Your first month-end close

Month-end close in a DSO-PC group is the ordinary accounting close plus two things that don’t exist in a single-entity practice: a three-way revenue reconciliation and an intercompany management fee that must be invoiced, paid, and documented. Doing it properly the first month is much easier than reconstructing it in year two.

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What Bluebird did

Bluebird closed month one in six hours, most of it spent discovering that three 835s had posted to the PMS but two of the corresponding deposits hadn’t cleared until the first of the next month. That timing difference is normal, and finding it in month one meant Sam knew to expect it thereafter.

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The three-way reconciliation

The core discipline. Three independent records of the same revenue must agree:

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Production is not revenue

The most common first-close error in dentistry is booking gross production as revenue. Your fee schedule is not what anyone pays. Participating PPO practices typically write off 30–45% of gross production to contractual adjustments,¹ and booking gross production as revenue overstates the business by exactly that much, with every downstream metric built on it wrong. If you are on accrual accounting, revenue is recognized when the dentistry is performed, at the amount you expect to collect, with a receivable for the difference. Your CPA will set the estimation method. See Set up bookkeeping and consolidation.

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The management fee

This is the intercompany transaction that makes the structure work, and it must look like a real transaction between real parties. A standing sweep is not a management fee. A DSO that automatically pulls all cash out of the PC’s account with no invoice and no service documentation has created the fact pattern that gets structures recharacterized as the corporate practice of dentistry. The fee must be for services actually rendered, at a defensible amount, paid on an invoice. See Move money between PC and DSO.

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When the PC can’t pay the full fee

Common in the first months, when the credentialing ramp means claims revenue lags expenses. Two legitimate options:

1. Defer part of the fee, documented in writing, with a stated repayment expectation. Watch that a perpetually accruing, never-paid fee is itself a diligence red flag.
2. The DSO lends the PC money, on a real promissory note with a real interest rate, at least the applicable federal rate for the note’s term, and a real repayment schedule. See Intercompany loans between DSO and PC.

What you must not do is quietly skip it, or retroactively reprice it later. Both create problems that are far worse than the cash-flow problem they solve.

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Closing two sets of books

The intercompany accounts must tie. The PC’s management fee payable and the DSO’s receivable are the same number viewed from two sides. If they diverge, one entity booked something the other didn’t, and that divergence compounds monthly.

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The KPIs the close produces

The close is also where the month’s dental scoreboard comes from. Three numbers to compute every month from month one:

• Production vs collections. Collections divided by net production. Persistently below the mid-90s means money is leaking between the chair and the bank; unbilled downgrade differences, unworked denials, or patient balances nobody statements.
• PPO write-off percentage, by plan. Total contractual adjustments over gross production, then the same ratio per fee schedule. The blended number tracks the health of your payer mix; the per-plan number tells you which contract to renegotiate or drop.¹
• Hygiene reappointment rate. From the PMS, not the GL, but review it alongside the financials, because this month’s reappointment rate is roughly three months’ forward revenue. Hygiene typically carries 25–35% of a general practice’s production.²

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What never to do

• Pay a PC expense from the DSO account, or vice versa, without recording an intercompany entry. This is how commingling happens, not through fraud, but through convenience on a Friday afternoon.
• Use one bank account for both entities. Ever.
• Let the same person be the sole reviewer and the sole preparer. Even in a two-person company, someone other than the preparer should look at the reconciliation.

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Your first close package

Produce these five documents monthly from month one. They cost little now and are exactly what an investor or acquirer asks for later:

1. PC profit and loss
2. DSO profit and loss
3. Combined view with intercompany eliminations
4. AR aging by payer
5. The three-way reconciliation, with variances explained

See Produce investor-grade financial reporting for what this grows into.

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Checklist

• Three-way reconciliation complete, every variance explained
• Revenue booked at net production, not gross production
• Management fee invoiced by the DSO
• Management fee paid from the PC account after clinical obligations
• Both entities booked the fee at identical amounts
• Intercompany accounts tie between entities
• Any intercompany loan documented with a note and stated rate
• No expense paid from the wrong entity without an intercompany entry
• Write-off percentage computed by plan; production vs collections reviewed
• Five-document close package produced

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Next

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Sources

1. Consultant benchmarks on PPO adjustments (30–45% of gross production): Veritas Dental Resources, The True Cost of Dental Insurance Participation; renegotiation threshold: Dental billing KPIs & benchmarks.
2. Cast Hub, Recall and hygiene retention benchmarks. Consultant-sourced figures.