You probably did not spend much time in medical school learning about accounting or bookkeeping as a doctor. But as a doctor/medical practitioner, it is an essential component of operating a business. Learning to manage your finances can not only improve profitability but also allow you to concentrate on what you do best - looking after your patients.
Here, we will see some of the best practices for accounting in medical practices including the use of outsourced accounting services in the USA, to help simplify your financial processes and always keep a healthy profitable practice.
What Are the Best Practices for Accounting in Medical Practices?
Here are the best practices for accounting in medical practices:
1. Pick the Right Accounting Method for Your Practice
In terms of accounting, medical practices typically select among two approaches: cash-basis financial accounting; or even accrual basis accounting.
- Cash-basis accounting tracks revenue when you get payments and expenses when you pay. It's a straightforward method that medical practices typically use because it reflects the actual cash available at the time. It also simplifies tax filing since you pay taxes just on the cash you really got.
- Accrual-basis accounting records revenue when you earn it and expenses when you incur them, whether the money is received and paid. This method shows a far more accurate long-term financial picture but is more complex to manage.
For many small to medium sized health clinics, cash-basis accounting is easier and simpler to maintain. This can save you from monitoring receivables and payable which haven't yet cleared your bank account.
2. Separate Personal & Business Finances
The biggest mistake medical practitioners make is combining personal and business finances. You might pay for personal expenses occasionally through the business or maybe vice versa, however this could cause huge problems in the future. It may cause misunderstandings when examining your financial statements, complexities with tax filings, & tax authorities to issue audits.
To avoid this, open a separate company bank account & business credit card. All business income along with expenses must go through these accounts. This will organize your finances and help you track your practice profitability.
3. Conduct Regular Bank Reconciliations
An easy but important task is reconciling your bank accounts regularly. What this means is comparing your accounting records along with your bank and credit card statements to make certain that all transactions are right.
Bank reconciliations catch mistakes like missing transactions, duplicate entries or unauthorized charges. Additionally, they keep the financial data you make use of to make business decisions current. Reconciling your accounts every month might also enable you to detect possible fraud or errors before they turn into serious issues.
4. Plan for Taxes Throughout the Year
Taxes are a significant expense for medical practices, but planning could lower your tax liability. Rather than putting off tax planning until tax season, work with a CPA through the year.
Some tax saving strategies:
- Using deductions for business expenses like medical supplies, tools and office space.
- Contributing to retirement plans for yourself and your workers to reduce taxable income.
- Tracking possible tax credits for things like research and development or even hiring particular groups of employees.
Your accountant can help you locate these opportunities so your practice is not overpaying taxes.
5. Outsource Accounting & Bookkeeping
You are a medical practice owner already managing patient care, staffing, and administrative tasks. And then accounting comes into that mix and it might not be your strongest suit.
Outsource your accounting and bookkeeping services to a professional service. This frees up your time to concentrate on your practice while ensuring your finances are handled efficiently and accurately.
A CPA or virtual bookkeeping service can handle the daily duties of tracking revenue and expenses, making financial statements, and also filing fees. They may in addition advise on cash flow management, optimizing profits and long-term growth planning.
6. Design a Profit Distribution Plan
In case your practice has several partners, you want to understand how profits will be divided. Typical ways of splitting profits include:
- Equal distribution: Profits are split between partners.
- Pro-rata distribution: Partners share profits based on the business they generate.
- Company split: Partners are compensated according to their clinical work and profits are split.
Collaborate with an attorney or accountant to develop a profit distribution plan that works for your practice and its partners.
Final Thoughts
Appropriate accounting is essential to running a profitable medicine practice. Picking out the best accounting technique, keeping personal and business finances separate, tracking accounts receivable and also frequently reviewing your financial statements will keep your practice financially healthy. Outsourcing accounting tasks may also save you time and worry while dealing with your finances properly.
If you need expert outsourced accounting services in the USA, consult The Fino Partners to keep your practice financially sound and focused on patient care.
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