Understanding Dental Practice Overhead Expenses (Part 1)

Running a dental business requires a lot of expenses. To give your patients the best possible care and treatment, you need to make sure you have enough staff and supplies, and that you have the right facilities and up-to-date equipment. However, in order to make a profit, you must be mindful of the costs associated with running your practice.

In this two-part post, we’re sharing what you need to know about the overhead expenses of a dental practice and how a CPA for dentists can help you figure out which expenses cannot be avoided and how you may be able to minimize them:

What Dental Overhead Expenses Are

Dental overhead expenses are the costs associated with running a dental practice. These expenses can include:

• rent or mortgage payments for the office space equipment and supply costs

• employee salaries and benefits

• utility bills

• insurance premiums

• marketing expenses

Dental practices have high overhead costs because they require specialized equipment and supplies, highly trained staff, and ongoing maintenance and upgrades to keep up with advances in dental technology. Managing overhead expenses is important for dental practices to remain profitable and provide quality care to patients.

The Use of Income Statements in Identifying Cash Flow in a Dental Practice

Running a dental practice is not easy. One of the most important aspects of managing a dental practice is to ensure that the cash flow is healthy. Without cash flow, a dental practice cannot survive for long. Financial statements such as an income statement can help dental practitioners to identify their cash flow and make necessary adjustments to ensure that their practice remains profitable.

What is an Income Statement?

An income statement, also known as a profit and loss statement, is a financial statement that shows the revenue, expenses, and net income of a business over a specific period. The income statement provides a snapshot of a business’s financial performance and is an essential tool for financial planning and decision-making.

How Can an Income Statement Help Identify Cash Flow in a Dental Practice?

An income statement can help identify cash flow in a dental practice by providing a breakdown of the revenue and expenses of the practice. By analyzing the income statement, dental practitioners can determine the cash inflows and outflows of their practice.

Revenue

The revenue section of an income statement shows the total amount of money earned by the dental practice during a specific period. The revenue includes all the services provided by the practice, such as dental examinations, cleanings, fillings, and other procedures. Analyzing the revenue section of the income statement can help identify the cash inflows of the practice.

Expenses

The expenses section of an income statement shows the total amount of money spent by the dental practice during a specific period. The expenses include salaries, rent, equipment, supplies, and other costs associated with running the practice. Analyzing the expenses section of the income statement can help identify the cash outflows of the practice.

Net Income

The net income section of an income statement shows the difference between the revenue and expenses of the dental practice. If the net income is positive, it means that the practice is profitable, and there is cash flow. If the net income is negative, it means that the practice is not as profitable as it should be, and there is a cash flow problem.

Using an Income Statement to Make Adjustments

Once dental practitioners have identified the cash inflows and outflows of their practice, they can make necessary adjustments to improve the cash flow. For example, if the practice is not generating enough revenue, the practitioners can consider increasing their marketing efforts to attract more patients. If the expenses are too high, the practitioners can look for ways to reduce costs, such as negotiating better prices with suppliers or cutting back on unnecessary expenses.

Conclusion

Understanding the overhead expenses and cash flow of a dental practice is essential to ensure the financial success of the practice. Knowing how much money is being spent on overhead expenses and how much money is coming in will help dentists to make informed decisions about how to manage their expenses and how to invest their money effectively.

In the second part of this post, our CPA for dentists is focusing on how you can reduce overhead costs in your dental practice, so make sure to watch out for that.

Ash CPA specializes in providing accounting services to dentists. Our accountant for dentists focuses specifically on accounting needs related to the industry, such as buying, selling, and valuing dental practices, among others. Contact us to learn more about the services we offer!