Article sponsored by Pro-Fi 20/20 Dental CPAs
“I already have a CPA who is also dental. What makes you different? »
This is a question that the Pro-Fi 20/20 Dental CPA firm asks quite often. For a very long time, we didn’t have a short and simple answer with which to respond. We knew we were offering a new “out-of-the-box” approach to dental accounting; we just couldn’t put it into words. Then we found an answer in the most unlikely places: in a college introductory Accounting 101 class. He was staring us straight in the eye in the neatly bound textbook.
In the simplest sense, the difference is in the type of accounting that Pro-Fi 20/20 provides. Two of the most essential forms of accounting are managerial and financial. Understanding the difference between management accounting and financial accounting will be a game-changer for practice owners.
Understand the basics
The most important distinction between financial accounting and management accounting is the audience: for whom is it prepared? Financial accounting is intended to external public, such as lenders, creditors and regulators, whereas management accounting is intended to internal audiences, such as your leadership team. Being intended for external use, financial accounting is governed by generally accepted accounting principles (GAAP) and is highly regulated. The end result of financial accounting is the prepared financial statements used to keep a business compliant with various guidelines.
The end result of management accounting is much deeper. It is designed to help you and your team make informed business decisions. According to Investopedia, it is “the practice of identifying, measuring, analyzing, interpreting, and communicating financial information to those responsible for the pursuit of an organization’s objectives.”
Practice owners almost never find that their accounting services help them achieve their practice goals. Pro-Fi 20/20 is here to change that. In an entrepreneurial industry like dentistry, growing your practice means surrounding yourself with systems designed to grow your business.
Financial confidence with management accounting
Management accounting helps you run your business. Without a good understanding of your finances, you are flying blind! Every day, doctors go out and make potentially business-altering decisions without knowing the financial ramifications of those decisions. We want to solve this problem. We want to fill the managerial accounting void in dentistry by giving physicians the financial confidence to make informed business decisions.
When presented with the choice between financial accounting and management accounting, every dentist will tell you that they need management. However, very few physicians actually benefit from it. For entrepreneurial physicians who are serious about seeing change in the way they run their practices and truly lead on the basis of financial facts, Pro-Fi 20/20 is the answer.
Let’s break down management accounting for you into six basic principles:
Your accounting must be correct“Sounds like a no-brainer, doesn’t it? Surprisingly, many practices don’t even have this in place. If you don’t have a trained and appointed accountant, chances are the job won’t be done properly.
Bookkeeping and accounting must be up to date“Another simple requirement, isn’t it? If your books are way behind schedule or you don’t get financial reports until months later, it doesn’t matter how good the reports are.. For management accounting to be effective, it must be delivered in a timely manner.
Relawell-organized professional reports—Printouts directly from your QuickBooks will not suffice. Your reports should be organized in an industry standard chart of accounts and presented in a way that is easy to read and understand.
Reading financial reports—Have you been trained to read your financial reports? No, you were trained to be a doctor. Let Pro-Fi 20/20 take care of what you shouldn’t have to. You may not be using these reports to their full potential for growing your practice.
Be held accountable for tracking your numbers“For managerial accounting to be really present, a framework is necessary. It’s important to make sure you’re leveraging the reports and supporting the goals of the practice.
Use it!“It’s right there in the definition. Management accounting is the ability to identify, analyze, interpret and communicate financial information. You can not receive management accounting. You have to participate inside. You can have the most comprehensive and detailed reports in the world, but if you’re not using them to inform your decisions and manage better practice, you’re not reaching your full practice potential.
For most physicians, implementing effective managerial accounting will require a change in mindset. You must be willing to accept being a business owner. We know you are an excellent doctor; now is the time to take pride in running a profitable, healthy and successful business.
SIDEBAR: 3 year-end tax tips for your practice
By Brent L. Saunier, CPA
These tips will help you improve your tax situation for the year.
1. Assess your type of business entity. Ask your CPA if your entity structure is the best option.
2. Review the Section 179 amortization schedule options. If you need additional equipment at your practice that can help generate more revenue, you may be able to write it off immediately before the end of the year. Ask your CPA if you have enough tax base in your business to deduct the full value of the asset before making the purchase.
3. Consider cost separation. If you own your dental office building or have done any renovations, renovations or tenant improvements, this could be one of your biggest tax deductions.