When launching a medical practice, your primary focus is (understandably) on patient care. But as your practice grows, accounting quickly becomes one of the most critical components of your long-term success. From navigating complex billing cycles to managing cash flow and payroll, the right financial systems can keep your practice stable, scalable, and stress-free. Whether you’re just getting started or fine-tuning your financial operations, here’s what you need to know about managing the accounting side of your medical practice.
Best Practices for Medical Practice Accounting
1. Choose the Right Accounting Method
There are two main accounting methods for medical practices:
- Cash Basis Accounting: Revenue is recorded when payments are received; expenses when they’re paid.
- Accrual Basis Accounting: Revenue and expenses are recorded when they’re earned or incurred—regardless of when money changes hands.
Most small practices start with cash basis accounting because it’s simpler, but as your practice grows, accrual accounting often provides a more accurate financial picture—especially with insurance reimbursements and delayed patient payments.
2. Have a Clear Profit Distribution Strategy
If your practice includes multiple partners or providers, you’ll need to determine how profits are shared. Common strategies include:
- Equal Distribution: Straightforward but may not reflect each partner’s workload or revenue contribution.
- Pro Rata Distribution: Allocates profits based on each partner’s share of collections.
- Corporate Split: Salaries are paid based on clinical work performed, and remaining profits are distributed equally or based on pre-agreed metrics.
Choose a structure that promotes fairness and supports your long-term partnership goals.
3. Leverage Medical Billing Software or Services
Medical billing is notoriously complex—especially when working with insurance providers, reimbursements, and coding systems. Invest in reputable billing software or partner with a billing service to streamline this process. While some practices use tools like QuickBooks for general bookkeeping, pairing it with specialized medical billing software ensures accurate tracking of payments, claims, and outstanding balances.
4. Review Your Financial Statements Regularly
Your income statement, balance sheet, and cash flow statement give you a comprehensive look at your practice’s financial health. Make it a routine to review these monthly or quarterly. Doing so helps you track profitability, spot irregularities early, and plan for equipment purchases, staffing, or expansion.
5. Work with a CPA Who Understands Medical Practices
A CPA with healthcare industry experience is invaluable. They’ll help you choose the right accounting method, set up your chart of accounts, handle compliance, payroll, and tax planning, and identify opportunities to increase profitability and reduce liabilities. At Huddleston Tax CPAs, we specialize in helping healthcare providers maintain clean books, accurate reporting, and efficient operations.
Common Medical Accounting Mistakes to Avoid
Avoiding these pitfalls can protect your practice from audits, cash flow issues, and lost revenue:
Delaying Bookkeeping
Falling behind on bookkeeping makes it difficult to track who owes what—especially from patients or insurance companies. Timely entries ensure better collection, cleaner records, and less stress during tax season.
Ignoring Cash Flow
Even profitable practices can run into trouble if cash isn’t flowing at the right time. Timely billing and follow-ups, proper budgeting, and identifying slow-paying insurers or patients help avoid shortfalls.
Skipping Bank Reconciliations
Monthly reconciliations between your bank statements and accounting software help catch errors, fraud, and missed payments. They’re a non-negotiable part of maintaining accurate records.
Mixing Business and Personal Finances
This is a major red flag for the IRS and creates unnecessary confusion. Always use a separate bank account and credit card for your practice. Keep business expenses isolated and documented.
Final Thoughts
Accounting might not be what inspired you to start your practice—but it’s what helps keep it running smoothly. With the right systems, a good CPA, and proactive financial habits, you can reduce risk, make smarter decisions, and focus on what matters most: delivering excellent patient care.
Need help managing the accounting for your medical practice? Contact Huddleston Tax CPAs today. We offer expert accounting and advisory services for physicians, dentists, and healthcare providers throughout Washington. Call (206) 633-3333 or Book a Consultation
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