The symptoms of bad healthcare accounting range from overdrawn bank accounts to audits from the IRS. Your healthcare organization needs a comprehensive accounting solution specially tailored to the healthcare industry. Here’s why.
What is Accounting in Healthcare?
As a catch-all, “accounting” is used here to describe all the financial admin your practice needs to run. That includes bookkeeping, accounting, and tax prep.
Here's a quick breakdown of what that means:
- Healthcare bookkeeping is the day-to-day tasks of recording and categorizing business transactions.
- Healthcare accounting refers to the process of generating financial reports (cash flow statements, profit and loss statements, balance sheets, etc) based on your books and making long-term business decisions with the help of financial projections.
- Tax prep for healthcare practices includes the process of planning how to claim deductions and apply tax credits, preparing your annual tax filing, and paying quarterly estimated taxes.
Note that there is overlap between each of these categories. A bookkeeper may record day-to-day financial transactions as well as prepare financial reports, for instance. As you consider different healthcare accounting solutions, consider these core elements and how a potential solution goes about handling them:
- Daily bookkeeping that syncs with your billing system, so you can track complex forms of revenue like insurance reimbursements
- Financial statements, including profit and loss statements (P&L), cash flow statements, and balance sheets. Ideally these can be generated at any time so you always have up-to-date information and financial reporting on your business
- An end-of-year financial report that gives you all the information you need, on the first day of the new financial year, to prepare your tax filing
Picking the right medical accounting solution depends on a handful of factors including your business stage, recent revenue growth, or accounting history. Regardless, keeping the above in mind will function as a solid “first step” in gauging whether or not a healthcare accounting solution is worth looking into.
The Benefits of Healthcare Accounting
While it's important to recognize the potential pitfalls to your financial health when lacking a strong accounting solution, the problem-solving benefits of tidy accounting for healthcare professionals are arguably more important.
Here are just a few benefits of healthcare accounting provided by an accountant or solid platform:
- Cash flow shortages. Cash flow statements generated by an accountant help you plan and fine-tune your cash flow, so you never come up short when it’s time to pay the bills.
- Lack of access to capital. A healthcare accounting solution can prepare all the financial information and accounting reports you need to approach investors or lenders and secure more capital for your business.
- Late or incorrect tax filing. With an accountant or solid healthcare accounting software on the job, you don’t need to worry about filing your taxes inaccurately or past the deadline and getting penalized by the IRS.
- Stagnant growth. If your medical practice hits a plateau, an accountant can give you the financial information you need to make projections, strategize, break into new markets, and make more informed decisions.
- Slow seasons. Financial projections help you anticipate and prepare for seasonal ups and downs in revenue. Accurate accounting guarantees their accuracy.
- Lack of time. You’re a busy person. If doing your own accounting makes it feel as though you’re always one step behind, a healthcare accounting solution helps you guarantee you keep pace.
- Slow billing cycles. Key metrics like cash flow help you track how long it takes to complete an average billing cycle, and find ways to speed up the process.
Setting up a comprehensive accounting solution as soon as your practice starts turning a profit is one of the best investments you can make in your company’s future.Now that you have a solid understanding of healthcare accounting, stay tuned for Part 2 of our series, where we deep-dive into the surprising benefits of accounting for healthcare.