6 common financial mistakes made by dentists

1. Failing to frequently assess finances

When you spend your days helping your patients to attain optimum dental health, it's easy to neglect bookkeeping. However, neglecting your regular financial reviews can lead your dental practice to financial disorganization and, even worse, potential internal theft. Even if you have complete faith in your staff, internal fraud can happen for various reasons, such as pressure, opportunity, and rationalization. Internal fraud can be more likely if you're not overseeing operations.

Solution:

Check-in consistently with employees who manage your finances or have access to the business funds. Sitting down to routinely assess your finances and making sure everything checks out will help save you any potential problems in the future.

2. Not preventing insurance fraud

Like internal theft, insurance fraud is another common risk for dentists who own their practice, especially if they have a business partner. According to Forbes insurance fraud statistics, fraudulent claims cost American consumers around $308 billion each year. In dentistry, the consumer and the provider commonly perpetrate fraud, even if unintentional.

Here are some common types of dental fraud to watch for:

• Performing unnecessary services 
• Waiver of insurance-related fees, such as copayment or deductible
• Unlicensed personnel performing procedures 
• Unbundling of claims, where one submits several procedures separately to receive higher reimbursement 
• Billing for services not rendered or upcoding of dental procedures
• Altering records, forms or claims for financial benefits
• Misrepresentation of services or dates of service

Solution:

Understanding fraud is the first step. The second is to create company policies that prevent it and hold people accountable for it. You can implement well-defined policies for identification and pretreatment verification, accurate coding and billing, prescription and drug monitoring, and mechanisms to identify duplicate and phantom claims.

3. Failing to adequately insure your dental practice

Uncertain situations like natural disasters, accidents, injury, and illness can occur anytime, potentially putting your financial plans at risk. If you fail to plan, these expenses can build up, creating a deeper hole in your pocket and affecting your long-term financial security.

Solution:

Every dentist must have a solid insurance plan to protect their employees and practice against this risk. To avoid overspending on unnecessary coverage, one of the key dental practice tips is to sit down and evaluate what types of insurance your practice really needs.

Disability insurance provides financial support in the event you're unable to work.

Health insurance covers medical expenses for you and your employees.

Property insurance safeguards your physical assets, such as buildings and equipment, from unexpected events or natural disasters.

4. Failing to leverage tax savings

Taxes are a key part of managing your finances. Here are some tax saving tips:

Federal Research and Development (R&D) Tax Credit: You may be able to claim this credit if your work involves advancing innovation, such as improving or developing new products, techniques, technologies, formulas, inventions, software or processes.

Business structure of your dental practice: Choosing the right business structure can significantly optimize a business owner’s tax strategy minimizing liabilities and maximizing deductions. Proper structuring helps tailor tax benefits, reduce taxable income and provide flexibility for future growth.

Write-offs and depreciations: As a standard practice, you might claim the cost of equipment while filing taxes. But did you know that you could claim depreciation for equipment? While there are many specifics, the bonus depreciation is an additional first-year deduction for certain qualifying business property purchases.

Out-of-pocket charitable expenses: Charitable donations reflect positively on your dental practice, but they may also be used as a deductible on your taxes.

The ability to maximize the tax benefits from charitable donations will largely depend on your business structure and tax situation. It’s best to consult with your tax professional to understand which charitable contributions can be deducted according to applicable tax laws.

5. Failing to plan for retirement

With the ongoing responsibilities of day-to-day dental practice operations, retirement might seem far in the distance, but it’s approaching much quicker than you think – for you and your staff. A common financial mistake dentists make is not planning for retirement on time.

Solution:

Many financial institutions provide an individual retirement account (IRA), a pension that offers tax advantages for retirement savings. It is a trust that holds investment assets purchased with the taxpayer's earned income for their benefit in in their retirement years.

You can also take advantage of 401(k) savings program. It is an employer-sponsored, defined-contribution, personal pension account. It involves periodic employee contributions coming directly out of their paychecks, and may be matched by you, the employer.

6. Lack of estate planning

The patients you serve daily will be your lasting legacy on people’s lives, but what does it mean to  leave a financial legacy?  While intelligent tax planning and investment strategies can help build your wealth and safeguard it for the future, you may be interested in doing more with your business and its wealth after your passing; that's where legacy planning comes in.

Solution:

Legacy planning outlines how you want your money to be used and where it can make an impact. Through charitable giving and impact investing, you can provide for loved ones, advance special causes and allow your dental practice to run for years to come. Failure to create a legacy plan could leave your family open to unexpected financial hardships after your gone.

Understanding and avoiding common financial mistakes made while running a dental practice can help secure your financial future. Whether you've been in the dental practice business for five days, five months, or five years, taking the time to insure your practice, optimizing your finances frequently, and planning for retirement is as important as taking the time to brush twice a day.