The chart of accounts is a financial tool overlooked by many dental practices; despite the vital role it plays in tracking profitability, planning taxes, and guiding long-term business strategies.
With help from the best dental accountants, a well-thought out chart of accounts can help dentists and practice owners understand their numbers, reduce their tax liability and grow their businesses effectively.
Let’s look in a little more detail at what a chart of accounts actually is:
What is a chart of accounts?
Used in bookkeeping systems, a chart of accounts lists all of the financial accounts necessary for the successful running of a dental business. By arranging income, expenses, liabilities, and equity into appropriate categories, it offers business owners a more structured and up-to-date overview of their financial health.
While all businesses in all industries use a chart of accounts, how it is structured is of particular importance, especially for dental professionals. Use of a chart that’s too generalized or isn’t up-to-date, can scramble key insights and render financial reporting virtually impossible. In a worst case scenario, it can even lead to incorrect tax filings and missed opportunities in terms of deductions.
Why is a chart of accounts so important for dentists?
With financial needs that are very specific, dental practices have production levels that vary, expenses that are equipment-heavy, complicated structures for payroll, and timelines for insurance company reimbursements. Without a chart of accounts that has been comprehensively customized, the visibility necessary to manage these areas effectively, simply won’t be there.
For instance, a chart that hasn’t been organized properly might put all clinical expenses into one category, making it extremely hard for the most profitable procedures to be correctly identified and tracked. Or, rent, marketing and staffing expenses might be lumped together in such a way that industry benchmarks aren’t accurately reflected, impairing the ability to study and compare performance, as well as spot any inefficiencies.
However, with guidance from a dental accounting firm, you can transform your chart of accounts into a strategic tool for financial planning that helps you do the following:
Optimize taxes
Having a direct impact on how your taxes are planned for and filed, a detailed chart that’s also accurate can help you:
- Quickly identify expenses that are tax-deductible
- Break out depreciation for dental equipment
- Track travel expenses
- Ensure the accurate allocation of costs across each business
- Make the most of dental deductions
An inaccurate, outdated chart of accounts can result in practices paying too much in taxes.
Gain financial insight
Most business owners, including dentists, want to know exactly where their money is going, and with a customized chart of accounts, they can gain the insight they need to get a better understanding of this.
By breaking income down into service types, such as ortho, hygiene, cosmetic etc, they can then be matched against the costs of each specific procedure, giving practice owners a much clearer picture of which areas of the business are driving growth, and which might need to be improved on.
Support valuations
Working with experienced tax planning for dentist services to formulate a chart of accounts that’s clean and well-organized, can be a significant asset when a practice is being valued, allowing buyers to quickly and easily determine sources of revenue, cost centers and EBITDA.
With this level of transparency, it’s easier to build and maintain trust, and ultimately, enhance negotiation leverage.
A well-organized chart of accounts also helps growing practices better manage higher numbers of patients, bigger teams of employees, and increased streams of revenue. Overall, the critical role a chart of accounts plays in a healthy businesses bookkeeping and accounting systems shouldn’t be underestimated, and working with dental accounting services to customize your chart, is an essential step in any practice owners financial journey.
