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:

1. Total posted payments in the PMS for the period

   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.

2. Total the 835s received for the period

   Claim payments plus or minus PLB adjustments. Remember that one 835 does not equal one bank deposit; match using the TRN reassociation trace number.

3. Total deposits into the PC operating account

   Payer EFTs, patient card settlements (net of processor fees), and check deposits.

4. Explain every difference

   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.

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.

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.

1. Calculate the fee per the management services agreement (MSA)

   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.

2. The DSO issues an actual invoice to the PC

   Include an invoice number, date, period covered, and description of services rendered. A journal entry alone does not document the charge between the entities.

3. The PC pays it from the PC operating account

   A real transfer, initiated on the PC’s authority, after the PC has covered clinical payroll and its direct expenses.

4. Both entities book it

   Management fee expense in the PC; management fee revenue in the DSO. The amounts must agree to the cent.

5. File the invoice

   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.

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.

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 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

Set up your compliance calendar

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; renegotiation threshold: Dental billing KPIs & benchmarks.
2. Cast Hub, Recall and hygiene retention benchmarks. Consultant-sourced figures.