Samera Business Advisors
Samera Business Advisors
Samera Business Advisors are leading UK Dental Business Advisors. On this blog, we share our tips, ideas and expertise to our readers across the UK and beyond. This blog is a must-read for dentists seeking to buy, build, or sell a dental practice.
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Arun Mehra
Arun Mehra

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Dental Practice Accounts: How to Guide

Dental Practice Accounts: How to Guide

5/16/2022 2:43:00 AM   |   Comments: 0   |   Views: 669
Dental accounting changes considerably as a dentist moves from associate work into practice ownership and, for some, into running several practices.

The records and reporting needed by a self-employed associate are very different from those required by a practice owner employing staff, paying associates and managing a limited company. A dental group introduces another layer, with multiple entities, inter-company transactions and consolidated reporting.

The common mistake is treating accounts primarily as something produced at the end of the year for HMRC or Companies House.

Good accounting should do more than keep you compliant. It should tell you what is happening financially, highlight problems early and give you reliable information for decisions about tax, borrowing, investment, growth and eventually exit.

Dental associates: get the foundations right early



Most dental associates operate on a self-employed basis, although some trade through a limited company.

At this stage, accounting does not need to be complicated. But getting the basics wrong can create unnecessary tax bills, poor cash flow and a lot of work at the end of the year.

You should have a clear system for recording:

  • income from each practice

  • laboratory deductions

  • professional subscriptions

  • indemnity

  • GDC fees

  • training and CPD

  • equipment and instruments

  • travel where allowable

  • accountancy costs

  • other legitimate business expenses

Do not wait until January to reconstruct all of this from bank statements.

Separate tax money from spending money



One of the most common associate problems is assuming that the balance in the bank represents available income.

It does not.

If £10,000 comes into your account, some of that money may ultimately belong to HMRC.

A simple solution is to maintain a separate tax savings account and transfer money into it regularly.

Your accountant should also be able to give you an estimated tax position during the year.

That is much more useful than discovering a large liability shortly before the payment deadline.

Understand your payments on account



Associates can also be caught out by payments on account.

These can make the January payment substantially larger than expected because you may be paying both the balance for the previous tax year and an advance payment towards the next one.

Your tax forecast should therefore look beyond the headline tax liability and show what you are actually likely to need to pay and when.

Keep records digitally



Making Tax Digital is another reason associates need to move away from informal spreadsheets and year-end record gathering.

Where the rules apply, qualifying self-employed taxpayers need digital records, compatible software and quarterly updates to HMRC.

Even if you are not yet within the threshold, putting a proper system in place early avoids having to rebuild your bookkeeping later.

The accounting needs of an associate are sufficiently different from those of a practice owner that some firms now provide dedicated accountant services for dental associates rather than treating every dentist in the same way.

For more detail on Self Assessment, allowable expenses and pensions, see this guide to taxes for dental associates.

Know when your associate accounting setup has become too basic



A spreadsheet and annual tax return may be perfectly adequate at the beginning of your career.

But your requirements change as your income rises or your circumstances become more complicated.

You may need more structured accounting if you:

  • work at several practices

  • have substantial private income

  • have significant expenses

  • are approaching Making Tax Digital requirements

  • are considering incorporation

  • receive income through a limited company

  • want to buy a practice

  • need accounts for a mortgage or practice finance application

That last point is often overlooked.

If you plan to buy a dental practice in the next few years, lenders may look closely at your historic income and financial records.

Clean accounts make that process easier.

Practice owners need management information, not just annual accounts



Buying or starting a dental practice changes the accounting job completely.

You are no longer accounting only for your own income.

You may now have:

  • employed staff

  • associates

  • payroll

  • pensions

  • laboratory bills

  • equipment leases

  • practice loans

  • supplier invoices

  • Corporation Tax

  • VAT considerations

  • rent or property finance

  • significantly higher transaction volumes

At this stage, annual accounts alone are not enough to run the business properly.

They remain necessary for compliance, but accounts produced several months after the year-end tell you what happened in the past.

Owners need current information.

What should a practice owner look at every month?



You do not need a 40-page finance report.

A useful monthly dashboard might include:

  • total revenue

  • private and NHS revenue where relevant

  • associate costs

  • staff costs

  • laboratory costs

  • marketing spend

  • other overheads

  • operating profit

  • bank balance

  • money owed to suppliers

  • Corporation Tax or VAT provisions

  • comparison with the previous month

  • comparison with budget

The important point is not simply having the figures.

It is understanding why they changed.

If revenue increased by 8% but profit fell, what happened?

Did laboratory costs increase?

Did associate percentages change?

Did wage costs rise?

Was there an unusual equipment purchase?

Good management accounts should help answer those questions.

This is why accounting for dental practice owners usually includes bookkeeping, payroll, management accounts and ongoing reporting rather than only annual accounts.

Get your chart of accounts right



One practical problem we see in growing businesses is poor categorisation.

Everything gets recorded, but not in a way that produces useful information.

For example, a practice may put:

  • laboratory bills

  • dental materials

  • equipment

  • repairs

into one broad expense category.

That makes the bookkeeping technically complete but commercially much less useful.

A better chart of accounts allows you to distinguish between major cost areas.

For a dental practice that may include:

  • associate costs

  • laboratory costs

  • clinical materials

  • staff wages

  • clinician wages

  • marketing

  • software

  • rent

  • utilities

  • repairs

  • equipment

  • professional fees

  • finance costs

The categories should be detailed enough to be useful but not so detailed that the bookkeeping becomes unmanageable.

Consistency matters more than perfection.

Associate pay needs its own controls



Associate pay can become one of the more complicated recurring calculations inside a dental practice.

The calculation may involve:

  • gross collections

  • agreed percentage splits

  • laboratory deductions

  • refunds

  • adjustments

  • different percentages for different treatments

  • different agreements for individual associates

Many practices manage this through spreadsheets.

That can work, but there should be controls around it.

At minimum, check:

  • Does the associate agreement match the calculation method?

  • Are laboratory bills being allocated to the correct clinician?

  • Are refunds handled consistently?

  • Is the calculation based on treatment completed, invoiced or collected?

  • Can the associate understand how their figure was calculated?

  • Is there a clear audit trail if someone challenges the payment?

Errors do not only cost money.

They can also damage the relationship between the practice and the associate.

The larger the clinical team becomes, the more important it is to have a repeatable process rather than relying on one person maintaining a complicated spreadsheet.

Watch the difference between profit and cash



A profitable dental practice can still run into cash-flow problems.

Profit and cash are not the same thing.

A practice may report a profit while simultaneously having to fund:

  • tax

  • loan repayments

  • new equipment

  • associate payments

  • laboratory invoices

  • payroll

  • dividends

  • refurbishment

  • acquisition costs

This is why practice owners should look at cash separately from profit.

A simple cash-flow discipline



Every month, understand:

  1. how much cash you started with

  2. how much came in

  3. how much went out

  4. what large payments are coming next

  5. what tax is being provided for

  6. whether borrowing repayments are covered

If cash is becoming tight, you want to know several months in advance, not the week before payroll.

Dental groups need consistency across every site



Running several dental practices is not simply the same accounting job multiplied by the number of locations.

Groups introduce:

  • multiple legal entities

  • inter-company transactions

  • central costs

  • group tax considerations

  • consolidated reporting

  • site-level comparisons

  • central payroll

  • shared suppliers

  • acquisition accounting

The biggest challenge is often consistency.

If Practice A records laboratory costs one way and Practice B records them another way, comparing their profitability becomes unreliable.

The same applies to:

  • staff costs

  • associate costs

  • marketing

  • equipment

  • management charges

  • software

  • central administration

Standardise before you consolidate



A growing dental group should ideally use:

  • one chart of accounts

  • consistent bookkeeping rules

  • common month-end processes

  • the same reporting timetable

  • consistent KPI definitions

  • clear rules for central costs

  • documented inter-company transactions

This makes consolidation far easier.

It also allows management to compare sites properly.

That is one of the main reasons accounting for dental groups and DSOs becomes more involved than accounting for a single practice.

Do not judge practices on revenue alone



One site generating £1.5m may not necessarily be performing better than another generating £1.1m.

Revenue tells you size.

It does not automatically tell you quality.

A group should also consider:

  • gross profit

  • operating profit

  • staff cost percentage

  • associate cost percentage

  • laboratory cost percentage

  • revenue per surgery

  • revenue per clinician

  • cash generation

  • profitability by site

The exact KPIs will depend on the business model.

The important point is to use a consistent set of measures across the group.

Otherwise, owners can spend too much time discussing turnover while missing what is happening to profitability.

Deal with inter-company transactions properly



Multi-entity groups often move money between companies.

One entity may pay costs on behalf of another.

A central company may charge management fees.

One practice may temporarily fund another.

These transactions need to be recorded consistently.

If not, consolidated reporting becomes distorted.

You can end up with:

  • duplicated income

  • duplicated expenses

  • incorrect debtor or creditor balances

  • unexplained inter-company loans

These problems are usually much easier to prevent than to untangle at year-end.

Tax planning should happen during the year



There is an important difference between tax compliance and tax planning.

Tax compliance tells you what has happened and what needs to be reported.

Tax planning looks at what can legitimately be done before important deadlines pass.

For an associate, that may include:

  • allowable expenses

  • pension contributions

  • payments on account

  • whether incorporation is appropriate

For a practice owner:

  • salary and dividends

  • pension contributions

  • capital allowances

  • equipment purchases

  • director's loan accounts

  • business structure

For a group:

  • group relief

  • inter-company arrangements

  • acquisition structure

  • holding companies

The key issue is timing.

Discovering an opportunity several months after the year has finished may be too late.

Your accountant should be asking questions too



The relationship should not simply consist of you sending information and receiving accounts back months later.

A good accountant should understand what is changing inside the business.

Useful questions might include:

  • Are you planning to buy another practice?

  • Are you considering selling?

  • Has associate remuneration changed?

  • Are you making a large equipment purchase?

  • Has profitability fallen?

  • Are you taking more dividends?

  • Has borrowing increased?

  • Are you opening another site?

  • Has your NHS/private mix changed?

Those events may affect tax, cash flow, reporting or business structure.

The earlier your accountant knows, the more useful their advice can be.

Your accounts become more important when borrowing or selling



Financial records receive much more scrutiny when a dentist wants to:

  • obtain practice finance

  • refinance

  • buy another practice

  • bring in an investor

  • sell the business

Lenders and buyers want to understand the underlying performance of the business.

If your bookkeeping is inconsistent or large adjustments are required before anyone can understand the figures, the process becomes harder.

Clean financial records make it easier to answer:

  • How profitable is the practice?

  • How much cash does it generate?

  • What costs are recurring?

  • Which expenses relate personally to the owner?

  • How has performance changed?

  • Can the business service more borrowing?

  • Are the numbers consistent with management reports and tax returns?

These are business questions, but good accounts provide the evidence needed to answer them.

Five warning signs your accounting setup needs improving



Your current setup may no longer be adequate if:

  1. You only know your profit once a year: A practice owner should not have to wait for statutory accounts to know whether the business is performing well.
  2. Your numbers change depending on which spreadsheet you open: There should be one reliable source of financial information.
  3. Associate pay regularly causes disputes: The calculation process probably needs clearer controls.
  4. You cannot compare practices properly: For groups, inconsistent bookkeeping makes meaningful benchmarking almost impossible.
  5. Tax bills regularly surprise you: Forecasting should give you a reasonable idea of what is coming.

A simple accounting timetable

Every week

  • keep bookkeeping up to date

  • capture invoices and receipts

  • review unusual transactions

  • monitor the bank balance

Every month

  • reconcile bank accounts

  • complete payroll

  • calculate associate pay

  • review management accounts

  • compare performance with budget

  • review cash requirements

Every quarter

  • review tax provisions

  • update forecasts

  • check significant changes in costs or margins

  • review upcoming investment or borrowing requirements

Every year

  • statutory accounts

  • Corporation Tax or Self Assessment

  • tax planning

  • pension review where relevant

  • budget for the following year

  • review whether the current business structure is still appropriate

What should dentists expect from a specialist dental accountant?



A dentist does not have to use a sector specialist.

But familiarity with dentistry becomes increasingly useful as the business grows.

A specialist accountant should understand areas such as:

  • associate pay

  • NHS and private income

  • dental-specific expenses

  • practice payroll

  • dental business structures

  • management reporting

  • multi-site accounting

  • practice acquisitions and sales

The level of support should also change as the dentist progresses from associate to owner and potentially to group operator.

That is why broader dental accountancy services are increasingly structured around the different needs at each stage rather than offering every dentist the same service.

The objective is better decisions, not more spreadsheets



The purpose of good accounting is not to create endless reports.

It is to provide reliable information that helps you make better decisions.

Whether you are an associate, a single-practice owner or running a dental group, your accounting system should provide:

  • reliable records

  • visibility over tax

  • clear financial reporting

  • consistent categorisation

  • visibility over cash

  • useful comparisons over time

  • information that supports decisions

As the business becomes more complex, the accounting system should become more useful, not simply create more paperwork.

For a broader overview of how bookkeeping, payroll, tax and reporting fit together throughout a dental career, see Dental Accounting and Tax: A Complete Guide.
Category: Financial Planning and Investments, Practice Management, HR and Accounting
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