Accounting for medical practice covers payments from patients and handles insurers and government-supported programs such as Medicaid and Medicare. Below is a guide for bookkeeping and accounting for doctors to reduce the amount of time spent on managing your practice and increase time giving patient care.  

Picking the Right Accounting Method

In the medical field, accrual and cash-basis accounting methods are used for monitoring revenues and expenses. Accrual basis accounting involves recognizing revenues once earned and expenses when incurred. Thus, you record an income on the books if you give services to patients, no matter when your invoice is paid.  Meanwhile, cash-basis accounting means recognizing revenues once you get payments and recording expenses when they are paid. This accounting method is usually used by healthcare providers for handling and tracking their finances. Using this method is easier than using the accrual method.

Profit Distribution

If you have established your medical practice with partners, you must determine how to divide income. The operating agreement of your business must address profit distribution. This can be done in any of the following ways:

  • Equal profit allocation. This is an ideal option for you and your partners to perform the same amount of work, divide administrative duties, and bring in the same amount of business. 
  • Pro-rating. Compensation in this method is based on production, with the profit percentage of every partner reflecting the gross collection percentage they bring in within a certain period. 
  • Corporate division. Under this method, every partner in your practice is both a clinician and an investor. The salary of every doctor is based on the clinical work they do. After paying all the bills of the practice, every partner gets an equal share of the remaining profits. 

Regular Financial Statement Review

The financial statement of your practice offers insight into how it is doing financially. Your monthly income statement, cash flow statement, and balance sheet allows you to keep tabs on the practice’s current position, payables, receivables, expenses, revenues, and liabilities.  A lot of healthcare experts only examine their financial statements once every year once their accountant requests financial information for tax preparation. But frequent reviews of your financial statements help you stay informed about your practice’s cash flow and profitability. Also, they let you correct problems before they become issues and measure progress to meet your financial goals. 

Hiring an Accountant

While DIY accounting is less costly than hiring an accountant, this can cost more over time. Often, doctors don’t have accounting expertise and they can mess up their books and overlook proper tax planning that can help save money. If you need help with your accounting, hire somebody who specializes in it.