> ## Documentation Index
> Fetch the complete documentation index at: https://dso.getlemma.com/llms.txt
> Use this file to discover all available pages before exploring further.
# Your first month-end close
> Reconcile PMS postings to 835s to bank deposits, invoice the management fee, close two entities' books without commingling, and read the first dental KPIs off the result.
**Month-end close** in a DSO-PC group includes the usual accounting work, a **three-way revenue reconciliation**, and an **intercompany management fee** that must be invoiced, paid, and documented. Establishing that process in the first month avoids having to reconstruct it later.
## 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.
## The three-way reconciliation
Reconcile three independent records of the same revenue:
```mermaid theme={null}
graph LR
A[PMS
posted payments] <--> B[835 remittances
payer's record]
B <--> C[Bank deposits
PC operating account]
A <--> C
```
By payer, and split between payer payments and patient payments. In dental the patient-pay share is large; card settlements and cash are as much a part of this reconciliation as payer EFTs.
Claim payments plus or minus PLB adjustments. Remember that **one 835 does not equal one bank deposit**; match using the TRN reassociation trace number.
Payer EFTs, patient card settlements (net of processor fees), and check deposits.
You will have differences. The legitimate ones:
* **Timing**, an 835 received on the 30th whose EFT lands on the 2nd
* **Processor fees**, card deposits arrive net; gross revenue and fee expense must be recorded separately
* **PLB takebacks**, reduce the deposit without a corresponding claim-level entry
* **Paper checks**, deposited days after the remittance
* **Payer virtual credit cards**, arrive as card transactions, not EFTs
Anything you *cannot* explain is an error. Find it now.
**Do not force the reconciliation with a plug entry.** An unexplained variance can recur and compound over time. A quality-of-earnings review may surface it during a raise or sale. See [How investors read DSO financials](/concepts/finance/how-investors-read-dso-financials).
## Production is not revenue
A common first-close error in dentistry is booking **gross production** as revenue.
| Line | Bluebird, month 1 |
| --------------------------------------------- | ----------------- |
| Gross production | \$\$68,400 |
| Less PPO write-offs (contractual adjustments) | (\$\$24,600) |
| **Net production** | **\$\$43,800** |
| Less expected bad debt / patient write-offs | (\$\$1,300) |
| **Net realizable revenue** | **\$\$42,500** |
Gross charges are not the amount the practice expects to collect. Participating PPO practices typically write off **30–45% of gross production** as contractual adjustments.1 Booking gross production as revenue can therefore materially overstate revenue and distort the metrics calculated from it.
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](/guides/banking/set-up-bookkeeping).
## The management fee
Treat the management fee as an intercompany transaction between separate entities. It should follow the MSA, be supported by an invoice, move through the entities' bank accounts, and appear in both ledgers.
Follow the agreement's stated method, whether it is a flat monthly amount, cost-plus, or a percentage where permitted. Several states prohibit percentage-of-revenue dental support fees. Do not substitute a different amount at close.
Include an invoice number, date, period covered, and description of services rendered. A journal entry alone does not document the charge between the entities.
A real transfer, initiated on the PC's authority, after the PC has covered clinical payroll and its direct expenses.
Management fee expense in the PC; management fee revenue in the DSO. The amounts must agree to the cent.
Keep the invoice in both entities' records. A dental board, auditor, or acquirer may request it.
**A standing sweep is not a documented management fee.** If the DSO automatically pulls all cash from the PC without an invoice or service documentation, the arrangement may support a corporate-practice challenge under applicable state law. The fee should cover services actually rendered, use a defensible amount, and be paid against an invoice. See [Move money between PC and DSO](/guides/banking/move-money-dso-pc).
### 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](/reference/legal/intercompany-loan-note).
Do not omit the fee without documentation or reprice it retroactively. Either choice weakens the contemporaneous records and can create accounting, tax, and regulatory questions.
## Closing two sets of books
| Task | PC | DSO |
| -------------------------------------------------------- | -------------- | -------------- |
| Reconcile bank accounts | ✓ | ✓ |
| Reconcile credit card / processor accounts | ✓ | Not applicable |
| Book net revenue and PPO write-offs | ✓ | Not applicable |
| Book clinical payroll (dentists, hygienists, assistants) | ✓ | Not applicable |
| Book non-clinical payroll | Not applicable | ✓ |
| Book management fee | Expense | Revenue |
| Book intercompany loans and accrued interest | Payable | Receivable |
| Reconcile intercompany accounts to each other | ✓ | ✓ |
| Review AR aging | ✓ | Not applicable |
| Review credit balances | ✓ | Not applicable |
**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.
## The KPIs the close produces
Use the close to calculate three operating measures each month:
* **Production vs collections.** Collections divided by net production. A persistent decline should prompt a review of unbilled downgrade differences, unworked denials, and patient balances that have not been statemented.
* **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.** Pull it from the PMS rather than the GL, then review it alongside the financials. It helps show whether the practice is preserving future hygiene demand. Hygiene typically carries 25–35% of a general practice's production.2
## Common close failures
* **Pay a PC expense from the DSO account, or vice versa, without recording an intercompany entry.** Even a routine convenience payment can blur entity records if it is not recorded and settled correctly.
* **Use one bank account for both entities.** Maintain separate accounts for the PC and DSO.
* **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.
## Your first close package
Produce these five documents each month from the start. Investors, lenders, and acquirers commonly request them during diligence:
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](/guides/banking/produce-investor-reporting) for what this grows into.
## 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
## Next
Calendar recurring filings, renewals, screenings, and reviews.
## Sources
1. Consultant benchmarks on PPO adjustments (30–45% of gross production): Veritas Dental Resources, [The True Cost of Dental Insurance Participation](https://veritasdentalresources.com/post/the-true-cost-of-dental-insurance-participation-a-write-off-reality-check); renegotiation threshold: [Dental billing KPIs & benchmarks](https://dentalbillingassist.com/blog/posts/dental-billing-kpis-benchmarks).
2. Cast Hub, [Recall and hygiene retention benchmarks](https://cast-hub.com/dental-practice-revenue/recall-and-hygiene-retention/). Consultant-sourced figures.