First off, it\u2019s important to know that not every dental practice uses cash flow statements. But if you use the accrual method of accounting, a statement of cash flows is essential for measuring your financial health.<\/p>\n

Neither the balance sheet or the income statement tells you everything you need to know about your cash balance. It\u2019s the cash flow statement that fills in any blanks. The cash flow statement reconciles the beginning and ending cash.\u00a0 Gives you a complete picture of where your money is going in your practice.\u00a0 Essentially, the cash flow statement brings together your expenses and your profits to give you a number that\u2019s hopefully positive \u2013 meaning you have enough cash to cover your operations.<\/p>\n

One useful feature of the cash flow statement is that it reverses those transactions where you don\u2019t actually have cash on hand, so you get a real idea of how much cash you have to work with during a period of time.<\/p>\n

Here are the key parts of the cash flow statement (you can refer to the example below as we cover each area):<\/p>\n

Cash, beginning of period<\/strong> is the cash the practice had on hand at the beginning of the month.<\/p>\n

Net income<\/strong> is total income for the report period. Some or all of that income may be subtracted on the cash flow statement, depending on what portion is in accounts receivable (not paid) or in the bank (paid).<\/p>\n

Additions to cash<\/strong> reverse expenses that are listed on the books but haven\u2019t been paid out yet. For instance, accounts payable is money owed, but is not paid.<\/p>\n

Subtractions from cash<\/strong> reverse any transactions that were recorded as revenue for the month, but not actually received.<\/p>\n

Cash flow from investing activities<\/strong> covers assets like real estate, equipment, or securities.<\/p>\n

Cash flow from financing activities<\/strong> lists money earned collecting interest on loans, credit, and other debt. It can also include draws or additional capital contributions from the business owner.<\/p>\n

Cash at end of period<\/strong> represents starting cash amount, plus the money earned this month.<\/p>","tablet":"

Let me guess, of all the things required to run a successful medical practice I\u2019d bet bookkeeping is not at the top of your \u201cfun list.\u201d We get it. It can be tedious, and it can require several hours each month depending on the size and complexity of your practice.<\/p>\n

However, what if I told you that accurate bookkeeping forms a solid foundation for any financial-related decisions you\u2019ll make in the future? It\u2019s true. With accurate and consistent tracking of your practice\u2019s financials, you\u2019ll be poised to make better business decisions when it comes to making future investments, growing revenues, and managing expenses.<\/p>\n

In this post, I want to share 5 of the most common bookkeeping mistakes that medical practice owners make, and how YOU can avoid them.<\/p>\n

1) Mixing personal and business expenses<\/strong><\/p>\n

This sounds like the most basic advice of all, but it\u2019s a common misstep. First, we need to say it. (However, it\u2019s probably a non-issue with 99% reading this\u2026 we hope \ud83d\ude0a). You MUST maintain a separate banking account for your practice. The last thing you want to be doing is sorting through hundreds of transactions and manually identifying business vs. personal expenses.<\/p>\n

But it goes beyond this. As a business owner you must be very vigilant that no personal expenses are run through your business account.<\/p>\n

In most cases, this is straight-forward. Payments toward office equipment and technology, for example, are clearly business expenses. However, what about that medical conference in Florida where you were joined by your family? We have two specific pieces of advice. First, your categorization of business vs. personal expenses must meet the \u201ccommon sense\u201d test \u2013 always do what\u2019s right<\/strong>. Second, when in doubt ask your accountant! It\u2019s just simply not worth the IRS headaches that a bad decision may create.<\/p>\n

2) Not keeping ALL your receipts<\/strong><\/p>\n

Retaining receipts may seem a bit \u201cold school\u201d to you, but trust us, it is critical. Not retaining receipts (or misplacing them) will limit your ability to claim those expenses on your tax returns and will result in paying more taxes than is necessary.<\/p>\n

Even receipts for small purchases are important. Not only do these small expenses add up over time, but these receipts also serve as important documentation should you ever find yourself subject to an IRS audit.<\/p>\n

3) Not reconciling your accounts accurately (or timely)<\/strong><\/p>\n

Reconciling your medical practice\u2019s books with your bank statement every month<\/strong> is one of the most basic (but important) accounting tasks. While it can sound complicated, bank account reconciliation is relatively straight-forward \u2013 going line-by-line to match items in your business account with your bank statement to ensure there are no discrepancies. Catching a mistake early makes fixing the issue MUCH easier.<\/p>\n

The good news is that today\u2019s cloud-based accounting systems make the monthly reconciliation process super easy. It reduces errors and it allows practice owners to get a real-time sense for cleared transactions and balances.<\/p>\n

4) Improperly categorizing expenses<\/strong><\/p>\n

We see this quite often. If you have a spouse or an office manager handling your books, it\u2019s likely he or she doesn\u2019t have knowledge of formal bookkeeping practices. While they may be detail oriented and timely in their work, there is no substitute for knowledge.<\/p>\n

Accurately tracking your practice\u2019s income and expenses by using the correct categories ensures proper measurement of profitability. Also, knowing the varied tax treatments of each income and expense category can help you avoid common pitfalls and may even help reduce your taxable income.<\/p>\n

5) Not hiring a professional!<\/strong><\/p>\n

There is a reason patients visit your office. You are a professional and have a deep understanding of medical treatments that will help what ails them. The same is true of a professional bookkeeper who specializes in the unique financial matters of practice owners. They are cognizant of the current tax regulations, and they will help provide clarity while avoiding unwanted IRS headaches! Bottom line, they allow you to focus on patient care and other aspects of your business.<\/p>\n

The team at STAC Bizness Solutions is dedicated to provided top quality bookkeeping, payroll and advisory services to medical professionals within and outside of The Woodlands, TX area. If we can help you in any way, just call us at 844-424-9637<\/strong>.<\/p>\n

For a Limited Time, Get Our Free Guide: 7 Key Financial Practices That Separate Thriving, Growing Practices From The Rest.<\/strong><\/p>"}},"slug":"et_pb_text"}" data-et-multi-view-load-tablet-hidden="true">

This blog is the last in our 3-part series dedicated to helping you gain more insight into the financial inner workings of your dental practice. Specifically, we’re diving into the three most important financial statements that every dental practice owner should be comfortable with (and use!) regularly.

If you missed either of the last two posts in this series, you can link to them here: