Standardizing the financial reporting of dental practices

Given the long tenure toward standardization in financial reporting of a diverse set of entities in a wide variety of businesses around the world, a new white paper from practice management consultant Thomas Climo, PhD, poses three questions about the American dental industry:

1. Why is there a lack of standardization in accounting for dental practices?
2. Why is it that no two dental practices are accounted for alike?
3. How can we go about standardizing the financial reporting of dental practices?

This 18-page report covers the variety of interpretation of accounting terminology and the inconsistency of balance sheet and income statement compilations throughout the accounting of dental practices in America, according to Climo.

"Returning to the issue of standardization in financial reporting after 38 years was an intriguing U-turn, especially since all the effort in all those years aimed at improving the substance, style, and appearance of a year's events at a point in time seems to have bypassed the American dental service industry," Climo told DrBicuspid.com.

In the report, Climo cites specific cases that spotlight a number of poor accountancy and operational results, poor accounting procedures, the absence of chart review audits, and failure to ensure internal controls are in place for the correct transfer of software accounting data into financial reporting.

"The moment a solo practitioner or dental practice partnership acquires a fourth practice, the necessity of audit and internal control reviews become essential for the verifiability of accounting records," Climo noted.

Such audits and controls are in evidence with large group dental practice management companies such as Pacific Dental Services in California and Heartland Dental Care in Illinois. Other than for the Generally Accepted Accounting Principles as recommended for the accounting of healthcare companies by the American Institute of Certified Public Accountants, standardization of the financial reporting of dental practices has not come from the large group source, according to Climo.

After defining accounting terminology in a correct manner courtesy of the New York State Society of CPAs, the white paper illustrates a balance sheet and income statement template in the exact line-item compilation recommended for every dental practice in America.

Finally, once the dental industry has dental practices reporting accurate and believable net income numbers and net income margins, accurate comparability among practices will follow, and a more economically valid method of calculating the business valuation and sales price of dental practices can be instituted.

The old fashioned and outdated percentage of sales revenue at a multiple less than one can then be discarded with the other economic miscalculations, including depreciation, that have beset the dental industry since the first person pulled the first tooth of some hapless soul on some prairie in the Great Plains, Climo noted.

Since standardization requires consensus, this white paper should be viewed as a starter document so that edits and revisions can come from those involved in the accounting and valuation of dental practices, he added.