Hinman Connects Blog

The Case for Multiple Checking Accounts
Posted: 3/6/2018

Private practice is very much alive and well, and while DSO's (dental service organizations) continue to make inroads as an alternative practice model, the future continues to be bright for dentists who wish to own their own practices. I believe the number of traditional solo practitioner practices will decrease over time (but by no means disappear), and there will be an increase in private, multi-doctor practices. One challenge for private practices continues to lie in the fact that dentists are trained to be clinicians, not business executives. We have all heard the adage “they don’t teach business in dental school.” While this statement is largely true, dentists in private practice are still business owners.


The challenge for dentists in private practice is to provide quality clinical care while still overseeing their businesses. The goal is to maintain effective, yet relatively simple, business processes. Take something as simple as your practice checking account.  Wouldn’t it be more effective and simple to maintain one checking account as opposed to multiple accounts? On the surface, this approach would make sense, and your accountant might agree as s/he is generally reconciling your bank statement with your accounting software (e.g. QuickBooks).


However, reconciling QuickBooks with your bank statement only provides half the picture. Your bank statement should also be reconciled with your practice management software to ensure all patient payments (and payment types) are properly recorded. Many accountants don’t perform this service, but it is vital that you confirm that payments recorded in your practice management software make it into your bank account! Dentists need an effective, yet relatively simple, method to perform this comparison.


Throwing all your deposits into one checking account while writing all your checks from the same account can make this exercise more difficult than it needs to be. Credit card and third-party financing companies (e.g. Care Credit) apply a service charge before depositing funds into your account. This fee creates a difference between payments recorded in your management software and what is ultimately deposited in the bank. Likewise, transferring funds into your main practice account for short-term loans, or payments for estimated taxes, results in more money going into your bank account than what is recorded in your management software. No wonder so many dentists fail to perform this reconciliation.


In my opinion, the solution lies in maintaining separate checking accounts for various payment types. For example, there would be one bank account for cash and checks (paper or scanned). Electronic insurance payments can also be deposited into this account or go into a separate account depending upon how many electronic payments are received monthly. Because these payments don’t have a service charge deducted, they are easier to reconcile with your practice management software.


A separate account is established for credit card and third-party financing companies. Because service charges are deducted before being deposited into your bank account, there will be a difference between your management software and bank statements. For these accounts, you can reconcile your practice management software with the “Gross Receipts” column in your merchant service statements. Other than deposit timing differences, there should be a close match between the two.


Because these accounts are used as deposit or revenue accounts only, there would be little or no need to write checks. A separate checking account is set up to pay expenses from which all your checks are written. All that is needed now is online access to your accounts. Once logged in, you will see all your accounts in one place. Funds are transferred from the deposits accounts into the account used to write checks (or online bill-pay).


Another advantage of this method is that you have created a separation of duties where your team members who record and collect payments can only deposit into the revenue accounts and have no access to the expense account. Your bookkeeper would only have access to the expense account but not the revenue accounts.


At the end of the month, print out a Deposit Slip or Collections Report from your practice management software which records your monthly collections by payment type. It now becomes much easier to reconcile the cash and check payments recorded in your practice management software with the corresponding bank account. The credit card and third-party financing payments recorded in your practice management software can now be reconciled directly with your merchant service checking account.


Your accountant and/or bookkeeper will continue to reconcile the bank deposits with QuickBooks (or similar program). While they may prefer to keep everything in one account, keep in mind that they generally are not reconciling between your practice management software and the bank. Many dentists don't perform this vital reconciliation exercise and, as a result, issues can occur. By separating checking accounts, it becomes easier to accomplish this reconciliation. At least have this discussion with your accountant and your practice management consultant if you work with one.


While advisors may have different opinions, I have found that simplicity is not always achieved by throwing everything into one checking account. At least give this idea some thought.  You might find that it becomes simpler when you are able to break out your software reports by payment type and can then compare with the corresponding bank accounts.


As both a dentist and accountant, Dr. Pat Little brings a unique blend of skill and experience to his presentations which focus on reducing financial risks and maximizing practice value through transition strategies. He integrates his accounting and financial education with over thirty years of varying dental experiences including starting two private practices from “scratch.” 


After leaving clinical practice due to disability, Dr. Little returned to college to complete his accounting and general business education. While working with a dental accounting firm, he developed a deep interest in fraud and embezzlement, so he earned the Certified Fraud Examiner credential and subsequently joined Prosperident as a Senior Fraud Examiner. Through Prosperident, Dr. Little conducts embezzlement examinations and advises dentists in matters related to fraud and embezzlement. 


While maintaining his relationship with Prosperident, Dr. Little has expanded his lecturing and consulting services by joining Legacy Practice Transitions where he works with dentists to provide a wide range of transition consulting services. Dr. Little’s goal is to present well- informed and technologically up-to-date presentations while converting complicated (and sometimes scary) material into “plain English.” He is speaking at the Hinman Dental Meeting, March 22-24, 2018, and his course lineup can be found here. 

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