Dental Practice Accounting 101

by Susan Gunn

Using the proper accounting software provides critical insights to the health of your practice.

At a recent convention, a dentist walked into a QuickBooks^® workshop and asked why he should use QuickBooks instead of Quicken^®. I’m always surprised at the number of times I am asked this question. Let’s discuss the important differences to clear up the confusion.

A number of accounting software systems are available for your practice, and it can be bewildering to know which one to use. Accounting software is a compliment to automated practices that use dental practice-management software. The patient’s financial information, completed and planned treatment, payments, and insurance is managed within the dental practice software (accounts receivable). Thus, the accounting software is used for general financial management and to pay vendors and staff (accounts payable) with perhaps only 10 percent of the actual accounting software’s capability utilized.

Intuit has provided a variety of accounting software internationally for a multitude of industries. Quicken is a personal finance accounting software and QuickBooks is a business accounting software. Quicken does have a “Home & Business” version, but it is still limited in its business-style reports. The key is the word “Home.”

Like most consultants and accountants, I encourage dentists to keep a six-lane highway between business and personal finances, even if you are a sole proprietor. If you use the Home & Business version, both your personal and business finances are combined. Why the six-lane highway? If you (or your heirs) need to sell your practice suddenly, if your business ever raised any IRS flags, or if you needed to acquire a practice loan, you can show the profitability of the practice and answer any questions regarding your business without your personal finances ever being involved.

Features are similar between the two, but with very distinct differences. QuickBooks reporting is geared specifically toward organized businesses. Quicken uses income and expense accounts. QuickBooks uses a full chart of accounts with assets, liabilities, and equity accounts in addition to the income and expense accounts. The reports are all built on these available accounts and can be exported into Microsoft Excel^® spreadsheet software for further analysis.

Payroll is another reason to use QuickBooks over Quicken. Though Quicken does have a payroll solution called QuickPayroll^®, it is additional software to Quicken. QuickBooks comes with its payroll built in and is easy to set up and use.

Designed for small businesses, QuickBooks displays the practice’s tasks in a visual “icon” format. No accounting knowledge is needed - no need to understand debits and credits! The QuickBooks Navigator breaks accounting activities into “click-on” pictures with arrows to show logical processes.

Budgets are easy to create in QuickBooks. Based on the Chart of Accounts, your budget can be as detailed or simple as needed. Budget vs. Actual Reports can then be produced to determine how on-target you are with your practice goals.

QuickBooks Report Finder creates reports to determine whether you are making or losing money. By assigning various accounts when writing checks, these reports make it easier to evaluate expenses and the costs of materials used in your practice.

How do you know exactly what was ordered for inventory - or whether it was enough - without digging out the invoices? Tracking inventory is an important component for practice budgeting. QuickBooks has an inventory solution available that Quicken does not provide.

Another tool in QuickBooks, not in Quicken, is the Accountant’s Review. This handy tool allows you to make an Accountants Copy for your accountant, who can then make adjustments to your finances, entries for tax purposes, etc. Most accountants need your information for a few weeks. In Quicken, this stops all accounts payable activity. With QuickBooks, you can continue to write checks, create payroll, and run reports without any time delays or having to reenter any information.

How do you get started? I recommend two different versions - QuickBooks Basic and QuickBooks Pro. Here is how to determine what you need. If multiple people will be using QuickBooks at the same time, if integrating with Microsoft Word^® or exporting reports to Microsoft Excel, or if you need to import information from your practice software, then you need QuickBooks Pro. QuickBooks Premier is for advanced users, such as your accountant, and QuickBooks Healthcare Edition is no longer available for retail purchase.

So, how easy is it to convert to QuickBooks from Quicken? Because they are both from the same parent company, the conversion is easy. During the Easy Step Interview Step By Step Instructions, there is a button, “Convert Quicken Data.” The subsequent steps will walk you through the conversion process. I strongly suggest that if you are unsure whether a payee name is a “Vendor” or “Other,” choose “Other” because this choice can be changed later if you wish.

How often should you upgrade your QuickBooks to a new version? QuickBooks is faithful to produce a new version annually, but you only need to upgrade your version every couple of years. Depending upon the amount of information needing to be updated and the changes within the software itself, it could present data compatibility conflicts if you become further behind. QuickBooks does require version upgrading annually if you use assisted or complete payroll services.

I have taught and used both and, ultimately, have found QuickBooks to be the best solution for dental practices. First, most dentists do not want to be accountants, but they do need to be business owners. Second, all need an easy-to-manage accounting program, which is why the majority of dental software companies recommend QuickBooks. Experience has shown that if the accounting software is visually easy to use and to enter information, the practice’s financial picture is accurate and accomplished in a timely manner.

Remember - a dental practice is a business. All businesses need to know how they make money and where the money is spent. Successful businesses know exactly where it goes and to whom for cost-effective evaluations.