> ## 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.
# Set up bookkeeping and consolidation
> A dental chart of accounts for the PC and the DSO, production versus collections, PPO write-offs as contra-revenue, hygiene department tracking, intercompany elimination, and when per-entity QuickBooks breaks.
Bookkeeping for a DSO-PC group adds two recurring requirements to ordinary accounting: **intercompany accounts that tie between entities** and **revenue recorded net of PPO write-offs**. Use a consistent chart of accounts across professional entities so consolidation and comparison do not depend on manual remapping.
## Prerequisites
* Separate bank accounts per entity
* An executed management services agreement (MSA) with the fee mechanics specified
* A bookkeeper or CPA with dental experience
## Production, collections, and the ledger
Dentistry has its own revenue vocabulary, and the books have to map it rather than fight it:
| PMS term | What it is | Ledger treatment |
| -------------------------------- | ------------------------------------------------------------------------- | ----------------------------- |
| **Gross production** | Services performed, at your full fee schedule | Gross patient service revenue |
| **PPO write-offs / adjustments** | The difference between your full fee and each plan's contracted allowable | **Contra-revenue**, by plan |
| **Adjusted (net) production** | Production at contracted rates, meaning what you are entitled to collect | Net patient service revenue |
| **Collections** | Cash actually received | Payments against AR |
The practice management system's day sheet is not the ledger, but the two must reconcile: production posted, adjustments taken, and collections received should tie to the bank month by month.
## Chart of accounts
### Use one chart of accounts
Use the same chart of accounts and account numbering across each PC unless a documented local requirement calls for a difference.
Then consolidation is a mechanical roll-up rather than a mapping exercise, per-office unit economics are comparable, a new entity's books are a template copy, and investors can be given per-entity detail without translation.
Inconsistent account definitions make consolidation and location comparisons harder and require a mapping layer to correct.
### PC chart, the dental-specific parts
| Category | Accounts |
| ----------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| **Revenue** | Gross patient service revenue (production) · PPO write-offs / contractual adjustments (contra) · Bad debt / patient write-offs (contra) · **Net patient service revenue** |
| **Accounts receivable** | Patient AR · Insurance AR · Allowance for contractual adjustments · Allowance for doubtful accounts |
| **Liabilities** | Patient credit balances (refunds payable) · Payer overpayments payable · Unclaimed property payable |
| **Direct expenses** | Dentist compensation · Hygiene compensation · Clinical benefits and payroll taxes · **Lab fees** · **Dental supplies** · Malpractice insurance · Licensure and credentialing |
| **Intercompany** | **Management fee expense** · Intercompany loan payable · Intercompany interest expense |
Give **lab fees** and **dental supplies** their own accounts. Lab fees for crowns, dentures, and aligners are direct costs that change with the restorative mix. Acquirers often benchmark these lines first, and grouping them under "cost of goods" makes diligence harder.
### DSO chart
| Category | Accounts |
| ---------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------- |
| **Revenue** | **Management fee revenue**, by PC |
| **Expenses** | Non-clinical compensation · Benefits and payroll taxes · Occupancy · Technology and software · Marketing · Professional services · General and administrative |
| **Intercompany** | Intercompany loan receivable · Intercompany interest income |
| **Assets** | Equipment · Leasehold improvements · Intangibles (brand, IP) |
## Revenue: net, not gross
A common first-close error is treating gross production as revenue without accounting for contractual adjustments and expected collectability.
| Line | Example month |
| -------------------------------- | ------------- |
| Gross production | \$84,200 |
| Less PPO write-offs | (\$33,700) |
| **Net revenue** | **\$50,500** |
| Less expected patient write-offs | (\$1,900) |
| **Net realizable revenue** | **\$48,600** |
Your full fee schedule is not the same as expected collections. Participating PPO practices commonly write off **30–45% of gross production**.1 Booking gross production as revenue overstates the business and distorts every metric built on it. Track write-offs **by plan** so you can see which fee schedules are reducing margin and decide whether to renegotiate or leave a network. See [Underpayments and payer contracts](/concepts/payments/underpayments-and-contracts).
**Accrual vs. cash.** Under accrual accounting, recognize revenue when the service is performed at the amount you **expect to collect**, with a receivable for the unpaid balance. Cash-basis accounting is simpler but does not show accounts receivable. Investors and lenders will often request accrual reporting. Ask your CPA to set the estimation method.
## Track hygiene as a department
Split production and compensation between the **hygiene department** and the **doctor department** from day one. Use classes or departments in the ledger that mirror the PMS provider types.
Hygiene may account for 25–35% of a general practice's production.2 Its trend can show recall and schedule continuity, while doctor production reflects a different service mix. Separate the departments in the ledger so the group can produce the reporting described in [Produce investor-grade reporting](/guides/banking/produce-investor-reporting).
## Intercompany accounts
* PC: Management fee **expense** ↔ DSO: Management fee **revenue**
* PC: Intercompany loan **payable** ↔ DSO: Intercompany loan **receivable**
* PC: Intercompany interest **expense** ↔ DSO: Intercompany interest **income**
**Intercompany balances must be equal and opposite.** If the PC's management fee payable and the DSO's receivable diverge, one entity booked something the other didn't, and that divergence compounds every month until someone reconciles it, usually during diligence.
Management fee revenue and expense are the same dollars viewed twice. Consolidated revenue including both is double-counted, and it is one of the first things a quality-of-earnings review catches. Same for loans and accrued interest.
## The three views
| View | Shows | Who wants it |
| ---------------------------------- | --------------------------------------- | -------------------------------------- |
| **Per-entity** | Each PC and the DSO standalone | Operators; fee-coverage checks |
| **Consolidated with eliminations** | The whole business, intercompany netted | Lenders, auditors, the board |
| **DSO standalone** | The management company alone | **Investors**, the entity they can own |
Produce all three monthly from the start. See [How investors read DSO financials](/concepts/finance/how-investors-read-dso-financials).
## When per-entity QuickBooks breaks
QuickBooks per entity works to roughly three to five entities. Past that the friction shows up as:
* Manual consolidation in a spreadsheet, every month
* No automated intercompany elimination
* No consolidated cash view
* Growing close time; adding a week per entity is not unusual
* Version-control problems on the consolidation workbook
The options past that point:
| Option | Fits |
| --------------------------------------------------------- | ----------------------------------------------------- |
| QuickBooks per entity plus a dedicated consolidation tool | 5–10 entities |
| Mid-market ERP with native multi-entity | 10+ entities, or institutional reporting requirements |
| Outsourced accounting with multi-entity capability | Groups without internal finance depth |
Migrate before the close becomes unmanageable. A fundraise is a difficult time to change accounting systems.
## Hiring the bookkeeper
Not a generalist. You want someone who has seen:
* Net revenue recording with PPO write-offs as contra-revenue
* Production-to-collections reconciliation against the PMS day sheets
* AR aging and allowance estimation for dental
* 835-based cash reconciliation
* **Intercompany accounting between related entities**
* Multi-entity consolidation with eliminations
Ask directly: *"Walk me through how you'd record a month of production, and how you'd reconcile collections to the bank."* A candidate who talks about gross production as revenue is the wrong candidate.
## Verify it worked
* [ ] Identical chart of accounts across all PCs
* [ ] Revenue recorded **net** of PPO write-offs
* [ ] Write-offs tracked by plan in contra accounts
* [ ] Lab fees and dental supplies on their own lines
* [ ] Hygiene and doctor departments tracked separately
* [ ] Patient credit balances recorded as a **liability**
* [ ] Matched intercompany account pairs on both sides
* [ ] Intercompany balances reconciled monthly and equal-and-opposite
* [ ] Eliminations applied on consolidation
* [ ] Three views produced monthly
* [ ] Bookkeeper has dental and multi-entity experience
## Common failure modes
| Failure | Consequence |
| -------------------------------------------------- | ---------------------------------------------------- |
| Divergent charts of accounts across PCs | Manual consolidation forever |
| Booking gross production as revenue | Overstates the business by 30–45% |
| Write-offs lumped, not tracked by plan | Cannot compare the effect of each contract on margin |
| Hygiene not tracked as a department | The valuation driver is invisible |
| Credit balances recorded as revenue | Overstates revenue; hides a liability |
| Intercompany balances never reconciled | Compounding divergence, found in diligence |
| No eliminations | Double-counted consolidated revenue |
| Cash basis only | No AR visibility; unusable for lenders and investors |
| Outgrowing per-entity QuickBooks and not migrating | Close time grows until it breaks |
## Sources
1. PPO write-off benchmarks: 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) (30–40% per ADA fee-survey commentary; 42–45% average per practice-analytics data); Dental Billing Assist, [dental billing KPI benchmarks](https://dentalbillingassist.com/blog/posts/dental-billing-kpis-benchmarks) (net production should hold at 60–70%+ of gross).
2. Dental Economics / Levin Group annual practice survey data: [research report on hygiene](https://www.dentaleconomics.com/practice/article/16388055/research-report-the-state-of-hygiene-in-todays-practices); [2025 survey](https://www.dentaleconomics.com/practice/article/55368689/findings-from-the-2025-dental-economics-levin-group-annual-practice-survey).