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dental accounting mistakes

Dental Accounting Mistakes

Simple accounting mistakes can cause major financial problems for a growing dental Practice. In order to avoid these, Practices must have an accurate and well-maintained accounting system in place.

Understand the differences between cash flow and profit.

Many dentists and in-house accounting staff do not understand financial reports and may wrongly assume profit equals cash available. This mistake could result in a Practice owner making purchases and incurring penalty and overdraft fees. For this reason, it is important to know the different between the two.

Profit is the result of revenue less expenses for a certain period of time. Cash flow is money moving in and out of the business from the beginning to the end of a month. If a Practice owner wants to know how much money the Practice has available, they are looking for the cash flow number.

Do not accidentally record transactions in a previous period.

It is important to “close the books” on a monthly basis. A common mistake is to accidentally enter transactions from a previous period. This will result in balance adjustments that do not match the bank balance or financial reports. If this error goes unnoticed, all future reports, tax documents, and cash figures will be incorrect. The mistake can become a larger issue and result in misrepresentation of cash and penalties from the IRS.

Use an industry standard chart of accounts.

When building your accounting system, a dental accountant should set up and track accounts according to dental industry standards. Our dental team focuses on establishing a dental specific chart of accounts. This way, we can provide the insight necessary to streamline and grow your Practice.

Work with a dental specific CPA.

It can take a while for owners to notice mistakes made by inexperienced accounting employees. For example, they may not realize a mistake has been made until they receive high tax bills, notice incorrect cash account reconciliations, or theft occurs. For this reason, it is crucial for Practice owners to work with an experienced dental specific CPA.

Our team of professionals wants to help you save time, money, and implement an effective accounting system. To learn how we can support your Practice, contact us!

practice sales and use tax

Sales and Use Tax for Practice Owners

Over the past few years we have seen an increased focus by the North Carolina Department of Revenue (NCDOR) on dentists for the audit of sales and use tax compliance. With this in mind, we want to work with our Practice owners to educate and proactively prevent the massive impact these audits can cause.

Sales tax is what we all expect to pay when we purchase items in our day-to-day lives. As a Practice owner, it is necessary to charge sales tax on certain items like electric toothbrushes. As a general rule of thumb, we tell our dental clients: If it leaves in the patient’s mouth, the items and services are NOT subject to sales tax. With this being said, everything else that does not leave in the patient’s mouth may be subject to the tax. If you are unclear which items this applies to, our team will work with you to review your product offerings and determine which items sales tax should be added to.

When looking at use tax, this is what applies when you purchase items from a vendor and they do not charge you tax. If you receive invoices for supplies and equipment or office supplies, your Practice is responsible for reporting this information. In addition, you must pay the sales tax the vendor did not charge. For example, this could be when Practice owners purchase items from out of state suppliers, online vendors, or small retailers.

While it can be time consuming and difficult, compliance with both parts of the tax is necessary. For this reason, one of our main goals is to implement procedures to ease the compliance process for our clients.

Best Practices

Each month you should total the number of items sold by your Practice that were subject to sales tax and forward to your accountant. Remember, review your Practice Management software reports as this information may already be shown.

For use tax, we recommend you include your office manager or a trusted member of staff in this process. This staff member must review all invoices from your vendors to verify if sales tax was charged. If not, those invoices should be set aside for payment of Use Tax. This information needs to be shared with your accountant on a regular basis.

To learn more about how we can support your Practice in this process, contact us!

Practice Health Insurance Options: Professional Employer Organizations

Your first question is likely, what is a PEO? Simply, it’s a Professional Employer Organization. That probably doesn’t help your understanding, does it? To define PEOs, we’ve brought in an expert in the industry, Jeff Wanner, to describe the components and advantages further.

What is a PEO?

PEOs (Professional Employer Organizations) have become a widely popular strategy for small and medium sized businesses across the country. PEO partnerships provide a great deal of value across an organization to greatly simplify administrative functions, contain employee benefit costs, and a streamlined strategy for compliance.

How does it work?

The role of the PEO is to co-employ their client’s employees, which is the primary mechanism for delivering everything previously mentioned. The responsibility to follow state to state employment regulations, payroll tax filings, worker’s compensation claims, and employee benefits administration falls squarely on the shoulders of the PEO.

These organizations work with clients across the country and accumulate massive buying power for things like medical benefits. Being a part of these groups allows for a much more consistent and predictable medical increase structure as years progress. Many PEOs have averaged less than 3% annual increases over the past 10 years, whereas the national average is well above 10%. With medical benefits being the largest employee-related expense (outside of salaries), it’s not difficult to see why this strategy is very appealing economically as the years go on.

I can use this for my Dental Practice?

Dental practices have found this strategy to be very appealing over the past 5+ years. As you know, dentists are extremely busy business owners that don’t benefit from adding complexity to their practices. Dentists aren’t students of state to state employee regulations and compliance. With one evaluation, they are able to turn the key on essentially every aspect on the employee side of their practice. The only challenge is picking the right partner for your practice!

Companies like PairPEO are great resources for these evaluations and will even help through the implementation process for your practice. This is a good resource to start with to ensure the correct partner is brought to your practice.

If you have questions or would like to connect with a health insurance partner in your area, contact us today!

Practice Health Insurance Options: QSEHRA

Historically, small businesses, including dental Practices, have met the need for employee insurance with a traditional group plan or providing an increase in salary to allow employees to purchase their own insurance. With the work of Congress, there is a new option in the marketplace. This option is the qualified small employer health reimbursement arrangement (QSEHRA).

Through QSEHRA, businesses with 50 employees or less are able to offer employees a monthly allowance of tax-free money. Sounds easy, right? Maybe. Employees then must choose and pay for their own health care, potentially including personal insurance policies, and the business reimburses them up to their allowance amount.

This allows businesses to keep control over their budget while offering a meaningful benefit to their employees. At first glance, Practice owners always love this option but the devil is in the details so, let’s review those.

How it works:

Step 1: Practices set the allowance. Practices choose a monthly, per-employee allowance of tax-free money to make available. Currently, there are no minimum contribution requirements and Practices are able to offer different allowance amounts based on an employee’s family status. In 2018, QSEHRA contribution limits allowed businesses to offer up to $420.83 a month for single employees and $854.16 a month for employees with a family.

Step 2: Employees make purchases. Employees with a QSEHA are permitted to buy what fits their personal health needs. There are a variety of expenses eligible for reimbursement, including personal health insurance premiums, copays, deductibles, prescription drugs, and many more.

Step 3: Employees submit proof of expenses. After incurring an eligible expense, employees are required to submit proof to the Practice through documents that include: a description of the product or service, the cost of the expense, and the date the employee incurred the expense.

Step 4: Practices review and reimburse employees’ expenses. After an employee submits an expense, the Practice or an approved third party should review the documentation and reimburse the employee from their monthly allowance.

With the QSEHRA, reimbursements are free of payroll tax for both the Practice and its employee. Reimbursements can be free of income tax for employees if the employee is covered by a policy providing minimum essential coverage (MEC).

Often, the QSEHRA is a good option for Practices to consider since it allows for complete personalization. Understanding your staff, their incentives, and their needs will be a priority when exploring this option.

If you have questions or would like to connect with a health insurance partner in your area, contact us today!

Practice Health Insurance Options: Association Health Plans

A new rule issued by the Department of Labor in 2018 expanded the availability of association health plans (AHPs) for small businesses. AHPs allow small businesses to band together within industries, professions, or geographic regions to either purchase large-group coverage or self-insure.

In North Carolina, this is a popular option and it exists in many state for Dental Associations. The NC Dental Society offers an Association plan that allows a Practice owner to open up “group” insurance to his or her staff. More information about the plan specifics can be found here

Once the benefit is in place, it works much like a regular group policy or self-funded health insurance benefit would. However, AHPs aren’t subject to the ACA’s rating rule, which prevents insurers from varying costs in a specific region based on things like sex, age, or health status. They also don’t need to cover the essential health benefits that ACA-compliant policies do.

Administration is typically done by the association, rather than by the small business members.

AHPs can help cut costs, often by between $1,900 and $4,100 per employee per year. However, AHPs achieve these cost savings not only by widening the risk pool, but also by cutting out standard coverage items. The AHP may not cover essential health benefits, such as prescription drugs, maternity care, or mental health services.

The NC Dental Society plans are competitive to group policies and offer a valid option for Practice owners. If you make the decision to offer the plan, you still need to understand your option on how you pay for the plan for employees and yourself – both of which have tax implications.

If you have questions or would like to connect with a health insurance partner in your area, contact us today!

Practice Health Insurance Options: Traditional Group

The traditional choice for most businesses is a group health insurance policy. This business chosen plan provides coverage to employees, and potentially, employees’ dependents. Depending on your Practice size, this traditional option may still be a good fit for you. However, for the majority of single doctor locations, this proves to be prohibitively expensive and is not the right solution. Practices that offer group health insurance pay a fixed premium for the policy, and then, pass on a portion of the premium cost to employees. For example, the employer may pay 50% of the premium and the employee is then responsible for paying 50%.

Where should you look for and acquire this type of insurance? There are 3 basic options:

Many Practices find that their staff likes the traditional option because it’s familiar to them. It is how many of us have had insurance for the majority of our lives. However, Practices also find the cost to be higher than one can afford. Your employee census and the benefits chosen will drive the cost. We suggest Practices at least consider this option and shop the pricing as a baseline to compare to other options discussed later.

If you have questions or would like to connect with a health insurance partner in your area, contact us today!

Practice Health Insurance Options

You don’t have to look far to know that health insurance costs are on the rise. It’s becoming a hot topic for Practice owners and their employees. If you haven’t already been asked by your staff to add health insurance, or why the cost keeps going up, you likely will soon! As a Practice owner, you are faced with trying to juggle employee satisfaction and retention in addition to managing profit margins and cash flow. If you are considering adding health insurance, changing plans, or looking for ways to manage the cost, you can count yourself in a growing group of concerned Practice owners. Health insurance is a valued benefit for your staff and you need to make sure you can offer it at a sustainable cost to your overall margins.

You may ask yourself… why even offer it? It’s a hassle. It’s costly. Does my staff even really appreciate it? These questions have caused many Practice owners to procrastinate on offering it and others to drop it altogether. In 2019 and into the future, your Practice will face an increasingly competitive marketplace for talented staff. Health benefits can be a vital part of attracting and maintaining high quality talent.

Don’t worry, it’s not all doom and gloom. There are more options today for your Practice than ever before. Below, we’ve listed and will subsequently review some of the most popular health insurance options for Practices in 2019.

  • Traditional Group Health Insurance
  • Association Health Plans
  • Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs)
  • The “Bonus” Plan
  • PEO’s
Honorable Mentions:
  • Group-integrated HRAs
  • Self-funded Health Insurance

In full disclosure, the above are options for health coverage, just not common for the dental industry. Know they exist, but these should be viewed as an outlier solution for your Practice.

As each of the options above are considered for your Practice, our dental team can help you find the right partners in your market to help determine the best option for you, analyze the cost to your bottom line and industry standards, and project the cash flow impact to you as the owner (considering tax implications, including review of potential tax credits). Analyzing each of these options is a lot to tackle on your own so bringing in a qualified professional will be key.

In our following posts, we’ll review the basics of how these options work, the corresponding pros and cons, roadblocks to certain options, and highlight the right Practice profiles.

If you have questions or would like to be connected with a health insurance partner in your area, contact us today!

Why Should You Hire a Dental Specific CPA?

Whether you are a new dentist entering the market, an established dentist, or considering transitioning out of your Practice, having a dental specific CPA in your corner is the key to success. We live in a world of specialization. While a general accountant may be easy to find and work with, having a CPA with deep industry expertise on your side is vital to the success of your Practice. Our dental team is uniquely qualified and ready to support your Practice regardless of what stage you are in.

A few key solutions we provide are:

Specialized Tax Planning

As you become successful and grow your Practice, your tax situation becomes more complex. Dental specific CPAs are able to share techniques to lower your tax rate while increasing your tax savings.

Trends & Benchmarking

Our expertise extends beyond traditional tax planning and compliance. Our team is fully immersed in the dental industry which provides us with tangible insight on current trends and common issues to help you make educated business decisions.

Complete Lifecycle Support

From start-up to exiting your Practice, our team serves as strategic business advisors who are there with you every step of the way. For future Practice owners, we develop a business plan to help obtain business financing needed to take the next steps and launching your Practice confidently. When purchasing an established Practice, our team works with you to find and review purchase options through our Practice Scorecard Analysis and due diligence process. When it comes time to sell your Practice and retire, our team is able to provide sell side representation and focus on finding the right buyer who is able to provide you with the right offer.

Owning and managing a dental Practice can be quite challenging. Allow us take the dental accounting and tax preparation tasks off your hands so you can focus on providing high quality service to your patients. To learn more about how a dental specific CPA can support your Practice, contact us!

If you are interested in starting or acquiring a dental practice, check out our dental lifecycle blog series!

LBAHS Partners with Ceterus for Dental Practice Accounting

In an effort to serve our dental Practice accounting clients well, we are expanding our service offerings through a new partnership. We are proud to announce our partnership with accounting technology company, Ceterus. Through this strategic partnership, our firm will be better positioned to provide client accounting services, particularly for our growing client base in the dental industry.

Client accounting services (CAS) is a fast-growing and profitable business segment for CPAs. Building upon their highly successful automated accounting and benchmarked reporting solution, financial technology company Ceterus has designed a platform to automate the CAS practice for CPA firms.

“Our philosophy at LBA Haynes Strand is ‘accounting ahead of the curve,’ and we’re always looking for the best partners and tools to bring that idea to fruition,” says LBA Haynes Strand Principal, Brad McKeiver. “We needed a way to scale-up our services in the dental sector as we have grown. We want to continue allowing our team to spend time with clients, specifically in the advisory capacity and this helps us accomplish that goal. By leveraging Ceterus, we’re able to grow more efficiently while providing added value to our dental clients, which in turn helps them grow, too.”

In addition to automated bookkeeping, Ceterus provides LBA Haynes Strand with customized, industry-specific reporting, and benchmarking tailored to the needs of their dental clients. This technology empowers our CPAs to provide dentistry clients with industry best practices and strategic advisory services to increase Practice profitability and growth.

“As the industry landscape continues to change, client accounting services has become an increasingly important way for CPA firms to grow,” says Ceterus CEO Levi Morehouse. “We’re proud to provide the technology that enables firms like LBA Haynes Strand to focus on this value-add, while helping their SMB clients grow strategically.”

To learn more about how we can support you through our personalized dental Practice accounting solutions, contact us! If you would like to read more about our partnership with Ceterus, check out this article on Accounting Today!

Tax Deductible Expenses for Dental Associates

Are you a 1099 dental associate at one or more Practices and not sure what you can deduct? We have compiled a list of common business expenses you should keep record of in order to offset your contract income. This is not an all encompassing list and we encourage you to ask us about additional expenses if you are unsure.

Common dental associate expenses to keep record of include:

  • Continuing dental education, including travel and meals
  • Dues and subscriptions – state society, study clubs, publications, etc.
  • Cellular telephone
  • Meals that occurred for a business purposes
  • Uniforms (potentially including shoes)
  • Small dental equipment and supplies
  • Licensing and other fees
  • Legal and professional services
  • Advertising expenses
  • Business insurance (not life insurance) – most commonly malpractice insurance
  • Health insurance premiums
  • Mileage between offices, to purchase supplies, to the post office, etc. – not commuting mileage (from home to office)
  • Home office expense for the area of your home used exclusively for business purposes
  • Any non-reimbursed business expenses from the host practice

Tax season is right around the corner. Don’t wait until the last minute and miss deductions, start today! To learn more about how we can support you this tax season, contact us!

Dental Practice Lifecycle: Sale of Practice & Retirement

After the start-up and acquisition phase and years of hard work growing your own dental Practice, you may be ready to hang up the gloves and retire but are not sure where to start.

The answer is to build a plan that starts years before you actually plan to retire or sell.  Having this conversation with your Practice advisory team in advance allows us the opportunity to guide you to that point and help achieve the maximum results for you and your Practice.

During this pre-retirement/sale time we find and develop answers for the hard questions like “What’s my Practice really worth?” and “How much cash will I receive from the sale?”  Using the answers to these questions we review options and prepare a plan to guide you to your best outcome.

Our Capital Advisors team has the ability to provide sell side representation to Practice owners in order to focus on finding qualified buyers. Over the years we have developed a process that allows us to find our clients the “right buyer” that may otherwise not have been found. This “right buyer” is the one who sees the most value in your Practice and is able to provide you, the seller, with the right offer.

Remember – the end of your dental Practice lifecycle is the beginning of the next generation’s lifecycle!

Continue checking back for our continuing dental blog series. Over the next few months, we will address subjects such as buying a dental practice, profit & loss statement explanation, and how sales tax impacts dentists, along with many other informative topics.

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Dental Practice Lifecycle: Growth & Maintenance

After the start-up and acquisition phase is complete and you have a regular patient base established, you’ll find yourself in the growth and maintenance phase.  At this point, you may be wondering how your Practice compares to others in the industry or maybe you’re ambitious and curious about growing into a two-Practice owner (three-Practice, four-Practice or more)!

As you progress through your Practice ownership lifecycle, benchmarking becomes increasingly important.  This helps to provide information on areas your practice may be able to improve upon.  For example, did you know the average dental Practice pays about 18.4% of their revenues in clinical wages?  This means if your Practice collects $50,000 in a single month, about $9,200 should be paid in wages to your hygienists and assistants that month.  How does your Practice compare?  Reviewing these industry averages monthly can help guide decision making within your practice.  We will go into more detail on these averages later in this blog series.

If owning one Practice is going smoothly, you may be curious about the possibility of purchasing/starting a second Practice.  Our team is able to work alongside you to review your current Practice’s financial standings and the different ways you can grow into a two-Practice owner.  We work to answer questions like ”How will hiring an associate at my first practice impact my bottom line while I’m working at the second practice?” and  “Can the cash flow of my first Practice help support the second Practice?” along with many others.

Our dental team has worked to develop various financial tools to help measure your practice against others and its potential for growth.  These tools include our monthly industry standards comparison to your practice and our Practice Scorecard which can be used to review options for the purchase of additional Practices.

Check back next week for the third and final phase of the Dental Practice Lifecycle: Sale of Practice & Retirement.

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