While physicians and other licensed medical practitioners think of medical bookkeeping as another administrative task, knowing your practice’s income-generating services and your biggest expenses is just half the battle.
A key element of a well-functioning business is good health of its financial books.
Going back to bookkeeping basics
To determine if your medical practice is a picture of financial health, the first question you should ask is if whether your financial records are organized and are readily available. This means that you practice good bookkeeping for medical practices and you can produce supporting documents to determine the state of your financial health.
To assess your financial health, you need to be able to retrieve at least two years worth of data. These documents should include:
Other supporting documents that will also be helpful to your medical practices financial health assessment include:
bank reconciliations and records;
budget comparisons / forecast;
and payroll / source deductions documents
If you just started your practice, you should learn the basics of bookkeeping for medical practice and it will help to set up medical office bookkeeping systems. You should have all bookkeeping records on file and a financial forecast of your practice.
Red flags in doctors financial books
Assembling the financial documents alone will already trigger red flags in your business, especially when it comes to documenting your daily transactions, issuing payments and pay slips, and other related operational activities. You may already take notes of these red flags so you can implement new or updated policies in bookkeeping for your medical practice.
Typical red flags in bookkeeping for the medical practice include:
1. The lack of patient documentation
Documenting your patients information is not just for your practice. Your patient information will also help you understand
who your patients are,
what are they willing to pay,
their capacity to avail upgrades or premium services, and
their mode of payment (cash or health insurance coverage).
Patient documentation will also help you to become more efficient in your payment collection with health insurance companies, and anticipate the period of your next receivables payment. Some patients rely on their health insurance than paying cash every consultation.
For doctors managing clinics, it is important that you are on top of your receivables; otherwise, it will put a serious dent on your cash flows.
2. The lack of general bookkeeping information documentation
Operating costs and expenses, including rent, electricity, phone service, labor and equipment should be properly documented so that there is a general awareness of how much money goes out than there is coming in.
Moreover, proper documentation of these costs will allow your practice to determine which overhead items could you do without or improve to be more cost-effective, and whether you have enough supplies or medication in your inventory before placing the next order.
3. Patient record update
Keeping patients records updated will provide your practice insight of how much fees should be properly billed. While you can rely on current industry standards when it comes to certain medical service fees, your fees should be able to pay for your service and any other pharmaceuticals, supplies and medical equipment costs involved.
4. Partnerships with other doctors, medical facilities
There is a tendency to overlook costs and revenues incurred from your collaborations with other medical professionals and facilities to deliver service to your patients. Aside from billing purposes, documenting such endeavors will provide you the needed financial insight about patient trends when it comes to additional treatments or services, and whether you can offer the income-generating services through your clinic in the near future.
While your focus is not on the bookkeeping of your medical practice, it really pays a lot to give significant attention and effort to ensure your financial books are healthy towards your medical practice’s success.
Here are a few essential tips that can help keep your books healthy:
1. Always keep detailed records
Keeping detailed records will allow you to retrieve information and necessary documents quickly. It will also help you reconcile and analyze reports and statements of your medical practice, especially with your practice's bank accounts, credit card accounts, payroll wages and taxes, loans and other applicable financial documents.
2. Your transaction records should be in accordance medical bookkeeping standards
It is necessary for any business in operations to comply with industry-specific regulatory standards mandated by the state and federal laws. If your practice is not profitable enough to hire a full-time financial advisor, you may hire an bookkeeping professional you can trust to help set up documentation and bookkeeping system in place for your office administrator to implement moving forward.
3. Schedule your profit & loss statements
A quick way to determine whether your medical practice is still operating on track (to optimum profitability) is to generate and analyze monthly profit and loss statement.
A profit and loss statement by definition measures a company's sales and expenses during a specified period of time.
To compute for your medical practice's profit and loss statement for a particular period, total all sources of your practice's revenue and subtract all expenses related to the revenue.
Analyzing your profit and loss statements on a monthly basis allows any business to have an overall picture of its financial health. The analysis process also helps you validate your numbers against your actual operations (daily transactions and also the number of patients, new and returning, over a period of time).
4. Keep an eye on your invoices
Always keep on top of your outstanding invoices from suppliers, service providers, and even partnering facilities. This is to avoid service disruption due to unpaid invoices. Remember, it can get very expensive to hire new staff, secure a new supplier or partner with a facility as compared to keeping the existing one.
5. Collect applicable taxes immediately
Some medical practices tend to forget the most basic things in bookkeeping, and tax collection is one of them. As such, it is important for you to take taxes out immediately upon service rendered, point of sale, or when payroll is generated.
The longer you collect applicable tax from the time that passes between transaction and bookkeeping, the more likely your medical practice will commit an error that could cost you money, like paying off penalties for delayed payments. In addition, paying taxes on time will also help your medical practice’s cash flow as opposed to paying a large lump tax sum bill by year-end.
Hiring a professional
Understandably, majority of medical practices rarely employ a full-time financial advisor due to cost considerations.
But if you're aspiring for your medical business to grow in the next few years, hiring a professional financial advisor or bookkeeping service provider that introduces technology in your small business is imperative, especially if you’re dealing with the amount of data you will encounter on a day to day business. Some technologies allow you to automate tasks that you repeatedly do (like invoicing, for example), sync data from one document into a centralized platform where you can access or retrieve everything anytime, anywhere, and even back up huge amounts of data that you might use in the near future.
If you're that type of person who likes to have everything accessible via your laptop or mobile phone, it can be quite easy to manage details of your medical practice using cloud-based bookkeeping systems. In our previous article, we discussed the power of cloud and mobile bookkeeping that helps in business growth.
If you have yet to employ a financial advisor and already into your medical practice for quite a while, having all the information ready and accessible will make your financial advisors job much easier. Moreover, some financial advisors will recommend technology-based solutions to make sure your medical practice adopt all new and updated bookkeeping policies into your day-to-day operations moving forward.
Some of these technology-based solutions require no technical skills to set up, and even operate it. These technology-based solutions are also secure and fast without sacrificing work load, and can easily store and sync loads of information for filing in such a short time. QuickBooks, for example is the leading bookkeeping solution used and recommended by most financial advisors and small business owners.
Keeping your medical practice’ financial health in check must be an important part of your monthly activity. And with the availability of technology-based solutions around, it will no longer be a time-consuming task to keep your books healthy towards your medical practice’s financial success.
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so you can get on top of your finances today to grow your small business big tomorrow.
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