Top Financial Mistakes Dentists Make and How to Avoid Them

While helping patients achieve a healthy, bright smile is a vital goal for every dental practice, you still need to focus on running your business. Unfortunately, dentists are vulnerable to making financial mistakes that can be detrimental to their business. As dental CPAs and tax specialists, we have noticed several common financial mistakes dentists make and have a few tips on how to avoid them.

The Most Common Financial Mistakes Dentists Make

1. Mismanaging Cash Flow

Managing cash flow is essential to running a profitable dental business. When cash flow is mismanaged, it can lead to a host of problems, and unnecessary stress. We recommend developing an annual budget and evaluating it monthly. Additionally, be sure to have a cash reserve equal to at least three months of expenses. If you would like to know how the profitability of your dental practice compares to thousands of others, be sure to download our free benchmarking report.

2. Insufficiently Planning for Taxes

New businesses often fail to properly prepare for taxes, resulting in a startling bill that can break your budget. Paying taxes either quarterly or through W-2 withholding can decrease the burden of year-end taxes. 

3. Missing Deductions and Credits

Dentists and dental businesses have a wide variety of tax deductions and credits available to them that can be easily overlooked. As a dentist, you may be able to take advantage of several of these tax benefits, including vehicle depreciation, cell phone costs, home office, travel, bonus depreciation, R&D credits, car loan interest, and continuing education.

4. Failing to Pay Off Debt

Starting a dental business is no small feat. You can easily rack up debt when securing a location, purchasing equipment, setting up payroll, handling marketing, and more. One of the worst financial mistakes dentists make is not effectively prioritizing and paying off those debts. By working debt payments into your money plan, you can address your debts without destabilizing your finances.  

5. Failing to Plan for Retirement

While you may love being a dentist, you can’t do it forever. Eventually, you will want to retire. Whether you own your practice or work as an employee, begin now to save for retirement. There are many options available for tax-advantaged retirement savings including a 401(k), back-door Roth IRA and a cash balance pension plan.

Could Hiring a Business Coach Help Your Avoid Financial Mistakes?

The partners at PorterKinney developed the The Ten-Step Turnaround® coaching program to help business owners, including dental practice owners, improve their operations, avoid costly mistakes and increase the profitability of their businesses.

Here is a summary of the 10 steps that our coaching clients go through during the 18-month coaching program:

1. Determine Your Why: Many dental practice owners are unsure of their ultimate goals. What is the end goal for your practice? We help dental practice owners design their ideal practice by setting three long-term goals: a profit goal, a wealth goal, and an exit goal.
2. Make a Roadmap: Some dental practice owners set ambitious goals, like achieving a seven-figure income, but fall short due to a lack of accountability and planning. We assist in creating a year-by-year roadmap to achieve these long-term goals.
3. Focus on the Core: Without a clear mission and vision statement, your dental team may lack direction and purpose. Additionally, without a well-developed menu of services, your practice may end up catering to every patient demand on their terms. We help you define your core services and mission.
4. Create Accountability: Does your dental team perform well even when you’re not present? Practices need systems and procedures that foster accountability and achievement, even in the owner’s absence.
5. Price for Profit: An effective pricing strategy can significantly boost profits, yet many dental practice owners overlook this aspect. We help you identify a profitable pricing strategy and simplify the payment process for your patients.
6. Target Your Marketing: Only very large practices should market for general name recognition. Smaller practices need to focus their marketing efforts to ensure their message reaches their ideal patients frequently. Be a big fish in a small pond.
7. Eliminate Lose-Wins: Every relationship with vendors, employees, and patients should be a “win-win.” Many practice owners try to please everyone, resulting in “lose-win” situations (i.e., the owner loses, and the other party wins). If a relationship isn’t mutually beneficial, it should be reconsidered.
8. Hire Strategically: Successful practices often attribute their success to hiring well. Hiring the right people is more important than training. With the right team members, many other issues resolve themselves. We help you develop a strategic hiring plan.
9. Redefine Your Role: You didn’t start your dental practice to do the work of an employee. There are specific roles only you can fulfill as the practice owner and leader. Focus on these roles and delegate tasks that other team members can complete.
10. Simplify and Scale: Many practice owners believe growth requires adding more services, locations, and complexity. However, the most profitable practices often have simple business models. The simpler the model, the more scalable, repeatable, and profitable it becomes.

PorterKinney – Your Dentist CPA

At PorterKinney, we help dentists and dental practice owners avoid common financial pitfalls and set you on a path to success. We provide a variety of business advisory services, including coaching, strategic tax planning, business entity selection planning, and financial analysis.

Contact PorterKinney today to learn how we can help your dental practice avoid these financial pitfalls, reduce your taxes and increase your profitability.