Unit 3: Finances
Unit 5. Finances

Section 1. Financial Viability

Other Expenses

Bad Debt

Bad debt refers to unpaid charges to self-pay (uninsured) patients. Bad debt is usually expressed as a percentage of charges that translates into a dollar figure. Once again, new safety net dental clinics will probably need to consult with other similar clinics to estimate how much their bad debt will be.
It is very important to differentiate your charity-care adjustments from your bad-debt write-offs in your financial statements. A high amount of bad debt may reflect a poorly implemented sliding-fee-scale policy, a lack of nominal-fee collections at time of service, or both. Funding agencies are typically supportive of charity care write-offs but do not want to see a high bad-debt percentage.

Equipment Depreciation

Depreciation is an accounting process that recognizes the reduction in value of an asset’s worth (equipment of facility) over a specific period of time, usually a month or a year. This expense is often referred to as a noncash expense because the amount of depreciation reflected on financial statements is not related to an outlay of the same amount of depreciation expense. Depreciation is a way to recognize the amount of an asset that gets used up during the period of time in question. Depreciation expense should not be confused with funded depreciation that involves actually setting aside cash in a restricted account for the purpose of buying equipment at some point in the future. Most safety net dental clinics do not generate sufficient cash flow to fund a depreciation account.

In order to aid in the determination of appropriate depreciation expense and to help in planning for replacing equipment, the following estimates of useful life of equipment are provided. The estimates were developed by the Veterans Administration and the U.S. Army.

Dental chair 15 years
Operating stool 15 years
Dental handpiece (drill)   3 years
X-Ray unit 5 years
Ultrasonic cleaner 10 years
Autoclave 10 years
Cabinets 15 years
Dental units 10 years
Air compressor 12 years
Vacuum system 10 years

Lab Fees

Lab fees are the charges to your safety net dental clinic for services provided by a dental lab for making prostheses (dentures, crowns, bridges) or appliances (space maintainers, processed night guards). Lab fees can mount up if the number of these prostheses and appliances that you need is high. The impact of lab fees on the clinic's financial sustainability depends on the extent to which prosthetic services and appliances are provided and to what degree these expenses are covered by any reimbursements received. You will need to try different labs until you find one where the quality, affordability, communication, and reliability meet your needs.

Some clinics find it useful to separate the lab expense from the total cost of a service. If patients pay the lab expense separately, before the case is sent to the lab, the clinic is assured of payment for the full cost of the lab expense.

Group purchasing organizations bring nonprofit manufacturers and selected low-cost vendors together in a common place for the mutual benefit of the people they serve. Group-purchasing organizations sell only to government agencies, nonprofit organizations, and religious outreach ministries and to selected health professionals who work with certain population groups.

Administrative Expenses

Administrative expenses include the wages and related costs of administrative staff who perform personnel, accounting, and grants-administration functions; information technology (IT) functions; and office equipment and supplies. These wages and costs are part of the cost of operating a safety net dental clinic and make it possible for health professionals to treat patients and accomplish the clinic’s mission. Although there is some subjectivity in deciding what functions are clinical vs. administrative, these expense items must be clear to the person preparing the clinic's financial statements so the statements are useful.

External funders want assurance that most of their money is being used to serve patients, not for administrative overhead. Administrative costs that represent 10–15 percent of total budget generally are considered to be reasonable. Health centers may vary in the accounting methods they use to allocate these expenses to each cost center. Some allocate the administrative overhead using square footage occupied by each service, other allocated based on the overall expenses and income incurred by each center. Various cost-accounting formulas can be applied to deal with administrative overhead allocation.

Examples of Typical Administrative Expenses


  • Executive director
  • Administrative activities of dental director
  • Chief financial officer
  • Office manager
  • Bookkeeper
  • Billing clerk
  • Grantwriter
  • Janitorial services and clinic maintenance
  • Fundraising staff

Other expenses

  • Insurance
  • Office space and equipment used by administrative staff
  • Payroll service
  • Bank charges


Fundraising expenses may be substantial for safety net dental clinics that have a significant shortfall between operating expenses and revenue and for clinics that require additional funding for future expansion or renovation. On the other hand, fundraising expenses may be minimal for clinics that are substantially volunteer-staffed, that are supported financially by a larger parent organization, or that have sufficient patient care or grant revenue to meet current operating expenses.

Regardless of the size of the fundraising program, a separate accounting of fundraising expenses (and revenue) is needed. Clinic managers have to assess the cost vs. effectiveness of the fundraising effort to determine which fundraising activities net a gain.

Read more about fundraising later in this unit.

Typical Fundraising Expenses

  • Wages of fundraising staff, including support staff.
  • Preparation and printing of solicitation materials, including donor letters, newsletters, and promotional materials (including website).
  • Establishment and maintenance of a computerized donor database.
  • Postage and mailing expenses.
  • Expenses of fundraising events, including staff time and supplies.