Tom Bodin, a Practice Integration Advisor with Buckingham Strategic Wealth, works with dentists to help them achieve financial freedom through a comprehensive approach to wealth management.
In a previous article, I wrote about the importance of always knowing where your money goes. Today, we’ll discuss some of the tools you can utilize in tracking practice and personal expenses. Thankfully, gone are the days of manual double-entry accounting to balance books and track expenses. These concepts still exist, but are now automated in the back-end of accounting software.
Choosing your business’ accounting program should not be taken lightly. You need a software suite that provides the reporting functionality you require to understand your cash flow, is intuitive to use, and can accommodate internal and external changes and growth. It should also be understood that changing accounting systems is difficult, cumbersome and time-consuming at best. There are several options out there, and the following is a brief survey of a few of the more popular choices (I won’t dig into every option). If you are looking at a new accounting system, certain cloud/online products are powerful solutions that can give your financial life some flexibility.
Sage One Accounting: This system, in my view, is best suited for a specialist with minimal employees. The tool is straightforward to use and has an intuitive interface, but lacks the scalability of the other options discussed. The price point is attractive, but its limited functionality for a larger employee base makes it hard to endorse for larger dental practices.
FreshBooks: This system is more extensive than Sage One Accounting but still comes with a simple, intuitive interface. FreshBooks also does something fairly unique in this space: It has actual, real-live people in customer support, making troubleshooting issues a little easier.
QuickBooks Online: This system is considered the gold standard for small business accounting systems. It’s also the predominant tool that we see dentists use. Accountants often recommend it to their dental practice owner clients. I believe QuickBooks Online is an ideal solution for small businesses, due to its flexibility, accessibility and built-in reporting functions.
As with all data, garbage in = garbage out. Expenses need to be entered accurately and in a timely fashion. Proper cost categorization can have significant implications regarding how useful your data is for planning and evaluation purposes. For instance, if you are mixing entries between lab expenses and dental supplies, year-over-year comparisons will lose meaning. The right system and entry processes will facilitate the information you need to effectively manage your practice.
At the bottom line of your practice’s financial statement is your profitability, the dollars that flow to you and your family. We addressed the ideal household budget when we discussed always knowing where your money should go. Living by a budget that appropriately supports your near-term needs and long-term goals can only be accomplished if your lifestyle expenses are known. Thankfully, it has never been easier to track household expenses.
Mvelopes: Based on the old envelope system, this is a budget tool designed to be proactive. When a given virtual envelope is empty for the month, the program flashes red and discourages you from pulling from your “grocery” envelope to fund your “clothing” envelope. This is a great tool for going a step beyond tracking to living by a defined budget.
You Need a Budget (YNAB): Easy to use and designed for budget beginners, YNAB allows you to budget across multiple users (i.e., spouses and households) and touts itself as an “accountability partner.” YNAB was designed for those who have tried to budget in the past and failed. YNAB is a browser-based program (using cloud software) and syncs with Android and Apple apps.
Mint: This is the most popular tracking tool I have come across, and for good reason. It is a complete package, and easy to use once you get going. The set-up takes some time, and involves building your budget and linking your accounts. Once set up, Mint is a great tool for seeing exactly where your money goes and tracking your expenditures.
Visibility is a key component when it comes to recognizing where your money goes. Dentists who track their expenditures often have the best outcomes pursuant to their plans. Visibility also helps cut unneeded costs. Little expenses creep into our budgets, and we can do away with them once we become aware that they’re there.
As Peter Drucker famously stated, if you’re not measuring it, you’re not managing it. Manage your financial future. Identify a plan and track against it. The worst mistake we can make in planning our financial goals is misunderstanding our needs.