What should a dental practice owner review in their books every month?

Start with books that are actually closed. If transactions are still uncategorized or the bank and credit card accounts aren’t reconciled, you’re reviewing estimates. The month should be closed within two or three weeks of month end. After that, the numbers arrive too late to change anything.

Begin with the profit and loss statement. Compare it to the prior month and to the same month last year. The prior month shows recent movement. The same month last year matters more in dentistry because the schedule follows insurance benefits. January is often slow because deductibles reset, and November and December fill up with patients using what’s left of their benefits. A soft January isn’t a problem if last January looked the same.

Next, check collections against production. Divide collections by net production, which is production after PPO write-offs and other adjustments. Well-run practices usually collect 98% or more of net production. If you divide by gross production, a PPO-heavy practice will look like it’s failing, and the number won’t tell you anything useful. Also confirm that the collections reported in your practice management software actually reached the bank. Payments that were posted but never deposited, or deposits that were never posted, won’t show up anywhere else. We run this check as part of our monthly bookkeeping for practices that bill insurance.

Then look at overhead by category as a percentage of collections. Use staff wages and benefits, dental supplies, lab fees, rent, and marketing. Commonly cited ranges put staff costs around 25 to 30% of collections and dental supplies around 5 to 6%. Lab fees usually run 6 to 10%, depending on how much crown, bridge, and implant work you do. Keep supplies and lab fees on separate expense lines. Supply costs follow overall patient volume. Lab fees follow restorative production. If the two are combined, a busy crown month can hide supply spending that has been creeping up for a year, and you lose the ability to compare either one to a benchmark.

Review accounts receivable aging split between insurance and patient balances. Insurance balances older than 60 days usually mean claims were denied, never sent, or are waiting on attachments. Growing patient balances usually mean estimated patient portions aren’t being collected at checkout. These are different problems, and different people on your team fix them, so a single combined AR number isn’t very useful.

If associates are paid on a percentage of production or collections, reconcile their pay to the production reports from Dentrix, Eaglesoft, Open Dental, or whatever system you use. Confirm that any adjustments in the compensation agreement, such as lab fee deductions or redo work, were applied the way the agreement says. Overpaying an associate costs you money. Underpaying one costs you trust.

Finish with cash. Compare your bank balance to what’s due over the next 60 to 90 days. That includes payroll, equipment and practice acquisition loan payments, and quarterly estimated taxes. A profitable practice can still run short on cash, because loan principal doesn’t appear on the profit and loss statement, and estimated tax payments for a high-earning owner are large.

All of this should fit on a one-page summary you can review in half an hour. Our healthcare bookkeeping services for dental practices are set up to deliver that summary every month so you can spend the half hour on decisions, not on assembling reports. You can learn more about our healthcare bookkeeping services on our home page.