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. Some organizations will publish a certain chart of accounts for dentists to use. These are all good as they will help you compare information with other practices. However, you are allowed to do more or customize for what makes sense for you.
That’s where many dentists find it helpful (and critical) to have a CPA who specializes in advising dental practices. And whether you have owned your dental practice for years or just starting out, 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 expenses and hygiene wages.
- Show the 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 dental 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. The team at PMA Practice Transitions, along with the dental CPAs at Rea & Associates are here to help, contact us today!