How we recommend doing bookkeeping for doctors is not expansively different from other professions or small businesses. The main idea is to set up a good bookkeeping system, stay on top of your records, and monitor expenses according to a set budget.
What is Bookkeeping and Why Is It Essential for Medical Practices?
Bookkeeping, in a nutshell, entails the daily tracking and recording of your business’s financial transactions. It’s a lot like keeping score of your income and expenses.
The focus of bookkeeping is to maintain accurate financial records. You do this by recording the details every time money comes in or goes out. Each transaction gets categorized, usually under an asset account or a liability account.
Bookkeeping for Doctors
In any medical practice, patient care is paramount, and efficient financial management contributes to that. Accurate bookkeeping:
- shows you what income comes from what sources. This way, you know if you’re doing well enough for equipment upgrades or additional staff to serve patients better.
- helps you create and manage budgets. This helps you save in some areas to invest where it makes a difference.
- ensures accurate and timely billing to patients and insurance companies. This reduces the risk of errors and delays in receiving payments.
- gives you a correct assessment of your cash flow so you can plan for upcoming expenses. This enables proactive financial management to avoid disruptions.
- ensures that you have accurate financial records for tax purposes and potential audits.
Note that medical practices face specific regulations related to billing and coding for Medicare and Medicaid patients. Proper bookkeeping helps ensure compliance and reveal potential fraud so you can minimize financial losses.
Differences Between Bookkeeping and Accounting
Bookkeepers focus on the day-to-day recording and organization of financial transactions. They record income and expenses, reconcile bank statements, and manage accounts payable and receivable. Sometimes, they also prepare the payroll and create basic financial reports.
Bookkeepers need strong attention to detail, data entry skills, basic accounting knowledge. Proficiency in bookkeeping software is an important bonus skill. They don;t need any formal education, but certifications can enhance qualifications.
Accountants focus on analyzing, interpreting, and advising on financial information. They mainly review and analyze bookkeeping data to offer financial advice and recommendations. They also prepare complex financial statements and tax returns, implement internal controls, and perform audits.
Accountants need strong analytical and problem-solving skills and communication skills. They need to have a deeper understanding of accounting principles and tax laws. This job typically requires a bachelor’s degree in accounting or a related field, like finance. Further certifications like Certified Public Accountant (CPA) are very useful.
Contributions to Financial Health
Bookkeepers and accountants work together to create a strong financial foundation for a medical practice. Each plays a crucial role in ensuring its health and success.
Bookkeepers ensure accurate and timely billing for patient services, insurance claims, and other income sources. By tracking and managing expenses, they help identify areas where costs can be reduced or optimized. They can monitor supplies, utilities, and staff overtime to ensure efficient resource allocation.
Bookkeepers must maintain accurate records for Medicare, Medicaid, and other insurance providers. They also organize financial data throughout the year so it’s easier and faster for accountants to prepare tax returns.
Accountants create insightful reports to give the practice a clear picture of its financial performance and profitability. They help create budgets and financial forecasts to predict future trends.
Accountants can advise on long-term financial goals and strategies for expansion, equipment upgrades, and new service offerings. They work to minimize the practice’s tax liability through legal deductions and tax strategies. They also identify potential risks like fraud or overspending, and recommend strategies to safeguard the practice.
Setting Up Your Bookkeeping System
Choosing the Right Bookkeeping Software for Medical Practices
Features and Functionality
List your needs and the software features that would address them. Prioritize software that provides the most help. Think about scalability so you won;t have to switch tools when your practice grows.
Make sure that any software you use integrates seamlessly with existing systems to simplify workflows and avoid data silos.
Security and Compliance
Make sure any software you use for patient data is HIPAA-compliant Look for certifications and data encryption features. You should also use software that protects against cyber threats.
If you can, go with a tool that implements disaster recovery protocols. This way, you won’t lose data even in case of unforeseen events.
Usability and Training
To make it easier on everyone, the software should be easy to learn and navigate. Choose tools that offer vendor training and ongoing support.
Cost and Vendor Reputation
Look at everything from upfront licensing fees and ongoing subscription and add-on costs to potential training or support expenses. Make sure there are no hidden fees and that you are getting long-term value.
Look into the software vendor’s reputation to make sure they have a proven track record within the healthcare sector. Consider customization options in case you need to adapt the software to your specific workflows.
Recommended Bookkeeping Software
- QuickBooks Online is a popular and user-friendly option with a strong reputation. It offers a variety of features that are specifically suited for medical practices.
- Xero is another user-friendly cloud-based accounting solution. It offers strong features for managing accounts payable and receivable, payroll, and inventory.
- FreshBooks is cloud-based accounting software known for its simplicity and ease of use. It’s ideal for smaller practices or those new to bookkeeping software. It has features for invoicing, expense tracking, online payments, and basic reporting.
Implementing Efficient Bookkeeping Processes
Your Preferred Method
Choose whether you want to use the cash basis accounting method or the accrual method.
With cash accounting, you record income and expenses when you receive cash. Accrual works on recording income when you earn it and expenses when you incur them. You record them even when payment is not yet made. This gives you a more accurate look at your finances.
A System You’ll Follow
Pick a system that works for you, helping you remain consistent. You can choose a manual pen and paper system with physical records. This is affordable but time-consuming and prone to errors.
Spreadsheet software is more flexible and customizable, but requires accounting knowledge. If you choose bookkeeping software, a cloud-based or desktop application will prove user-friendly. Software also automates tasks and integrates with other tools.
Other Items
- Establish a chart of accounts where you can list of all your financial accounts. Categorize them by type. Customize the sheet for your business to ensure accurate reporting.
- Open a dedicated business bank account to keep personal finances separate. This simplifies bank reconciliation and avoids confusion.
- Implement a system for tracking income, like using invoicing software for automation. Develop a system for managing expenses, too. Consider one that can capture receipts digitally. Save receipts for all business-related purchases.
- Automate as many tasks as possible to save time and reduce errors.
- Generate regular financial reports to stay informed about the business’s financial health.
Remember that the most effective bookkeeping system is one that suits your needs and one that you will actually use. Consider hiring a bookkeeper if all this seems overwhelming. A bookkeeper can save you time and has some accounting knowledge to help with more complex processes.
Integrating Electronic Health Records (EHR) with Financial Data
Clearly define what you want to achieve by integrating your Electronic Health Records (EHR) with your financial data. Then, assess your current EHR and financial software capabilities to see if they’re compatible.
Choose the integration method that best suits your technical expertise and budget. Direct API integration links systems directly. You can also do data transfer via a third-party application.
Make sure that you establish accurate translation of patient demographics, service codes, diagnoses, and charges. Prioritize data security at a high level to maintain HIPAA compliance.
Key Bookkeeping Tasks for Medical Practices
Managing Patient Invoicing and Billing
When setting appointments, collect patients’ current insurance information. Give them an estimated cost of services, both covered by insurance and what’s potentially out-of-pocket.
Offer patients convenient options like copays or deductibles upfront through a secure online portal or phone payment system. Offer multiple payment methods, such as credit cards or installment plans.
Explain the billing procedures and address any concerns they may have regarding their financial responsibility. Provide clear and understandable billing statements that detail services rendered, charges, and insurance breakdowns.
Make sure you use current medical coding standards (CPT, HCPCS) for services rendered. You need detailed and complete documentation of the visit to justify the billing and reduce the risk of insurance denials.
Submit claims to insurance companies electronically as soon as possible after the visit. Follow-up on the status of submitted claims for outstanding issues or denials.
Tracking and Monitoring Practice Expenses
Regularly reviewing your expenses is a crucial practice. It gives you a clear picture of where your money goes. This data-driven foundation allows you to create realistic and effective budgets for your practice.
By identifying potential problems early on, you can address them and minimize financial losses. When you see unnecessary expenses or inefficient areas, you can optimize spending.
Looking at your expenses by vendor, you can see where you might negotiate better rates or terms with key suppliers.
Frequently Asked Questions
How frequently should financial audits be conducted for medical practices?
The frequency of financial audits for medical practices isn’t mandated by any federal regulations in the United States. Practices with high revenue or complex financial structures can benefit from annual audits. Practices with strong internal controls can do it every 2-3 years.
What are some common financial pitfalls that new medical practices face?
- Failing to account for initial expenses and taking on excessive debt with high interest payments.
- Difficulty meeting ongoing expenses due to slow collections.
- Lack of a clear financial roadmap and overspending coupled with slow revenue growth.
- Inefficiencies, security vulnerabilities, and difficulty managing patient data effectively.
- Unforeseen expenses that disrupt operations and strain finances.
- Lack of financial expertise.
Are there steps to be taken to improve financial literacy among medical staff?
- Organize workshops or seminars on financial planning basics.
- Conduct focused sessions on financial topics to train for specific needs.
- Offer access to online resources like courses, articles, and budgeting tools.
- Require company leaders to demonstrate financial responsibility.
What Is AccountsBalance?
AccountsBalance is a monthly bookkeeping service specialized for agencies & SAAS companies.
We take monthly bookkeeping off your plate and deliver you your financial statements by the 15th or 20th of each month.
You’ll have your Profit and Loss Statement, Balance Sheet, and Cash Flow Statement ready for analysis each month so you and your business partners can make better business decisions.
Interested in learning more? Schedule a call with our CEO, Nathan Hirsch.
And here’s some free resources:
In Summary
If you follow these tips when doing bookkeeping for doctors, you shouldn’t run into too many issues. The right bookkeeping setup and consistent record-keeping makes financial planning and budgeting go much more smoothly.
