Running a dental practice is a clinical job and a financial management job at the same time. The financial side is more complex than most small businesses because you're not dealing with one revenue stream. You're dealing with five or six, each with different claiming processes, payment timelines, and reconciliation requirements.
Most general bookkeepers and accountants understand invoicing and expenses. Very few understand HICAPS reconciliation, health fund claiming gaps, the financial impact of treatment plan drop-off, or how lab costs interact with your margins on crown and bridge work. This guide covers the financial management specifics that dental practice owners actually deal with.
A typical Australian dental practice collects revenue from multiple sources: patient out-of-pocket payments (gap or full fee), private health fund claims processed through HICAPS or similar terminals, Medicare Child Dental Benefits Schedule (CDBS) claims, Department of Veterans' Affairs (DVA) claims, workers compensation claims, and in some practices, public dental or NDIS referrals.
Each payer has a different fee schedule, a different claiming process, and a different payment timeline. Private health fund claims processed through HICAPS settle within 2 to 5 business days. Medicare CDBS claims can take 1 to 2 weeks. DVA claims often take 2 to 4 weeks. Workers compensation claims can stretch to 30 to 60 days depending on the insurer and whether prior approval was obtained.
This creates a cash flow pattern that's fundamentally different from a business that invoices and gets paid on standard terms. You might perform $50,000 worth of dentistry in a week, but only $30,000 arrives in your bank account that same week, with the rest trickling in over the following month.
Your bookkeeping system needs to track revenue by payer type, reconcile what was claimed against what was received, and flag discrepancies, because health funds regularly pay less than expected due to item number interpretation differences, annual limit caps, or waiting period exclusions.
HICAPS (or its equivalents like Medipass or Tyro Health) processes the claim at the point of service. The patient's health fund benefit is calculated in real time, and the gap is collected from the patient. In theory, this is seamless. In practice, there are several points where money goes missing.
The first is rejected or partially paid claims. A claim might be rejected because the patient's cover doesn't include that item, their annual limit is exhausted, or there's a waiting period issue. If your front desk processes these as "claim submitted" without checking the response, you might not collect the gap from the patient. Over a year, this can add up to thousands in lost revenue.
The second is HICAPS settlement reconciliation. The amounts HICAPS deposits into your bank account need to be matched against individual claims. If you're processing 30 to 50 claims per day across multiple providers, this is a daily reconciliation task. Most practice management software (Dental4Windows, EXACT, Dentally) can generate HICAPS reports, but someone still needs to match these against bank deposits and investigate discrepancies.
The third is timing differences. HICAPS batches settlements, so a single bank deposit might represent claims from multiple days. If your bookkeeping doesn't handle this properly, your daily revenue figures will be inaccurate, your GST calculations may be wrong, and your reporting will be unreliable.
Best practice is daily HICAPS reconciliation, matching the HICAPS settlement report against bank deposits and against individual claims in your practice management software. Weekly at a minimum. Monthly is too late; by then, discrepancies are nearly impossible to trace.
Dental practices quote treatment plans that patients may or may not complete. A patient might accept a $5,000 treatment plan for crowns and implant work, complete the first $1,500 stage, and never return for the rest.
This creates a financial management challenge. Your pipeline of quoted but unscheduled work represents potential revenue, but you can't count on it. Practices with strong treatment plan acceptance and completion rates typically convert 60% to 80% of quoted work. Practices with poor follow-up systems might convert 30% to 40%.
From a financial management perspective, you need visibility into your treatment plan pipeline: total value quoted, stages completed versus outstanding, ageing of outstanding plans (how long since the patient was last seen), and the conversion rate by treatment type and by provider.
This isn't just a clinical metric. It directly drives your revenue forecast. If your pipeline shows $200,000 in outstanding treatment plans but your historical completion rate is 50%, your realistic forecast is $100,000, and even that will arrive over 3 to 12 months depending on treatment complexity.
Practices that proactively follow up on outstanding treatment plans, with recall systems, SMS reminders, and phone calls, consistently outperform on revenue. This is an operational and financial management task, not just a clinical one.
Crown, bridge, denture, and implant work involves significant lab costs that directly affect your margins. A crown might be billed to the patient at $1,500 to $2,000, but the lab fee is $200 to $500 depending on material (zirconia, emax, PFM) and which lab you use.
Tracking lab costs per item and per provider is essential for understanding your true margins on prosthetic work. Some providers might generate high revenue but use premium labs and materials that compress margins. Others might generate less top-line revenue but deliver better profitability per procedure.
Your financial reporting should track lab costs as a separate cost of goods sold line item, broken down by provider and by procedure type. This lets you calculate your margin on prosthetic work versus preventive and restorative work, and make informed decisions about lab relationships, material choices, and pricing.
Many practices simply lump lab costs into general expenses. This hides the true profitability picture and makes it impossible to have informed conversations about pricing and provider productivity.
In a multi-provider practice, financial management means understanding the economics of each chair and each provider.
Key metrics include production per hour (total value of dentistry performed divided by clinical hours), collection rate (actual revenue collected versus production, which should be above 95%), chair utilisation (percentage of available appointment time that's booked and attended versus vacant or cancelled), and revenue per active patient.
These metrics drive staffing decisions (when to add another provider or hygienist), scheduling decisions (optimal appointment lengths, ideal mix of procedure types), and capacity planning (whether to extend hours, add a Saturday, or open another surgery).
Your practice management software generates most of this data, but it needs to be extracted, formatted, and interpreted in the context of your financial performance. A provider producing $800,000 per year sounds impressive until you realise they're working 45 clinical hours per week, meaning their production per hour is lower than a provider doing $500,000 in 25 hours.
One of the most significant financial transitions for a dental practice is moving from a sole practitioner model to a group practice. This involves adding associate dentists, hygienists, or oral health therapists, and it fundamentally changes your cost structure and cash flow.
As a sole practitioner, your costs are relatively fixed: rent, one nurse, materials, lab, insurance, and software. Almost all production flows directly to practice profit (after costs).
When you add an associate on a percentage arrangement, typically 40% to 45% of collections, your revenue increases but so does your variable cost. You need enough patient volume to fill their appointment book to a level where the 55% to 60% retained by the practice covers the additional overheads (another nurse, more materials, higher insurance premiums, additional equipment maintenance).
The break-even calculation for an additional provider typically requires $250,000 to $350,000 in annual production from that provider before the practice sees meaningful profit from their addition. Below that, you're subsidising their chair.
Your financial model needs to account for the ramp-up period (3 to 12 months for a new associate to build a patient base), the incremental overhead costs, and the cash flow impact of higher revenue but delayed collections across multiple payer types.
Dental services are GST-free under Division 38 of the GST Act, but not everything a dental practice does is GST-free. Tooth whitening (cosmetic), sale of oral hygiene products, and some other services may attract GST. Your BAS preparation needs to correctly identify GST-free versus taxable supplies and correctly claim input tax credits on expenses.
This gets complex when you have mixed supplies, a treatment that includes both GST-free clinical services and taxable cosmetic components. Getting this wrong means either overpaying GST or risking an ATO audit.
Payroll in a dental practice involves a mix of employment arrangements: employed dentists (salary or percentage-based), employed hygienists and oral health therapists, dental nurses and assistants, and reception/admin staff. Some practices also engage dentists as independent contractors, which carries its own ATO compliance risks. The sham contracting provisions apply here, and the ATO has specifically targeted dental practices in past compliance campaigns.
If your total Australian wages bill exceeds your state's payroll tax threshold, you also need to register for and pay payroll tax. For a group practice with 5 to 10 staff, this threshold is often reached, adding another 4.85% to 6.85% (depending on state) to your employment costs.
At a minimum, a well-managed dental practice should have daily HICAPS reconciliation and banking, weekly cash flow monitoring with a 4 to 8 week forward view, monthly financial reporting including provider productivity, lab cost analysis and payer mix breakdown, quarterly BAS preparation that correctly handles GST-free and taxable supplies, and ongoing tracking of treatment plan pipeline and conversion rates.
Most sole practitioners start by doing this themselves or relying on a general bookkeeper who doesn't fully understand health fund claiming. As the practice grows, the complexity outpaces what a general bookkeeper can handle, and the cost of errors (missed claims, incorrect GST treatment, poor cash flow management) becomes significant.
Whether you build this capability with an in-house practice manager, an industry-specialist bookkeeper, or an outsourced finance team, the important thing is that someone is actively managing these numbers, not just recording transactions after the fact.
Scale Suite can work with dental and allied health practices across Australia. Our team integrates daily so you get answers when you need them, not at the end of the month. Get a free proposal tailored to your practice or book a 30-minute call.
How should a dental practice reconcile HICAPS payments?
Dental practices should reconcile HICAPS daily by matching three data sources: the HICAPS settlement report, your bank deposits, and individual claim records in your practice management software (Dental4Windows, EXACT, or Dentally). Each HICAPS bank deposit may batch multiple days of claims, so matching at the individual claim level is important. Discrepancies typically arise from rejected claims, partial payments (due to annual limit caps or waiting periods), or timing differences between claim processing and bank settlement.
Are dental services GST-free in Australia?
Most dental services are GST-free under Division 38 of the GST Act as they constitute medical or health services. However, some dental practice revenue is taxable, including cosmetic procedures (tooth whitening), sale of oral hygiene products (toothbrushes, mouthguard supplies), and certain non-clinical services. Your BAS preparation must correctly separate GST-free and taxable supplies to avoid overpaying GST or triggering an ATO audit.
What is a good treatment plan completion rate for a dental practice?
Practices with strong patient follow-up systems typically achieve 60% to 80% treatment plan completion rates. Practices with poor follow-up may only convert 30% to 40% of quoted work. Treatment plan completion directly drives revenue forecasting, so tracking acceptance rates, stage completion, and ageing of outstanding plans by provider and procedure type is essential financial management.
How much should a dental practice spend on lab costs?
Lab costs for crown, bridge, and denture work typically run $200 to $500 per unit depending on material type and laboratory. As a percentage of prosthetic revenue, lab costs should generally represent 15% to 25%. Tracking lab costs per item and per provider as a separate cost of goods sold line item reveals true margins on prosthetic work and supports informed decisions about lab relationships, material choices, and fee schedules.
When does a dental practice need to register for payroll tax?
A dental practice must register for payroll tax when its total Australian wages bill (including super contributions) exceeds the relevant state threshold. In NSW, the threshold is $1.2M. In Victoria, it's $900K. In Queensland, it's $1.6M. For a group practice with 5 to 10 staff including associate dentists on employment arrangements, the threshold is commonly reached. Payroll tax adds 4.85% to 6.85% to total employment costs depending on state and wage level.
What financial reports should a dental practice review monthly?
A dental practice should review monthly: revenue by payer type (private, health fund, Medicare CDBS, DVA, workers comp), provider productivity metrics (production per hour, collection rate, chair utilisation), lab cost analysis by provider and procedure type, treatment plan pipeline and conversion rates, cash flow actuals versus forecast, and profit and loss with variance to budget. These reports enable informed decisions about staffing, scheduling, pricing, and practice growth.
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