Why Dentists Should Keep Accurate Monthly Financials and Review Them with Their Advisor

Running a successful dental practice involves more than providing excellent patient care. It requires a keen understanding of the financial health of the business, as well as the ability to make informed decisions based on data. One of the most important tools is keeping accurate monthly financials. These numbers are not only a reflection of the practice's current status but also a key indicator of its future success. Here are a few reasons why dentists should prioritize accurate monthly financials and the importance of regularly reviewing them with your trusted advisor.

Business Sustainability and Growth

Dentists may be skilled practitioners, but without proper financial management, even the most talented professionals can struggle to sustain their practice. Accurate financials help identify key trends and patterns in your practice. By reviewing these reports monthly, dentists can spot potential issues early on, such as declining revenues, rising expenses, or cash flow problems.

For example, if a dental practice experiences a decrease in patient visits or collections, the monthly financials will highlight this trend, enabling the dentist to take corrective action. Similarly, if expenses for materials or staff are growing faster than revenues, this might signal inefficiencies or areas where cost-cutting measures are needed.

Regular financial reviews also allow dentists to plan for future growth. Accurate financial data helps assess whether the practice is in a position to expand, invest in new technology, hire additional staff, or purchase new equipment. It enables better decision-making about scaling the business while maintaining financial stability.

Cash Flow Management

Cash flow is the lifeblood of any business, and a dental practice is no exception. It’s easy for dentists to focus on gross revenue, but without positive cash flow, the practice can run into serious trouble. Accurate monthly financials give a clear picture of the cash flow, allowing dentists to track income and expenditures on a monthly basis.

By working with a financial advisor, dentists can gain insights into managing their cash flow more effectively. For instance, an advisor can help identify when it’s appropriate to use lines of credit or other financing tools to smooth over cash flow fluctuations, ensuring that the practice can cover operating expenses without incurring debt.

Improves Tax Planning and Saves Money

Keeping accurate monthly financials is not only critical for day-to-day management but also plays a significant role in tax planning. Many dental practices have complex tax situations.

By reviewing financials regularly with your KP Advisor, dentists can stay on top of their tax obligations and avoid any last-minute surprises at tax time. Regularly updating and reviewing financials helps ensure that the practice takes advantage of all eligible deductions and credits, which could result in significant tax savings.

Moreover, tax planning becomes much easier when financial records are accurate and up-to-date. An advisor can use this data to forecast tax liabilities, make recommendations for tax-advantaged strategies, and avoid unnecessary penalties or fines for underreporting income or misclassifying expenses.

Enables Strategic Decision-Making 

Dentists often need to make decisions that can affect the long-term direction of their practice. Whether it’s deciding whether to expand the office, hire new staff, purchase expensive dental equipment, or increase marketing efforts, these decisions must be backed by solid financial data.

By maintaining accurate monthly financials, dentists can make strategic, data-driven decisions rather than relying on gut feelings or incomplete information. A financial advisor can help interpret the numbers and provide valuable advice, helping dentists evaluate their options and weigh the risks and rewards of each decision.

Improves Profitability and Cost Control 

Profitability isn’t just about increasing revenue; it’s also about controlling costs. Regularly reviewing financials helps dentists identify inefficiencies or areas where costs could be reduced. For instance, monthly financials may show that the practice is spending more than expected on certain supplies or vendor services, or that certain staff members’ hours are exceeding the budget.

With the help of a financial advisor, dentists can uncover areas where waste can be minimized or where a more efficient process can be implemented. This might include negotiating better terms with suppliers, improving patient scheduling to reduce downtime, or even automating certain administrative functions to save time and money.

The ultimate goal is to increase the practice's profitability without compromising the quality of care or the patient experience. By regularly monitoring expenses and revenues, dentists can make adjustments as needed to ensure they are running a lean, efficient, and profitable practice. 

Informs Retirement and Succession Planning 

A dental practice is often the dentist's largest asset, and its value can significantly affect retirement and succession planning. Accurate financials provide a comprehensive picture of the practice's value and its potential for future growth, both of which are essential factors when planning for retirement or selling the practice.

Working with a financial advisor to review monthly financials can help dentists prepare for their eventual exit strategy. For example, if the goal is to sell the practice, the advisor can help assess its current market value, identify opportunities to increase that value, and structure a transition plan that maximizes the sale price and minimizes taxes.

Moreover, financial reviews can help dentists set up a retirement plan that leverages the profitability of their practice, allowing them to contribute to tax-deferred retirement accounts and set aside funds for their future.

Improves Relationship with Financial Advisor

Regularly reviewing monthly financials with an advisor fosters a deeper, more proactive relationship. Rather than just reacting to financial crises or tax deadlines, the dentist and the advisor can engage in ongoing discussions about the practice’s health, growth strategies, and long-term goals.

A monthly review allows the advisor to gain a better understanding of the practice’s financial nuances, which leads to more tailored advice and more timely interventions. This ongoing dialogue also ensures that the dentist is making informed decisions and staying on track with their financial goals.

Conclusion

In today’s competitive healthcare environment, running a successful dental practice requires not just clinical expertise but also strong financial management. Keeping accurate monthly financials and reviewing them regularly with a trusted advisor is a cornerstone of that management. It provides dentists with the insight they need to make informed decisions, control costs, improve profitability, and plan for the future. By prioritizing financial transparency and working closely with an advisor, dentists can ensure their practice remains financially healthy and poised for long-term success.