Bookkeeping for veterinarians doesn’t have to be complicated if you know how to optimize your accounting workflow. In this post we’ll go over some tips to keep things organized and streamlined for your convenience.
Basic Principles of Veterinary Bookkeeping
Understanding Accrual Accounting vs Cash Accounting
Cash accounting and accrual accounting are the two MAIN methods for recording financial transactions.
Cash accounting is the simpler method to understand and implement, especially for smaller businesses. It focuses on cash flow, recording income only when the business receives cash and expenses only when it pays cash.
The imitation of the cash method is that it doesn’t account for outstanding invoices or unpaid bills. This potentially gives business owners an inaccurate view of the company’s financial health.
Accrual accounting requires a more robust accounting system and bookkeeping practices. This method matches revenue and expenses by recording income and expenses right away. It records income when it’s earned, even if the business doesn’t receive cash yet. It also records expenses when they’re incurred, even if the business doesn’t pay cash yet.
You get a more accurate picture of your finances with the accrual method. It reflects true financial performance, considering all outstanding obligations.
Generally Accepted Accounting Principles (GAAP)
GAAP dictates that larger businesses and publicly traded companies typically need to use accrual accounting. Smaller businesses with low credit sales and operating expenses can do well with cash accounting.
Importance of Accurate Record Keeping: Managing Revenue and Expenses
Bookkeeping for veterinarians, like any other business, relies on accurate record keeping. Effective financial management hinges on managing revenue and expenses towards the financial health and success of the practice.
Revenue Management
Detailed records categorize income sources so you can see which services generate the most revenue. Keeping records of outstanding invoices helps you track overdue payments. Then, you can implement strategies to improve the timing of client collections to maximize the revenue you receive.
When you analyze revenue and expense data, you can measure profitability. Then, you can make adjustments to ensure that your service pricing consistently covers costs and generates a profit.
By meticulously tracking inventory, you can prevent stockouts and subsequent lost sales opportunities. You can also prevent overstocking that ties up capital and can lead to losses with expired supplies and medications.
Expense Management
Keeping detailed expense records helps you categorize spending so you know where you can save on costs. This also helps you develop realistic budgets. Alongside income tracking, you can forecast cash flow to prevent financial shortfall that could disrupt operations.
With accurate expense records, you can track spending with specific vendors to help you negotiate better pricing or identify more cost-effective suppliers.
Maintaining accurate records simplifies tax filing, minimizes errors, maximizes deductions. and avoids potential penalties.
Key Bookkeeping Tasks for Veterinarians
Managing Payroll and Employee Benefits
Establish a regular pay schedule that complies with local labor laws. Use a system for accurately tracking hours worked. You can use independent time clocks and timesheets, or practice management software that includes this feature.
If you have employees, learn how to properly calculate and withhold appropriate federal, state, and local taxes from paychecks. Consider bookkeeping outsourcing services to get professional payroll processing help. This helps you ensure accuracy and compliance with complex tax regulations.
Provide employees with paystubs that detail their earnings, deductions, and net pay. This can be physical copies, but we recommend electronic paystubs for easier tracking, filing, and backups.
If you hire virtually, you may not need to provide benefits packages. However, offering a combination of benefits can significantly impact recruitment and retention. This helps you get the best help possible without breaking your hiring budget.
Bookkeeping for veterinarians becomes so much easier when you use payroll software to automate calculations, deductions, and tax filings. Consider integrating time tracking and payroll software to reduce the risk of errors.
Inventory Management of Veterinary Supplies and Equipment
Bookkeeping for veterinarians doesn’t really include inventory management, but this can help you ensure financial health.
Choose a software tool that includes inventory management features, or create a separate spreadsheet to track inventory. Start by classifying supplies and equipment. Identify the critical items that you can’t do without so you can prioritize restocking them.
Set minimum and maximum stock levels for each item to keep quantities optimized. Set up a formula to trigger reordering. Make sure you calculate for the time it takes for inventory to arrive. Do physical inventory counts at least monthly to ensure stock matches inventory records.
Your bookkeeping tools can help you implement a first-in, first-out policy to minimize waste. You can also track reliable suppliers and use data to negotiate loyalty and bulk purchase discounts.
Tracking Capital Expenditures and Depreciation
Capital Expenditures
You need to track the funds you use to acquire tangible assets with a useful life exceeding one year. This gives you a clear picture of how much you invested in long-term assets. This way, you can budget more effectively and plan for future equipment upgrades or replacements.
Depreciation
You need to understand how to allocate the cost of a capital asset over its estimated useful life. Depreciation is a non-cash expense, so it reduces net income on the income statement, but doesn’t involve a physical cash outflow.
Tracking depreciation provides a more accurate picture of your profitability by considering the decreasing value of assets. This minimizes the risk of overstating profits and helps with tax planning because depreciation is a tax-deductible expense.
Leveraging Technology for Efficient Bookkeeping
Benefits of Cloud-Based Bookkeeping Systems
We recommend cloud-based bookkeeping for veterinarians because these systems offer a multitude of advantages.
Accessibility
Cloud-based systems allow authorized users anywhere with an internet connection to access financial data and perform bookkeeping tasks. The most popular tools even have mobile apps so users can work on any device type.
Unlike traditional manual methods and desktop software, cloud-based systems allow real-time access to financial reports and dashboards. This means immediate insights from current data to make data-driven business decisions.
Security
These systems also offer better security measures for the most part to safeguard sensitive financial data at rest and in transit. You can even set regular automatic backups to protect data.
Efficiency
Seamless collaboration between veterinarians, accountants, and bookkeepers makes the whole process easier and less prone to errors. Automations included in many cloud-based accounting solutions streamline repetitive tasks to save valuable time.
Cloud-based systems scale with the business, eliminating the need for expensive upgrades and additional systems. They also integrate well with other practice management software to eliminate the need for manual data entry between different platforms.
Most cloud software updates automatically so you always have access to the latest features and security patches. Their user interfaces are also typically designed to be intuitive and user-friendly. This means even team members with little accounting expertise can execute bookkeeping tasks well.
Integrating Veterinary Practice Management Software (VPMS) with Accounting Systems
We recommend using integrated systems because they automate processes and provide a real-time view of your financial situation. Automatic data transfer is not only convenient, but also ensures more accurate financial data used for accounting and reporting.
First, make sure you choose a compatible VPMS and accounting software with robust security features. The goal is to create a seamless system to reduce manual work and errors while staying secure.
Second, take time to test your data mapping to make sure data flows properly between the two systems. Apply any customizations that you need to fully meet your specific needs, but tread lightly.
Third, provide training as needed for anyone you will task to use the integrated system. We recommend hiring experienced bookkeepers who already understand the basic workflows and procedures.
Strategic Financial Management
Budgeting and Financial Planning for Veterinary Practices
Effective budgeting and financial planning are the cornerstones of achieving stability in bookkeeping for veterinarians.
First, collect and analyze your financial statements for at least the past two years. This will serve as a baseline for your financial performance. Check this data against industry benchmarks for similar practices in your area. Note areas for improvement, which you will use in the nest step.
Second, set goals that align with your business values, mission and vision.
Third, break down your expected income sources and expenses. Use your historical data and industry benchmarks as a starting point for these projections.
Fourth, create a realistic budget and timeline to achieve your goals. Don’t forget to factor in variable costs and seasonal trends.
Make sure you monitor your actual income and expenses throughout the year and compare them to your budget projections. Address any significant deviations and take steps to manage unforeseen circumstances.
Cash Flow Management: Techniques to Maintain Liquidity
Effective cash flow management hinges on providing regular services to keep income flowing. Focus on providing routine care services to secure readily available cash to cover ongoing expenses.
Outside of predictable income, explore a variety of services to cater to different client needs and budgets. Make sure you keep prices competitive while ensuring profitability.
Offering additional related services and products that complement a client’s primary need also works well.
On the admin side, create a system for sending invoices and collecting payments promptly. Consider offering early payment discounts to incentivize timely payments.
Consider scheduling adjustments or hiring part-time to optimize labor costs as you meet changing client needs. Use technology to streamline operations and reduce costs.
Tax Planning and Compliance: Maximizing Deductions and Avoiding Penalties
Bookkeeping for veterinarians entails understanding veterinary-specific tax deductions under ordinary and necessary business expenses. It also includes continuing education licensing fees, and malpractice insurance premiums. Equipment depreciation can be a huge area that many veterinarians miss.
To maximize deductions, keep detailed records of all business expenses. Consult a tax advisor to determine the most tax-efficient business structure for your practice. Consider delaying invoices or pre-paying certain expenses to manage your taxable income.
Make estimated tax payments throughout the year to avoid penalties for underpayment. File your tax returns electronically for faster processing and to avoid late-filing penalties.
Outsourcing Bookkeeping Services
When and Why to Consider Outsourcing
All business owners can do better when they focus on their core competencies and the activities that generate revenue. Bookkeeping is rarely this. Delegating that to professionals with veterinary-specific bookkeeping knowledge paves the way to greater business success.
Qualified bookkeeping service providers have the expertise and experience to ensure accuracy while streamlining processes. Outsourcing bookkeeping can be more cost-efficient as you eliminate the need for full-time personnel and associated expenses, as well as most in-house training costs.
Outsourcing allows you to scale your bookkeeping needs up or down depending on your practice’s workload. This improves your cash flow management while enjoying qualified expertise.
Selecting the Right Bookkeeping Service Provider for Veterinary Practices
If you run a smaller practice, you might be ok with basic bookkeeping. For larger practices, we recommend services that include financial reporting and tax preparation assistance.
Consider whether you need the bookkeeping service to integrate with your VPMS to streamline workflows and minimize data entry errors. Communicate that with your hiring partner.
Choose a bookkeeping service provider based on their reputation and not just their experience. Make sure they can offer the specific services you require with integrity. Security is of utmost importance, so check their technology and protocols.
Assess the provider’s communication style and availability. Confirm that their pricing model suits you and there are no hidden fees before you sign a contract.
Frequently Asked Questions
How often should financial records be updated in a veterinary practice?
Ideally, update your financial records daily, unless business is very slow. This ensures data accuracy and helps you stay on top of payments. It also helps you track cash flow, monitor inventory, and identify areas for improvement.
What are the common financial pitfalls that veterinarians should avoid?
Veterinarians should avoid foregoing budgeting. A well-defined budget is key to sustained profitability and growth. Neglecting student loan debt and retirement savings is also unwise. Make that part of cash flow forecasting.
Avoid undervaluing your expertise and the quality of care you provide, even when coming against cheaper competitors. Price your services in a sweet spot that ensures profitability and service excellence.
Never mix business and personal finances. Keep separate bank accounts and accounting records for the practice and your personal use.
Don’t forget to reinvest a portion of your profits back into the practice.
Can technological integration reduce bookkeeping errors in a veterinary clinic?
Integrating technology like practice management and accounting software greatly reduces the risk of human error. Real-time updates ensures proper cash flow management, accurate bank reconciliation, and correct tax filing.
How does effective bookkeeping contribute to the overall success of a veterinary practice?
Effective bookkeeping is the backbone of a financially healthy veterinary practice. It provides accurate financial data that informs wise business decisions. It also helps you understand cash flow to plan properly for upcoming expenses to avoid shortfalls.
Moreover, effective bookkeeping helps you see where to save on costs and improve profitability. Then, you can invest in growth safely.
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.
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In Summary
Use these tips for streamlined bookkeeping for veterinarians so you can optimize your accounting workflow. This way, you can enjoy greater profitability without the headaches.
