Accounting for a Dental Practice: What to Track and Why

How a dental practice earns and spends

Revenue comes from patient payments and insurance reimbursements, while the largest costs are staff, supplies, lab fees, rent and equipment.

Collections matter more than production. A practice can bill $100,000 in a month and collect much less after insurance adjustments, write-offs and slow payers. Accounting must track what is billed, what is collected and what is still owed.

Typical expense groups include:

• Clinical and administrative payroll
• Dental supplies and lab fees
• Rent or building costs
• Equipment loans, leases and repairs
• Software, marketing and malpractice insurance

Many practices also keep a separate line for owner-dentist production versus associate production. Splitting them shows whether the practice earns money beyond your own clinical work, which matters if you plan to hire an associate, add a location or eventually sell.

Cash or accrual basis

Many small practices use cash basis for taxes, but accrual reporting gives a truer picture of insurance receivables and equipment costs.

Cash basis records income when money arrives. Accrual records it when earned. For a practice with large insurance balances outstanding, accrual shows what you are really owed. Your CPA can advise which method suits your tax situation and whether to keep management books on a different basis.

Read more in cash vs. accrual accounting.

Key numbers to review every month

Track collections, overhead as a share of collections, accounts receivable age, new patients and equipment costs.

Benchmarks vary by practice type and location, so compare against your own trend and ask your CPA about peers.

Review these numbers with your CPA at least quarterly, not only at tax time. A quarterly check lets you adjust staffing, scheduling or supply orders while the year is still in progress, rather than discovering a margin problem after the books close.

Owner pay, taxes and entity structure

How you take pay depends on whether the practice is a sole proprietorship, LLC or S corporation. Pay yourself on a schedule and plan for taxes.

Mixing practice and personal money hides the true cost of running the office. Set a regular salary or draw and keep separate accounts. If the practice is an S corporation, reasonable salary rules apply, so work that out with your CPA.

Read how to separate business and personal finances and how to choose a business entity.

Equipment, depreciation and big purchases

Chairs, imaging and software are major purchases. Depreciation spreads their cost over time, and tax rules may allow faster write-offs.

A digital X-ray or a CAD/CAM milling unit can cost tens of thousands of dollars. Accounting treats the purchase as an asset and depreciates it. Tax rules sometimes allow accelerated deductions, but limits change, so confirm with your CPA before buying.

Always compare the payback. Illustrative example: a $60,000 unit that adds $5,000 a month in new procedures pays back in about 12 months before financing costs. See what is depreciation and the equipment payback calculation.

When a practice looks for financing

Practices fund equipment, build-outs, hiring and slow insurance payments. Clean books make any application faster.

Funders want to see steady collections and tidy statements. Keep monthly reports, three months of business bank statements and a clear note on what the money will earn.

ROI Funder places equipment financing and working capital for practices with 500+ FICO, 6+ months in business and $20,000+ monthly revenue. See our dental practice funding page.