Revenue Growth Does Not Equal Practice Growth

Dental Practice Growth - Dental CPA

Instead of looking for more patients to cover the difference, give yourself permission to starting thinking about your practice from a much smaller scale. Get rid of the extra baggage that’s holding you down. Revenue doesn’t mean a whole lot unless you have the cash to back it up. To that point, it may be time to stop accepting patients who aren’t prompt when it’s time to pay their bills. Instead, be more selective when choosing which patients you will see.

We know a lot of dental professionals who like to spend their free time enjoying the outdoors when they are not seeing patients, which is why it may be helpful to bring some of the lessons you learn on the trail into the office. Take the growth of your dental practice, for example. It’s easy to get trapped into believing that you have to take on more patients to be more successful. But, if you’re not careful, more patients can actually hinder your growth in the long run.

Stay Out Of The Rocks

Have you ever been white water rafting? When the water is high, you glide effortlessly through the river, expertly navigating the bends and slicing through the current – it’s exhilarating. Flash forward a few months later, after the water level has dropped, and it’s a completely different story. Where it was once smooth sailing, you are now confronted with a scattering of rocks, boulders, logs and branches. Your ability to progress through the course takes a hit.

Your revenue is like the water level in this example. When it’s high, it hides a lot; but when it’s low, problems begin to reveal themselves. Unfortunately, some dental professionals believe that the best way to fix their problems is to add more revenue. What they don’t realize is that this tactic is simply masking the real problem.

If you want really want a financially healthy practice, you can’t rely on revenue growth to solve your problems.

Healthy dental practices are ones that are able to generate healthy cash flow. One way to do this is to tighten up your billing strategy. Oftentimes, business owners will only focus on their monthly revenue and forget to consider how long it actually takes for the money to roll in. Even though your practice’s revenue looks great for the month of July, it could be September (or later) before you actually get paid. In the meantime, you are stuck playing the waiting game.

Instead of looking for more patients to cover the difference, give yourself permission to starting thinking about your practice from a much smaller scale. Get rid of the extra baggage that’s holding you down. Revenue doesn’t mean a whole lot unless you have the cash to back it up. To that point, it may be time to stop accepting patients who aren’t prompt when it’s time to pay their bills. Instead, be more selective when choosing which patients you will see.

What’s Holding You Back?

It can be a lot of work to identify what’s holding you back and sometimes you need to look at your practice from a different perspective, some dental professionals find great success simply asking for help from an outsider. There is no one-size-fits all solution. The best way to take control of your business is to work with a trusted advisor.

A great place to start is by listening to Episode 10: The Revenue Sin from Unsuitable on Rea Radio to learn more about business health and what you can do to strengthen your cash flow. When you are done, you are welcome to click here for additional resources.

Do you have a question you would like us to address on Unsuitable? Send it to podcast@reacpa.com and let us know what issues are challenging your business. We could feature your question on an upcoming episode of Unsuitable or in a blog post.

You can also email your Bright Dental CPA for assistance or to learn more about how you can increase your dental practice revenue.

By Brad Martyn, Founder & CEO, FocusCFO

Looking for more ways to improve your business? Check out these articles:

Put Together An Amazing Dental Advisory Team

What To Expect From Your Career In Dentistry

Buying An Established Dental Practice? Master The Changeover

Unlock Your Dental Practice’s Potential With QuickBooks

QuickBooks For Dentists - Dental CPA

Are you using QuickBooks at your dental office? Learn more about the tools available to you.

You’ve worked hard to become the owner and manager of your own dental practice, and even though you couldn’t be happier to get to this point in your career, you are quickly realizing that some aspects just aren’t as fun and exciting as others. Take bookkeeping, for example. To you, it’s a necessary evil. You understand that it’s an essential component to running a successful business, but in reality, you’d rather be … pulling teeth.

Bookkeeping doesn’t have to be painful – QuickBooks has been helping dental practice owners, like yourself, make sense of their finances easily and efficiently, which gives you more time to fix smiles and grow your practice. Keep reading to learn about the many ways QuickBooks can help you.

Get Control Of Your Cash Flow

  • Manage Bills and Accounts Payable – When you use the “enter bills” and “pay bills” functions in QuickBooks, you have the tools you need to keep your vendors paid on time and happy. Paying your bills directly through QuickBooks via the online bill pay option or by printing checks helps to reduce unnecessary data entry and increase productivity.
  • Reconcile Accounts – Using QuickBooks to reconcile your bank accounts, credit cards, loans, lines of credit and payroll liabilities on a consistent basis will empower you with the knowledge of exactly how much cash you have on hand.
  • Customized Chart of Accounts – Your practice’s chart of accounts is all about your specific needs. Therefore, you should take a little time to customize it. And remember to resist the urge to make it overly complicated. This chart should provide you with the information you consider to be the most valuable to you can make educated decisions based on the actual financial health of your practice. You can create customized industry benchmarking charts to see how you compare to other dental offices.
  • Class Tracking – Classes are a way to track your data in a way that is meaningful. You, for example, might find value using location as a basis for tracking data; other dentists may choose to focus on departments or vendors. Your QuickBooks preferences are personal and unique to you so make sure you set them up in ways that make sense to you and your managing style. And following benchmarking
  • Owner-Memorized Reports – Develop a custom set of reports you find particularly useful to run your practice. You can create a list called “owner reports” and memorize important reports to that list to make them easily accessible.

Master The Skill Of Financial Reporting

Oftentimes dentists consider QuickBooks to be a one-stop-shop and the software’s ability to generate accurate financial reports quickly helps facilitate that view. When you fail to run and analyze your financial reports along with your production reports, you simply are not getting the best use of everything QuickBooks has to offer for your dental office. Simply put, if used correctly, QuickBooks can be the tool that helps you make key business decisions quickly and efficiently.

Want to find out more about QuickBooks and ways in which it can help you and your bustling practice? Email the Bright Dental CPAs at Rea & Associates to learn more.

By Chris Roush, CPA (Millersburg office)

Read the articles below for more tips on how grow your dental practice.

Put Together An Amazing Dental Advisory Team

Dentistry: It’s No All White Coats and Drills

The Business Side of Dentistry: Tips and tools for Dentists

What’s The Difference Between Cash and Profit?

A dental practice’s financial statements have a bunch of different items listed. Most dental practices use the cash basis method on their financial statements. Basically, this means that income is recorded when the cash is collected as opposed to when the work is performed. So why at the end of the year does your remaining cash balance never equal your dental practice’s profit? There are a couple of main reasons and here they are:

  1. Depreciation. If you buy a piece of dental equipment and get a loan to pay for it, you may take an accelerated depreciation method to expense it all in year one of the purchase. So, your cash outflow is only the monthly loan payment, whereas your dental practice expense is the entire cost of the equipment. This isn’t quite as good as it sounds though, as in year two the opposite will occur. You will have to make the monthly loan payment, and won’t be able to take an expense for it (other than the interest on the loan), since you already depreciated the asset in year one.
  2. Loans / Debt. If you’re collecting on a loan receivable, you will have cash coming into the dental practice, but only the interest income affects your profit. The principal payments received don’t get recorded as taxable income on your income statement. Conversely, if you have a loan payable or debt, the interest expense is the only part of the payment that affects your profit.  Therefore, you will have a cash/profit difference at the end of the year.
  3. Tax Adjustments. Some of your cash outflows are not deductible. For instance, only half of your meals and entertainment are a tax deduction. Also, club dues, penalties, and federal taxes are not deductible. So if you are paying these from your dental practice, you have a cash outflow, but not an expense, thus creating a cash and profit differential.
  4. Distributions. If your practice is an S-corporation or a sole proprietorship, you may take a draw or a distribution when you have cash available. If you do this, you are taking cash out of the practice, but this is not an expense on the corporation’s books. Similarly, you do not include this as part of your income on your individual tax return.

Dental Cash and Profit Help

There are other reasons why cash and profit could differ for a cash basis taxpayer, but these are some of the common points. If you need any other help understanding your financial statements, contact our team of Bright Dental CPAs today.

Author: Dan Bialek, CPA (Mentor office)

Where Is Your Dental Practice’s Cash?

You’re busy. Your employees are busy. And you know that you have been collecting your dental practice’s accounts receivables on a timely basis, but something isn’t right. Your bank account doesn’t reflect all of the work that you and your employees put into your practice. Maybe it’s time to review a cash flow statement with your financial advisor.

What is a Cash Flow Statement? 

A cash flow statement is a report that shows the cash your dental practice generated and used during a specific time. It reflects how changes in balance sheet accounts and income affect cash, and since cash inflows and outflows are the heartbeat of your practice – it’s critical to review.

The DNA of a Cash Flow Statement

A cash flow statement is divided into parts:

  1. Operating activities. These activities include the money received as a part of everyday operations, such as the money you collect from patients, any interest you receive on loans or bank accounts. These collections are netted against the payments you make to your employees, payments for supplies, office expenses and other general business expenses needed for your day-to-day operations. The net result is either a net cash increase or decrease from operating activities.
  2. Investing activities. These activities are considered the purchase and or sale of your assets, including the purchase of new equipment and leasehold improvements on your building.
  3. Financing activities.  These activities include the cash received on a loan and the repayment of principal on loans.  It also includes the cash that was paid to you, the owner, as a dividend, distribution or withdrawal depending on your type of entity.

The cash flow statement doesn’t tell you the profit earned for the period since it does not include non-cash items such as depreciation. The cash flow statement will tell you exactly how much actual money your dental practice has generated and in which areas it was spent.

Dental Practice Cash Flow Help

By reviewing the statement with your financial advisor you will be able to manage the inflows and outflows of cash and know why your bank account is growing or shrinking. Contact our team of Bright Dental CPAs today to determine if your dental practice has a cash flow problem. We can help you evaluate it and get you pointed in the right direction.

Author: Dan Bialek, CPA (Mentor office)