Here are some recommendations and optimal approaches for managing the accounting aspects of medical practices:
Accounting of medical practices
- Select the appropriate accounting method:
There are two primary accounting methods to choose from – cash basis and accrual basis. Cash basis accounting records income when received and expenses when paid. In contrast, accrual basis accounting records income when earned and expenses when incurred, irrespective of when cash transactions occur.
- Profit distribution strategy:
If you have partners in your practice, determining how to distribute profits is essential. Three common methods include:
- Equal distribution: Simple and equitable, but it may not suit practices where partners have unequal contributions.
- Pro rata distribution: Based on each partner’s share of gross collections.
- Corporate split: Allocates salaries based on clinical work and divides remaining profits equally.
- Utilize medical billing software or services:
Given the intricacies of medical billing, it’s crucial to employ the right tools for accurate and efficient billing of patients and insurance providers. Numerous medical billing software and services are available; one that we use is QuickBooks.
- Regular financial statement reviews:
Your financial statements offer a snapshot of your practice’s financial well-being. Consistently reviewing these statements helps identify potential issues and allows for necessary adjustments.
- Seek professional guidance from a CPA:
A certified public accountant (CPA) can provide valuable support for your medical practice’s accounting needs. A CPA can assist in selecting the appropriate accounting method, setting up your financial records, and preparing financial statements.
Main pitfalls to avoid with medical accounting:
- Delaying bookkeeping tasks:
Bookkeeping is fundamental for precise financial reporting; neglecting it can lead to problems. This can lead to missing which patients aren’t paying and what’s pending from insurance companies.
- Neglecting cash flow management:
Maintaining a timely collection of payments from patients and insurance companies is crucial to prevent cash flow problems. Moreover, this will help you understand which staff are essential and what medical equipment is essential versus what would be a luxury.
- Skipping bank account reconciliations:
Regular reconciliations ensure the accuracy of your records, making this task indispensable.
- Mixing business and personal expenses:
Keep your business and personal finances separate to avoid confusion and potential issues with tax authorities.
By adhering to these guidelines and avoiding common accounting pitfalls, you can ensure the accuracy and efficiency of your medical practice’s accounting, leading to better financial decisions and the long-term prosperity of your practice.