Dentists are experts at what they do. They maintain healthy teeth. Most of these dentists are less experienced in ensuring their books are kept accurately and reflect the financial health of their practice. Both of these skills are necessary to ensure longevity in your practice. In light of this, here are three common bookkeeping mistakes that could be costing you thousands of dollars and, ultimately, your business.
The Difference Between Cash Flow and Profit
It is not easy to understand financial reports. Inexperienced people can sometimes be confused by the complexity, leading to costly mistakes. It is common for dentists and in-house bookkeepers to mistake profit figures for cash. This is incorrect. Due to this mistake, dentists make purchases that incur overdraft fees, which can cost a lot of money for your practice. Profit is calculated using a profit and loss statement. However, cash flow is calculated using a cash flow equation and factoring in depreciation expenses, inventory, and accounts receivable.
Incorrectly recording transactions in the wrong period
It is another common mistake for practices to “close the books” at the end of each month. As your in-house bookkeeper reconciles accounts and prepares financial statements, transactions from previous periods can be entered incorrectly. If this mistake is not caught, all of your future reports, your tax documents, and your cash figures will be wrong. You can imagine how bad that is. The IRS can slap harsh penalties on individuals who misrepresent cash, regardless of whether it was an honest mistake.
Managing your payroll
Dental practices often think handling payroll is a simple task. However, many minor mistakes can easily lead to major problems and penalties. Payroll errors can be frustrating and costly for both employers and employees. A mistake in state tax deductions can result in a sizable tax deduction from an employee’s last paycheck of the year, and this deduction may coincide with the holiday season. Missed hours or incorrect pay rates can also inadvertently decrease an employee’s pay, leading to frustration and lasting resentment. It is these mistakes that cause employee-employer strain and negatively affect your employees. For the employer, incorrectly calculated payroll tax obligations can result in fines and penalties. Generally speaking, dentists aren’t experts in the complex world of government tax regulations.
Not using experienced dental accountants
Managing your practice’s finances yourself or hiring an inexperienced bookkeeper can be disastrous. An unreliable accounting system can lead to high tax bills, theft, cash mistakes, and more.
A dental accountant can help you save time and money by implementing an efficient system. Having an accurate understanding of your practice’s finances at all times will give you peace of mind. For more information, please contact our Dental CPA office.