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The Business of Dentistry: Financial Management for the Dental Office

Natalie Kaweckyj, LDARF, CDA, CDPMA, COMSA, COA, MADAA, BA; Wendy Frye, CDA, RDA, MADAA; Lynda Hilling, CDA, MADAA; Lisa Lovering, CDA, CDPMA, MADAA; Linette Schmitt, CDA, RDA, MADAA; Wilhemina Leeuw, MS, CDA

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An accounts payable system manages all monies owed by the practice.  Expenditures and payments are the cost of doing business in dentistry.  There are several types of expenses in a dental practice impacting the profits of the practice differently.

Overhead expenses are the expenses required to run a dental practice.  There is fixed overhead and variable overhead.  Treatment fee schedules must reflect these expenses, as well as reasonable revenue for the dentist.  Fixed overhead includes the expenses that are continuous such as rent or mortgage, malpractice insurance, utilities and salaries.  These expenses are incurred whether or not the dentist is in the office and whether or not professional services are being provided.  Not all salaries are part of the fixed overhead.  Employees who work as independent contractors, on commission or on a part-time hourly as needed basis, are not part of this type of overhead.  Variable overhead are those expenses that change depending on the type of services acquired and can vary from month to month depending on the practice needs.  Examples include independent contractor fees, laboratory fees, business and dental supplies and equipment repair fees.

The total accounts receivable is calculated as the total gross income.  When the accounts payable is subtracted from the gross income, the net income is identified and this is the true profit of the dental practice.  Unless the dentist produces a sufficient income, he or she will not be able to afford to stay in practice.  It is unwise to operate a business in a non-profitable manner for long.  At times, expenses need to be examined and evaluated.  Expenses may need to be cut without affecting patient services.  Dental supplies continue to be one of the largest expenses within a dental practice, along with salaries.  When budgets are tight, a practice may cut back on dental supplies purchased, increase number of patient care hours in attempt to generate more profit, or cut back on staff hours.  A dentist may choose to make do without assisted hygiene, in which a dental hygienist has a dental assistant assisting in patient care, or the dentist may chose to work with only one clinical assistant rather than two.  When expenses are not evaluated or cut back, the bottom line is affected for the entire dental team.

A certified public accountant (CPA) is often on retainer for many dental practices.  It is the responsibility of this accountant to handle the major financial records of the practice such as the annual profit and loss statements, tax returns and other government reports.  The accountant may also recommend areas in which the practice can cut back on expenses.  The reports that the account handles for the dental practice are based on information provided by the dental practice through daily, monthly, quarterly and yearly activities.  The practice administrator or a designated member of the administrative team will work closely with the accountant throughout the year.  Information must be accurate, current and complete.  Timeliness of specific reports is also a must.

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