In chiropractic college, they probably didn’t teach you how to do the books. Whether you’re buying a practice or starting from scratch, understanding bookkeeping for chiropractors is essential to keeping your business profitable and on track for healthy growth.
In this guide, we’ll walk you through the steps you need to take to get your chiropractic practice off the ground, and the ways you can save time by automating financial admin tasks.
Hire an Accountant
If you plan on growing your practice in the future, or if you have any intention of one day selling it, you should team up with a Certified Public Accountant (CPA) as soon as possible. While you can probably do most of the legwork involved in opening a business yourself, having a CPA on hand to walk you through the trickier aspects of structuring your finances will pay dividends in the long run.
A CPA can help you negotiate leases, manage your cash and treasury, and take care of ongoing tax reporting. They can use the financial statements compiled by your bookkeeper to devise a long-term growth strategy for your business.
If you’re new to hiring a CPA, find an expert who is familiar with the chiropractic industry and has experience dealing with the finer nuances of, for instance, billing care providers. Start out by asking colleagues operating chiropractic practices for references. Once you’ve compiled some leads, make appointments to meet them in person. A qualified CPA should be willing to sit down and give you a free consultation.
Be sure to discuss rates at this first meeting. Most accountants charge an hourly fee, but some accept a monthly retainer. If you’ve never worked with a CPA before, read our guide on how to hire, find, and work with a great accountant.
Choose the Right Business Structure
When you first register your practice, you have five legal structures to choose from:
- Sole Proprietorship: Your individual person and your private practice exist as a single, taxable entity.
- Limited Liability Corporation (LLC): While you are the sole owner of your business, it is taxed as a separate entity, and your personal liability is protected.
- C-Corporation: The standard corporate business structure, it exists as a separate tax entity, owned by shareholders.
- S-Corporation: Similar to a C-corporation. However, S-corporations pass their corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes.
- Partnership: Two or more partners share ownership of a business. Each is responsible for contributing money, property, labor, or skills, and in return, each partner shares in the profits and the losses of the business.
The Sole Proprietorship
In some cases, if you’re setting out as a solo practitioner, forming a sole proprietorship may make the most sense. A sole proprietorship has the benefit of being simple to administrate. Your company’s profits and losses are reported directly on your personal income tax statement. This also means that you don’t need to put yourself on payroll and pay yourself a salary.
However, a sole proprietorship does not protect you from financial liability in case your business defaults on debt or goes bankrupt. Also, sole proprietorships are more likely to be audited than other business structures—as much as three times as likely as a partnership or corporation.
The Limited Liability Corporation
Alternatively, registering your business as an LLC can reduce your financial liability and the amount of taxes you pay.
An LLC, true to its name, offers additional protection from personal bankruptcy and debt than a Sole Proprietorship business structure. As an entity, an LLC is legally separate from your person. Your personal assets, including your car and even your house, cannot be seized by debt collectors to pay for any debt incurred by your company. While you are the sole owner of the corporation, all debt collection, and even lawsuits, are directed at the LLC alone. (However, forming an LLC will not protect you from charges of malpractice affecting your individual person. For this, you will still need to purchase malpractice insurance.)
Additionally, LLCs are statistically less likely to be audited than sole proprietorships. And the owner of the LLC has the option of having it taxed as an S-corporation. By doing so, you can pay significantly less—30%-50%, according to some sources—in taxes.
If you plan to open a large practice with multiple employees, investors, or stakeholders, chat to your CPA to determine if you need to consider the C-corporation, S-corporation, or Partnership business structures.
Note that you can upgrade from one business structure to another. However, doing so will require dealing with paperwork, including filing articles of organization. This is where having a CPA on your team comes in handy. They can (and should) advise which business structure is best for your current needs, so that you get it right the first time.
Choose a Billing System
Before you start taking payments, you need to determine whether your practice offers patients the option of direct billing care providers, or whether your practice will use an upfront payment system in which the patient claims the cost of treatment from their care provider after paying out of pocket. Each option has its own benefits and drawbacks.
Upfront payment is when the patient pays your practice after each visit and assumes responsibility for claiming the cost back from their health insurance provider. Upfront payment removes you from the medical billing process, meaning you are no longer waiting for claims adjusters, clearing houses, and insurance companies to get you your money. Nor are you risking having claims denied. It makes tracking patients, and their care providers, less complex.
However, forcing clients to report their own expenses to care providers may alienate potential customers and cost you business.
Billing directly to insurance involves coding the care you provide, filling out a claim, submitting it to an insurance company, and waiting for payment. Using this system has the benefit of attracting patients who have insurance and appreciate the convenience. However, the credentialing process (becoming part of an insurance panel) can be lengthy. Hiring a credentialing service to manage the process for you can save you some time, but, you’ll be out of pocket for the convenience. It’s also worth noting that the medical billing cycle can add a level of complexity to your patient tracking and bookkeeping.
Set Up a Payment System
Once you’ve decided if your practice will offer upfront payment or direct billing, you’ll need to set up a payment system.
If you chose the upfront payment method for billing, Square is a good choice for collecting payments. It allows you or your employees to become fully mobile, billing patients in whatever room they’re in, or even off-site. Using a tablet with a Square card reader and other relevant apps—such as a patient tracking system—reduces the need for a fully-equipped front desk area in your office.
On the downside, Square’s rate of 2.75% per transaction is higher than most terminal payment systems. You must also factor in the price of having a dedicated tablet from which to run the reader. Because Square charges per transaction—as opposed to a flat rate—and does not bill insurance companies directly, it is usually best suited for smaller practices.
A second option, which works both for upfront payment and direct billing is Fortis. The service gives you the choice of processing transactions with either a portable terminal or an online payment system via tablet. Fortis also offers the ability to set up recurring payments, and to direct bill care providers.
Unlike Square, Fortis charges you a flat rate per month based on the volume of transactions. If you process few transactions—fewer than 15,000 per month—you will end up paying a minimum fee of $125, regardless of the exact number. Because of this, Fortis tends to suit larger practices with multiple practitioners.
Set Up an Electronic Health Records (EHR) System
If you aren’t already using electronic health records (EHR) as part of your practice, it’s time to upgrade. An EHR system is paperless and allows multiple staff members to collaborate on patients’ files. Using one will streamline your business, and make it more efficient and secure, by taking paper records out of the mix.
To begin using an EHR, follow the guides on HealthIT.gov to determine whether your practice qualifies, and determine how you’ll implement the system.
The next step is to find EHR software that works for you. The one you choose will depend on whether you bill care providers directly, your budget, and the size of your practice.
Set Up a Bookkeeping System
You may not love bookkeeping, but it’s essential to keeping your business running and it’s required by the IRS. Finding the right bookkeeping solution for your chiropractic practice is key to making sure your financials are organized and you understand your business’s financial health.
Bookkeeping is the day-to-day process of recording business transactions—money coming in, money going out—categorizing them, and making sure your records match up with your bank statements. It’s an ongoing task, and one you must (ideally) ensure is complete every month.
When it comes to how you take care of the books, you have the following options:
- Do It Yourself: For some business owners, a Dummies Guide to Bookkeeping, plus some simple accounting software or spreadsheets, is enough to keep the books organized.
- Online Bookkeeping Service: If you’d rather spend less time in the back office and more time on treating patients, leave your bookkeeping to the pros. With an online bookkeeping service like Bench, a team of professional bookkeepers do your books for you, leaving you free to manage the rest of your business. Plus, you can view/download your monthly financial statements and chat with your bookkeepers at any time via the Bench web app.
- Hire Someone In-House: If your practice is large enough, it may make sense to hire a bookkeeper who works for you in-house. Generally, this is a good option if your annual revenue exceeds $1 million, or you have more than 30 employees.
The bookkeeping method you opt for should be based on your budget, the size of your business, and how much time you are personally able to devote to the task. You can always change your bookkeeping method as your practice evolves.
Set Up Payroll
Like bookkeeping, managing payroll has the potential to absorb your time and energy while distracting you from the business of treating patients.
The most effective way to take payroll tasks off your plate is to use an automated online service such as Gusto. It allows you to schedule and authorize employee pay in advance. The service deducts taxes automatically, and gives your employees access to their pay history and relevant tax data online.
Before setting up any payroll system, though, you need to determine whether your employees are legally classified as employees or contractors. Some chiropractors hire associates as independent contractors, in the hopes of avoiding payroll taxes or FICA contributions. However, their business relationship with the supposed contractor, as well as the type of work the associate is doing, means they are actually classified as employees.
Misreporting an employee as a private contractor can incur penalties from the IRS. Be sure to research what makes a chiropractic associate an employee before issuing any tax forms.
Track Your Expenses
Before you can claim tax deductions on your return, you need to properly track and document all of your business-related expenditure throughout the year.
There are a multitude of ways you can track expenses. Some business owners like to take a photo of their receipts, save them to dropbox, and manually record them at a later date. Others outsource expense tracking by handing their receipts over to their bookkeeper, receptionist, or financial controller.
A solid all-in-one expense solution that works well, whether you’re tracking expenses yourself or handing them over to a financial pro, is Expensify. The app offers desktop and smart-device functionality, a straightforward interface, and the ability to capture receipts with your phone’s camera. Once expenses are logged, you and your employees can create expense reports that make sense to your bookkeeper and your CPA.
Claim Chiropractor Specific Tax Deductions
Knowing how to leverage tax deductions can help you grow your business strategically and save money come tax time. Some chiropractic tax deductions you may qualify for include:
If you travel outside your “tax home” (typically the community where your business is located) for longer than a standard work day, and it’s for business-related reasons, you can claim them. The cost of travel includes travel to and from your destination, parking and toll fees, meals, accommodation, and baggage shipping.
If your practice is located in your home, you are able to make deductions on your tax return based on the amount of square footage you use for business. You are able to deduct a standardized $5 per square foot of area, up to a maximum of 300 square feet. Learn more about home office deductions.
Your business insurance is tax deductible. This includes professional malpractice or liability insurance premiums. Further, if your practice is home-based, you may include home insurance as part of your home office tax deduction.
If you choose to upgrade your skills by, for instance, pursuing diplomate certification, you are able to deduct the cost of doing so.
Save for Self-Employment Taxes
According to the Bureau of Labor Statistics, one in three chiropractors is self-employed. If you fall into this category, you are expected to pay self-employment tax, which covers social security and Medicare, for a total rate of 15.3% of your business income.
Being aware of this tax, and setting aside funds over the course of the financial year, will prevent a painful surprise come tax season. Saving a percentage of your income every month is a good way to do this. Factor it into your personal budget.
If you’re serious about growing your practice, setting up your financials and is just the start. Outsource time-consuming tasks, and use automation to make in-house processes more efficient for you and your employees. And check in with your CPA outside at least once every year to plan and strategize for future growth.