Accounting for Medical Practices: Tips and Best Practices
Last Updated June 6, 2023
Running a successful medical practice involves more than just providing quality healthcare services. It also requires efficient financial management to ensure the practice’s long-term sustainability. In this article, we will explore the basics of accounting for medical practices and provide valuable tips and best practices to help you navigate the complex world of healthcare accounting while adhering to the rules and regulations in the United States.
Table of Contents
The Basics of Accounting For Medical Practices
Choose The Right Accounting Method
Selecting the appropriate accounting method is crucial for accurate financial reporting. There are two primary methods: cash basis and accrual basis. The cash basis method recognizes revenue and expenses when cash is received or paid, while the accrual basis method recognizes revenue when earned and expenses when incurred. Consult with a professional accountant to determine which method best suits your medical practice.
Determine How to Distribute Profits
Profit distribution is an important aspect of managing a medical practice. Consider the following options:
Allocate profit equally:
This method divides the profits equally among the partners or shareholders, regardless of their contributions.
This method distributes profits based on each partner’s or shareholder’s ownership percentage.
In this approach, profits are divided based on an agreed-upon formula or factors such as production or seniority.
Leverage Medical Billing Software or Services
To streamline your medical practice’s financial processes, consider utilizing medical billing software or outsourcing to professional medical billing services. According to the Medical Group Management Association (MGMA), implementing these solutions can significantly reduce billing errors, improve revenue cycle management, and enhance overall financial performance.
Review Financial Statements Regularly
Regularly reviewing financial statements is essential for monitoring the financial health of your medical practice. Keep track of key financial documents, such as income statements, balance sheets, and cash flow statements. Analyzing these statements will provide valuable insights into your practice’s profitability, liquidity, and overall financial stability.
Get Professional Help From a Local CPA For Your Medical Practice
Navigating the intricacies of healthcare accounting can be challenging, so it’s wise to seek assistance from a certified public accountant (CPA) who specializes in medical practices. A local CPA with expertise in healthcare accounting can provide invaluable guidance, help optimize your financial operations, and ensure compliance with relevant regulations.
Common Healthcare Accounting Mistakes to Avoid
Bookkeeping is Put on The Back Burner
Neglecting proper bookkeeping can lead to inaccurate financial records and potential compliance issues. Maintain meticulous records of all financial transactions, including revenue, expenses, and invoices. Consistently update your books to have an accurate representation of your practice’s financial standing.
Cash Flow Suffers
Poor cash flow management can jeopardize the financial stability of your medical practice. Monitor your cash flow regularly, including incoming revenue and outgoing expenses. Implement effective billing and collection processes to ensure timely payments from patients and insurance providers.
Skipping Bank Account Reconciliations
Failure to reconcile your practice’s bank accounts on a regular basis can result in undetected errors, discrepancies, or potential fraud. Reconcile your bank statements with your financial records to ensure accuracy and identify any discrepancies promptly.
Commingling Business And Personal expenses
Mixing personal and business expenses is a common mistake that can complicate accounting and tax matters. Establish separate bank accounts and credit cards for your medical practice to maintain clear financial boundaries. This segregation will facilitate accurate accounting and minimize potential tax-related issues.
The Bottom Line
Proper accounting practices are essential for the success and sustainability of medical practices. By choosing the right accounting method, effectively distributing profits, leveraging medical billing software or services, regularly reviewing financial statements, and seeking professional help when needed, you can ensure accurate financial reporting, streamline operations, and comply with relevant rules and regulations.
Avoid common healthcare accounting mistakes such as neglecting bookkeeping, mismanaging cash flow, skipping bank account reconciliations, and commingling business and personal expenses. By following these tips and best practices, you can establish a solid financial foundation for your medical practice, enabling you to focus on delivering exceptional patient care.