Accounting and bookkeeping might not be everyone’s favorite part of the job, but regardless of how your practice operates, this is an essential part of keeping the lights on. But if you do your bookkeeping in-house, you need to be extra cautious to avoid mistakes that could be costly on your bottom line.
Today, we are going to help you identify the three most common dental bookkeeping mistakes and tips and tricks to avoid making them.
Know the difference between profit and cash flow
It is important to note that profit is the difference between the amount earned by the practice against the amount spent on business operations. According to Dentistry IQ, a common error is to report profit as how much money the office has for spending instead of the office’s cash flow.
Cash flow is the net balance of cash moving into and out of a business at a specific point in time, which gives a more accurate gauge of how much your office can spend. Profit, by comparison, is the amount of money left over after all expenses have been paid, which does not consider cash available to make purchases.
Tip: This helpful guide from the Harvard Business School breaks down these two terms in greater detail and walks you through how to read important financial statements.
Review your budget frequently
With patients coming and going, constant communication via email and phone and managing vendors, a lot is going on at your practice. That’s why honest mistakes in financial records are bound to happen: missing digits, transposed numbers, purchases that were accidentally not documented. Luckily, these mistakes can be caught by reviewing your budget.
But trust us when we say you do not want to wait until the end of the fiscal year to review your financial records. The last thing you want to do is review 12 months’ worth of statements and spreadsheets to find balancing errors. It is recommended for businesses to set aside time every week for entering and double-checking data.
Tip: Worried you might have a transposed number? Here’s a trick from Old Dominion University: compare the totals in your trial balance with the totals in your bank statement. If the difference between the two totals is evenly divisible by nine, you probably have a transposition error on your hands.
Save all your financial records and back them up
This might sound obvious, but we are certain almost everyone, at least once, has scrambled to look for a receipt, statement or estimate that was either discarded accidentally or filed away in a random location. The key to avoiding this hectic scenario is finding a filing system that works best for your practice and staying disciplined to keep at it.
Once you find your ideal way to file, you will want to make sure your records are backed up. This is very important in the event disaster strikes or the computer has a serious failure. Secure cloud-based storage is enough if you are only looking to back up files, but it does not help in the event your software needs to be restored as well. In this case, you may want to research backing up your entire computer.
Tip: If you utilize your email as part of your filing system, it is important to note that emails in your inbox are not recognized as backup data and will most likely not be added to a data backup file. You will need to save the most important emails individually or export your inbox using your email client’s backup feature.
The bottom line: Know how your money flows in and out of the practice so you don’t get dinged for overspending. Conduct weekly reviews of your records to minimize errors and make sure time is always set aside for this task. Keep your financial records organized in a way that works best for your practice and make sure to back them up!
Tips and Tricks to Avoid 3 Common Bookkeeping Mistakes
