5 Bookkeeping Mistakes Doctors Make (And How to Avoid Them)
Medical practice bookkeeping for physicians and other healthcare providers can become quite complex, which is why there can be certain peculiarities among them. In contrast to other types of companies, medical practices receive and disperse multiple sources of revenue, including insurance reimbursements, patient balances, and overhead costs such as medical equipment. On top of that, there are regulatory complexities. Read on to learn about five of the most prevalent bookkeeping errors doctors make and how to prevent them.
- This is the third issue that clients are likely to develop when they do not distinguish between business and personal finances.
The Mistake:
It is difficult to separate personal and business expenses, especially for doctors who are employers of their own or those with their own practice. The mingling of own money with business money or business money with personal money is always a bad idea since it leads to blurred accounting and petty cash scams, and it is also confused by the IRS if one is not able to adequately explain everything that has been written off.
How to Avoid It:
It is necessary to open a business account in the bank and then open a credit card specifically for the practice. Both small expenses like paper and stationery and large assets like computers should be charged to this account. However, if a personal expense is accidentally paid from this account, then one should take note of it, lest it be confused with business expenses that can be deductible on tax. Another measure that may be taken to help put an early stop to fraudulent activities is by checking accounts’ statements at least every month.
- Below are significant talks concerning the company not tracking its reimbursements from insurance companies:
The Mistake:
Insurance companies normally make payments to medical practitioners regarding the services that they have rendered. These reimbursements can be delayed or denied, while without the further guarantee of a proper tracking system, the doctors themselves can end up with too low of an estimated return on their services or face payment troubles due to delayed collection.
How to Avoid It:
To track reimbursements, an option is to utilize original accounting software for medical practices that exist in the market. This means that organizations need to timeously cross-check the billing records of patients and insurance receivables to receive all valid payments. Finally, you should ensure that you have an individual or you have to contract a service to track unpaid claims within 30 days of submission to avoid any reimbursements being lost.
- Failure to consider depreciation on medical equipment
The Mistake:
Most doctors also use their own money to acquire expensive assets such as MRIs, dental chairs, and other critical medical tools. One mistake that people commonly make is not factoring in depreciation and therefore end up overvaluing the asset and failing to make tax-saving percentages.
How to Avoid It:
Prepare depreciation tables for all the equipment to be able to show the reducing balance of each equipment over time. Depreciation normally comes with a facility of software used in accounting, but it is advisable to involve a CPA to design a good depreciation strategy for difficult and costly assets. This not only gives a relatively accurate position of the worth of assets on the balance sheet but also allows for charges that lower taxable income, having long-term benefits.
- Appropriate Cost Items and Cost Analysis: Failure to account for payroll expenses properly
The Mistake:
In most medical practices, there is a clear distribution between wages and contract workers, including nurses, technicians, and administrative staff. The misclassification of staff or omissions as far as payroll tax credits are concerned leads to scrutiny from the tax authorities as well as flawed financial reports.
How to Avoid It:
Design a health payroll system that will enable the management of medical practice payroll. Check that all workers are classified correctly, either as employees or contractors, because the wrong classification will result in troublesome taxation issues. Also, put the right amount aside to pay the payroll taxes, and make sure you change the records of your payroll frequently depending on the new changes in salary, hours worked, or the taxes to be paid. Some tips on managing payroll include investing in developing an automated payroll system that incorporates tax computation and payroll conformance or contracting payroll services from experienced professionals or firms.
- Not Paying Attention to Both the Cash Flow Forecast and Budgets
The Mistake:
It is not unusual for doctors to ignore cash flow projections where their practice is earning huge revenues. Nevertheless, an unexpected and regular problem can be cash flows that are not well-planned; for example, irregular patient’ reimbursement, patient visits’ periodicity, or unpredicted expenditures—for instance, equipment failure.
How to Avoid It:
Prepare a monthly balance sheet of cash for the flow and establish proportional estimates toward future expenditures. Daily, weekly, or monthly, look for patterns in the income and expenses that have an impact on the cash flow. In addition, set aside some amount in an emergency fund for any eventuality that may require spending. It is recommended that instead of working with mere estimates, one can use the cash flow projection software, or better yet, consult a professional accountant to get the most accurate predictions to enable one to change his/her spending patterns according to the result of the cash flow projections.
Conclusion
Industry-specific reasons make bookkeeping complex for medical professionals. Hence, it would be possible to maintain the sound financial state of the practice by avoiding common bookkeeping errors, including serious mistakes when it comes to separating personal and business expenses; missing or undercalculating insurance reimbursements; forgetting or underestimating equipment depreciation; processing payroll troubles; and keeping a far too close eye on overall cash flow. By following the above steps, doctors can try to avoid these mistakes on their own or, with the help of a specialized accounting service, can feel that their financial base is strong and concentrate on patients.
