Bookkeeping benefits for private practice owners
Whether you do your own books or use Bench to manage it for you, here are four benefits of having an up-to-date bookkeeping process for your private practice.
You can keep better track of your tax-deductible expenses
You can typically deduct expenses necessary to run your therapy practice. Attending a counseling conference, for example, could be a tax write-off. So could subscriptions to psychology journals or a laptop you use solely for work. Try to keep track of everything, no matter how big or small the expense, as you’ll have to account for them when you file taxes.
A general ledger, a spreadsheet, bookkeeping software, or a mobile app are the best ways to organize business expenses. Be sure to keep your receipts in case of an audit, as you will need proof of purchases.
A good bookkeeping system means always knowing how much you’ve earned and spent. For your practice’s everyday operations, that’s vital information.
You have visibility into your cash flow
If you understand how your cash flows into and out of your business, you can properly pay your staff and other expenses and ensure you still bring home a profit.
Your bookkeeper or accountant can prepare cash flow forecasts to show how much cash your business will likely have on hand at a given time.
Here’s a situation where this could be useful: maybe you’re booked solid and having a hard time fitting in new patients and updating your calendar. It’s so busy that you need to hire a part-time assistant to tend to these administrative duties.
Without seeing how much your business will generate throughout the year, how will you know if you can afford an employee?
You can better track patient billing
If invoices aren’t paid on time, running your business can become difficult, if not impossible. Your cash flow and having the necessary funds to pay your expenses is directly affected by patient payments, so having an organized bookkeeping system can streamline this process. Not only can you follow outstanding and paid invoices, you can also budget better by analyzing and predicting your regular expenses.
You can better handle insurance billing
As a healthcare provider, you must account for more than just patient payments. You also have to deal with insurance companies and government-backed programs like Medicare and Medicaid.
In 2020, the federal government estimated that Medicare improper payments against healthcare providers came to $43 billion. One of the top two reasons a payment is deemed improper? Insufficient documentation. If you want to avoid severe ramifications for your practice, be diligent and well-informed about your billing compliance.
The insurance claims billing process isn’t always smooth sailing for clinicians, as problems with claims denials or slow reimbursements can slow your revenue cycle.
Having a fuss-free billing workflow allows you to monitor the status of your claims and ensure they are correctly updated in your books so you can spend less time following up with insurance companies.
Helpful resource: 8 Bookkeeping Tips to Simplify Small Business Financials
Staying HIPAA complaint
Under the Health Insurance Portability and Accountability Act (HIPAA), mental health professionals face strict data security regulations. If you disclose a patient’s Protected Health Information (PHI) for reimbursement or payment, you could face stiff fines and even jail time for extreme violations. In 2021, The Department of Health and Human Services Office for Civil Rights handed out penalties totaling $15 million.
Despite your knowledge of HIPAA, you may only sometimes know what constitutes a violation. For example, many therapists probably don’t realize that using online accounting software to maintain financial records and process patient payments is a vulnerability that could result in a security breach.
Many accounting software programs, like Sage, claim to protect your client’s data and ensure proper accounting of your practice. Others, like QuickBooks Online, a highly-secure platform, are transparent in that they don’t comply with HIPAA standards.
To ensure you follow HIPAA rules, consider using accounting software along with electronic health records (EHR) technology, like SimplePractice or TherapyNotes, to store sensitive patient data and process payments. By doing so, you’ll be able to transfer income data to your accounting program to keep your books current.
Tax considerations for your therapy practice
When pressed for time, it’s tempting to put bookkeeping on the back burner. Fortunately, there are some best practices you can implement to make the record-keeping process more manageable while saving you time, money, and sanity.
Separate personal and business expenses
If you’re just starting a practice, mixing your personal and professional transactions can be easy if you don’t have a separate business account. By doing that, you’re complicating your bookkeeping. You run the risk of claiming a personal expense as a business expense, which could land you in hot water with the IRS.
One solution is to categorize your business transactions at the end of each month or quarter. Afterward, contact your bank to open your practice’s business checking account and apply for a business credit card. A separate bank account and credit card will simplify your bookkeeping and prevent unnecessary errors.
Review financial statements regularly
Many healthcare professionals review their financial statements only once a year when their accountant requests financial data to prepare their taxes. However, you can gain insight into your practice’s financial health by reviewing its financial statements on a frequent basis.
Looking at your balance sheet, income statement, and statement of cash flows each month keeps you aware of your current revenues, expenses, receivables, and payables. It also helps you spot potential problems before they become serious ones and gauge your progress toward your financial goals.
Prioritize paying your quarterly taxes
Make paying your quarterly taxes a priority during the year—you’ll avoid penalties, and have a better idea of your expected income for the year. This information can also be useful to your tax advisor in determining how much you should spend before the end of the fiscal year, as you can often save money on your taxes if you incur certain expenses before the year ends.
Hire a CPA or full-service accounting solution to handle your books
Just as your patients trust you, you should trust a professional when it comes to your taxes. While handling your books yourself using a DIY accounting program might be cheaper upfront compared to hiring a chartered professional accountant (CPA), or a full-service bookkeeping solution like Bench, it could end up costing you more in the long run.
If bookkeeping isn’t your strong suit, or if you’re months or years behind, you might make mistakes and miss tax deductions and tax planning opportunities that could save you money. Outsourcing your bookkeeping could prove to be more cost-effective than you might think, with the financial benefits far outweighing those expenses.
Helpful resource: 8 Great Reasons to Outsource Your Bookkeeping
The bottom line
While you focus on patient care, don’t let bookkeeping slow you down. Make sure you give your books and billing the attention it deserves and invest in the right tools to streamline your bookkeeping process, whether you do it yourself or hire a pro. With financials in tip-top shape throughout the year, you can make better business decisions and rest easy knowing that you’re running a successful practice.