reasons Dentists Choose To Outsource Accounting Work

  • Temporary Absence: A member of your accounting team has to take a temporary leave of absence; outsourcing can help you fill the gap on a temporary basis.
  • Fraud Protection: Your team can handle your dental practice’s invoicing, but for internal control purposes outsourcing your accounts payable responsibilities may provide an added layer of protection.
  • Ensure Confidentiality: Payroll can be a touchy subject, which is why it may be best for all parties to have your payroll managed outside the practice.
  • Eliminate Turnover: Hiring a person requires an investment of time and money. So when they move on after having only worked for you a few months, the thought of doing it all again can be discouraging. You won’t have this problem when you outsource. In fact, you will gain the certainty of knowing that the work will always be done and that the person preparing it is a highly trained professional in the field.
  • Avoid Software Costs: Outsourcing your accounting services also allows you to avoid the costs associated with purchasing and upgrading computer software such as QuickBooks, Peachtree and the Sage products. That’s more savings that can be invested elsewhere in your office.
  • Guaranteed Compliance: Government regulations change frequently, especially in the payroll sphere; and having outdated information can be costly. Outsourcing gives you access to people who make it their business to know if and when changes occur.

The staffing challenge your dental practice is facing is unique. But customizable solutions are available regardless of whether you are a new dentist or a seasoned dental professional. Email the Bright Dental CPAs at Rea & Associates to find out how outsourcing can help your practice thrive.

By Heather McNichols (New Philadelphia office)

Unsuitable IconWant to learn more about outsourced accounting services? Check out EPISODE 16 of the podcast UNSUITABLE on Rea Radio. On this quick 19-minute episode, OUTSOURCING: QUITE POSSIBLY YOUR MOST POWERFUL RESOURCE, Heather discusses some of the common misconceptions business owners have about outsourcing, among other topics.

Are You Paying Attention To Your Dental Practice’s Cash Flow?

Dental Cash Flow - Dental CPAs

Understanding your dental practice’s cash flow can be the missing clue needed for a prosperous 2016.

For a stronger dental practice you need to make sure you are looking at the past, present and future. Having a 13-week rolling cash flow budget gives you a comprehensive analysis of your practice’s overall financial well-being.

An effective cash flow is rooted in your practice’s historical trends and considers current initiatives and any internal and external factors that may impact the financial security of your business – including past, present and future billing and payment patterns. In order to dig a little further to gain a little more insight into your company, I recommend:

  • Analyzing your accounts receivable to determine ways to quickly turn them in to cash.
  • Reviewing your current inventory levels to determine what is old or obsolete and what can be used to generate more revenue.
  • Going over your accounts payable to optimize your own financial obligations.
  • Looking at your non-core assets to determine how much money is being spent and whether or not a more lucrative avenue is available.

You can’t set it and forget it though. Make sure you are updating your cash flow regularly. A cash flow dashboard involves extra work in the beginning, but you’ll thank yourself later. If done correctly, you will have the ability to accurately estimate your business’s variable costs and expected sales at a moment’s notice – and that is a very powerful tool to have.

To learn more, contact the bright team at Bright Dental CPAs or listen to my podcast about why $1 million doesn’t matter.

Don’t Let Obamacare Take Down Your Dental Practice

Obamacare - Ohio CPA Firm

Learn more about ways to avoid Affordable Care Act penalties by listening to our podcast, “Unsuitable on Rea Radio.” Episode 5, “Don’t Get Burned By Obamacare.”

For business owners, keeping up with Affordable Care Act (ACA) regulations has been about as much fun as receiving a root canal – and it’s not likely to get more pleasant any

time soon. However, after a close examination, you may be able to uncover areas of opportunity. (Or at least options that will help you avoid paying steep penalties. Here are three tips all dental professionals should know.

  1. Large dental practices (those with 50 or more full-time employees) have to worry about large employer reporting and potential pay or play penalties (which could add up to roughly $2,000 per employee annually).
  2. All employers need to avoid excise taxes for discrimination and violating the ACA’s “all or nothing” mandate. WARNING: These are business busters that could cost you $100 per employee, per day for noncompliance. This means that you could owe the government as much as $36,500 per employee, per year! Excise taxes can be triggered by continuing to do things you’ve always done, such as offering reimbursement arrangements to your employees.
  3. Dental practices also have the opportunity to review their insurance options and compensation structure. SHOP, drop, roll (“traditional” insurance), self-insure, private exchange and models like reference-based pricing are all options to explore. In some cases, dropping insurance can actually result in less expenses and improved benefits for the employers and employees alike.

Don’t wait any longer. Work with an ACA expert who can help you determine the best option for your practice while helping you identify areas of opportunity and risk. For more Obamacare insight, listen to Episode 5: Don’t Get Burned By Obamacare on Unsuitable on Rea Radio – a podcast for entrepreneurs who are ready to trade in the business suit culture for measurable results.

Want to talk to an ACA expert before the penalties start piling up? Email a Bright Dental CPA today.

By: Joseph Popp, JD, LLM (Columbus office)

This article was published in the November 2015 issue of Columbus Business First – Ask The Expert.

Want to read more topics related to health care and your dental practice? Check these out:

How To Get a Tax Credit for Health Insurance Costs

Are Your Employees Aware of the Benefits?

10 Year-End Tax Planning Strategies for Dentists

Rea & Associates, Inc. | Bright Dental CPAs | 7201 Center St, Mentor, Ohio 44060-4858
phone + 440-266-0077