Your primary focus as a physician is patient care, but it makes dollars and sense to pay special attention to accounting for medical practices. In addition to being a physician, you're also an entrepreneur tasked with running a profitable medical practice.
This requires keeping accurate financial records and maintaining tax compliance. Continue reading for a few healthy accounting tips for medical practices.
Choose the Best Accounting Software for Medical Practices
One often-overlooked, yet extremely important aspect of accounting for medical practices is your software. We get it - it's tempting to simply use a spreadsheet because it's easy and cheaper in the short run.
However, this archaic method of accounting can increase your level of effort and cost more later down the road. Most importantly, it can significantly hinder your ability to review information and make informed forecasts for the future. The right accounting software can:
- Eliminate the need for additional effort,
- Offer a unique perspective into the profitability of your business,
- Make tax season less of a headache, and
- Allow you to quickly share information via the cloud with your accountant.
Before you decide on a particular software, make sure to speak to your accountant for suggestions. Accountants work with these types of software on a daily basis and can provide invaluable insight on which one would work best for your unique business.
Choose the Best Method of Accounting for Medical Practices
In medical practice management, there are two different types of accounting you can use: cash basis accounting and accrual accounting. In most instances, your business administrator, practice manager, or accounting firm will choose the best type of accounting for the medical practice.
Regardless of the type of accounting method utilized, it's imperative the practice manager have an immense level of understanding of the method as well as financial terms when performing standard day-to-day operations.
Accrual Accounting for Medical Practices
With the accrual accounting method, your practice will account for expenses the moment you receive bills — instead of when you actually pay it. At the same time, you'll account for receivables when you bill a patient — instead of when your receive payment.
Through the accrual accounting method, your income is accounted for by the time the patient actually pays the bill. For most medical practices, the accrual accounting method is not the preferred solution. While accrual accounting for medical practices is more difficult to perform than cash basis accounting, it may give you a more accurate indication of your practice at any given time.
Cash Basis Accounting for Medical Practices
Under the cash basis method of accounting, your practice will account for expenses when they are paid, while receivables are accounted for when payment is received. The cash basis method of accounting is the preferred solution for the majority of physician-owned medical practices.
After all expenses have been paid, the physician usually receives their payment on a predetermined schedule. It's important for the practice manager to also consider larger expenses, such as malpractice insurance. These types of expenses are usually paid quarterly, so it's important to not distribute money that is intended for larger, quarterly expenses.
Consider Scheduling Profit/Loss Statements
One simple tip regarding accounting for medical practices is to borrow a page from the way big business works by producing a regular Profit/Loss Statement. Depending on the size of your practice, this statement can be relatively simple to very complex.
In either case, Profit/Loss Statements are an enormously effective way to quickly check the overall pulse and financial health of your practice. In addition to validating daily records and recognizing discrepancies that must be resolved, Profit/Loss Statements will provide insight into where money could be invested in the business, the flow of patients, and much more.
Most medical practices seem to overlook these statements due to a less complex business model. However, a Profit/Loss Statement can provide valuable insight and should be powerful accounting tool in your practice's arsenal.
Choose the Professional Accounting of John. F. Dennehy CPA
Accounting for medical practices can be confusing and overwhelming - even to the savviest office manager. But when you partner with the experts at John F. Dennehy CPA, you'll remove the burden and liability, so you can focus solely on delivering the highest level of service to your patients.
We offer flexible, scalable, and fully customizable services, including:
Contact us today for a free accounting for medical practices consultation.