The value of a dental practice is determined, in part, by calculating the available income for a purchaser after the practice expenses are considered. This is a fundamental dental practice management procedure. Usually, practice financial statements and tax returns are adequate to breakdown the financial condition of the business. Day sheets, deposit slips, bank statements, etc. will provide a purchaser with a good representation of your dental practice income and expenses.
New Payment Trends in Dental Practice Management
Recently, dental treatment financing plans and healthcare-specific credit cards have become popular payment alternatives. Dental practices welcome these credit vehicles, since once the patient is approved, the entire estimated treatment cost is advanced and paid immediately to the practice (less a pre-arranged percentage withheld by the bank).
What’s the problem with that? When a dentist deposits the money received as prepayment for future patient services into the practice’s general bank account, that money becomes co-mingled with money deposited for services already performed.
While there is nothing illegal or wrong with this dental practice management procedure, the due diligence review by a potential buyer, may not discover the credits if the money has gone into the general account. Without full disclosure by the seller, the purchaser may be walking into a dental practice where many of the returning patients expect their continuing treatment will be provided at no additional cost. Patients will expect that their money has been properly transferred to the new practice owner.
Adapting to New Financing Trends
An easy solution is to use a separate bank account solely for prepayments, much as escrow accounts are utilized by brokers and attorneys. As treatment is provided, money can then be transferred to the operating account. Keeping the prepayments separated allows the owner to more accurately track the practice collections and profitability.
Further, this separation protects the practice if a patient decides not to complete treatment and requests a refund; the money is readily available and has not been already spent or taken by the owner. Finally, maintaining this separation allows for easy accounting and transfer of the patient credits in the event of a practice transition.
We urge you to take a serious look at your dental practice management accounting procedures for prepayment credits, whether or not you are currently considering a practice transition.
Henry Schein Professional Practice Transitions, Inc. is a national leader in dental practice transitions. A subsidiary of Henry Schein, Inc. they provide expert guidance for selling and buying dental practices, dental practice fees and management, assessing partnership and associate-ship opportunities, and performing dental practice appraisals and valuations.