Healthcare industry providers who don’t bother to set up a comprehensive accounting solution early on usually fail later. Here’s why.
The Benefits of Healthcare Accounting
The benefits you gain from having an accounting solution in place are so significant that, without them, it’s almost impossible to make informed decisions about your finances — which can compromise financial stability. On top of that, a lack of good accounting often leads to major financial problems that can make a practice flounder and fail.
Here are the benefits you gain when you sign up for a comprehensive healthcare accounting service.
Projections that help you plan for growth
A detailed history of how your business has performed in the past is essential if you want to better plan for the future through financial planning and financial management.
You can only make reliable financial projections by using historical financial info to inform future predictions. For instance, you might look at your profits and overhead costs from January through June to determine an average monthly profit. You can then use that as a benchmark for the rest of the months in the year.
Projections also help you plan for seasonality. For instance, you may see an uptick in specific CPT codes during flu season. By looking at past bumps in revenue, you can anticipate what your busy season will look like this year. You can also plan for dips in revenue, and prepare accordingly. Another example is planning for growth during deductible season, where cash flows may dip by 20% for a 3-4 month period. Healthcare specific accounting and forecasting accounts for these nuances.
Without financial projections, you run the risk of being caught unawares by factors like seasonality. It also becomes hard to set long-term goals—target profits for the following year, or target reductions in operating costs—making it much harder to build your business in a planned, sustainable way.
A (mostly) stress-free tax season
Tax season is a nightmare for millions of unprepared small business owners. Unfortunately, healthcare providers are part of that group. If January 1st rolls around and your books aren’t up to date, you don’t have the information you need to file an accurate return. For providers without healthcare accountants, that means a huge rush to go back and categorize transactions, prepare reports, and make sure all your information is accurate before you file. In short, peak stress.
All that rush also means you might miss out on tax deductions or credits. You’ll be more focused on filing before the deadline than on preparing a thorough return that benefits your business. Tax season can be absolutely miserable for the unprepared. A qualified healthcare accounting service makes filing a breeze.
More access to capital from lenders and investors
Before a financial institution will give you a business loan, they typically want proof that your business is profitable. It’s their way of proving that you’ll pay that money back. Similarly, before investors back your business, they’ll want to understand the likelihood that their investment will pay off.
In order to give lenders or investors the information they need, you need a complete set of financial records to prove your business is profitable. You may also be expected to provide your financial projections. This will shed light on your financial health, and add legitimacy to the plans you pitch for growing your business and making the most of their capital.
Without an accounting solution, almost none of the above is possible. Besides meeting lenders’ and investors’ information requirements, a tidy set of books and financial reports helps to prove you’re serious about your business. That will go a long way to helping to access capital, particularly when your company is still young.
Error-free tax filing that won’t cost you later
When you make errors filing your taxes—particularly if you fail to report some of your income—it can result in hefty IRS penalties and, in some cases, an audit. The single best way to avoid filing errors is having a solid accounting solution in-place.
Similarly, you’ll also need a record of your expenses (and the documentation to back them up) if you plan to claim deductible expenses. Failing to provide accurate records to support claimed deductions is one of the most common errors businesses make.
Filing errors are costly, time-consuming, and stressful. Accounting platforms or professionals with extensive accounting knowledge are your best defense against them.
Freedom from costly healthcare bookkeeping errors
A minor healthcare bookkeeping error can have major impacts later on.
Simply miscategorizing a transaction may mean the amount of cash recorded on the books doesn’t reflect what you have in your bank account. The result? Hours of combing through bookkeeping entries in order to fix the problem.
And bad bookkeeping can lead to inaccurate financial statements. If you’re using your financial statements to plan how to reinvest revenue in your business, how to cut operating costs and save money, or how to save for an important investment later on, inaccurate statements can lead to critical errors that endanger your business.
When you have a comprehensive medical solution in place that delivers accurate accounting, these dangers are reduced to nil.
Metrics that boost your practice's financial health
A bare-bones solution with basic principles of accounting only goes so far towards making your practice thrive. Metrics like billing cycle speed and cash flow, staff utilization, bad debt, and the status of outstanding claims for insurance companies are all key to keeping on top of your finances.
While out-of-the-box solutions like Quickbooks give you the very basics, your ideal solution should include the in-depth metrics and accounting reports only accountants for healthcare practices can provide.
More time for growing your practice
You went into healthcare to help patients, not because you love delivering accurate accounting.
(Of course, if you love accounting—we sure do—then more power to you!)
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The hours of work you put into your practice are used more profitably on tasks other than healthcare bookkeeping. When you have a professional solution in place, it takes accounting activities off your plate and frees up time to focus on what matters most - providing quality care to your patients.
Join us in Part 3, where we’ll cover what to look for in healthcare accounting solutions to help you choose the best fit for your practice’s needs.