Physicians play a crucial role in helping patients stay healthy, avoid chronic diseases, and recover from health crises. That calls for elaborate planning, consultations, follow-ups, and goal setting. 

Applying the same strategy to your business can keep your private practice in excellent financial health. Proper bookkeeping is central to the practice's financial wellbeing. It provides a clear picture of the practice's financial status to help set and meet your goals while avoiding crippling financial mistakes. 

Here are six crucial bookkeeping tips to ensure a healthy cash flow for your private practice. 

1. Separate Business and Personal Finances 

Once you've registered a private practice, it becomes an entity governed by different rules and is scrutinized by the IRS. As such, it is important to maintain a separate bank account and credit card for the business. Charging personal expenses to the business may create friction between partners and lead to cash flow problems. It could also lead to bookkeeping issues, triggering an audit by the IRS. 

Be sure to set clear guidelines on how to approach this issue from the onset. You may choose to write off personal expenses as partner bonuses or distributions. Or make it clear from the beginning that the practice does not pay for personal expenses. 

2. Review Financial Statements Regularly 

In addition to your medical duties, you should set aside time to review your monthly financial statements. Be sure to examine both the income statement and the balance sheet. 

Like a patient's progress reports, your balance sheet offers deep insights into the practice's financial health. It shows current cash position, debt balances, fixed assets, and equity investment in real time. 

On the flip side, an income statement reflects financial performance over time. It can help you compare your current position with past performances and determine the progress you're making. A skilled CPA can assist you with proper bookkeeping.

A review of your financial statements helps you spot business trends and identify your strengths and weaknesses. You can take corrective measures to remedy shortcomings, play up your strengths, and adjust your goals to collect on the upcoming trends. 

3. Review Account Receivables Monthly 

Unlike other business operations, medical practices don't always get their invoices paid in full. Bad debts and professional courtesy often lead to charge-offs that affect the accounts receivable. Reviewing the accounts receivable report shows the relationship between your service billing and revenue received. 

Proper bookkeeping offers insights into the collection percentage and times. A clear picture of these two metrics can help you avert a future cash crunch. It also provides clear insights into the actual value of outstanding collections. 

Examining your aging accounts receivable by insurance payer can help you determine if there's an issue with a given insurance provider. You can then follow up with their care coordinators to mitigate the problem. Reviewing accounts receivable allows you to refine your billing department's performance for efficiency and increase collections. 

4. Keep Detailed Internal Production Reports 

Keeping an eye on the monthly revenue is great, but understanding the revenue generation process is more crucial. That's where internal production reports come in. They offer insights into the flow of patients, procedures performed, and the insurance plans the patients use. 

These reports can also help track physician output. It lets you keep an eye on patient acquisition, daily performance, and popularity with patients. The data makes it easy to determine productivity among your staff and quickly take corrective measures when needed. 

Production reports come in handy when negotiating health care contracts and determining distribution bonus amounts. You can confidently show the number of patients you can handle and the type of services you can provide. More importantly, internal reports highlight your best performers – procedures, physicians, and insurance payers. 

5. Refine the Income Distribution Method 

Like any other business, a medical practice has predictable fixed costs like rent and utilities. Variable costs, including salaries and medical supplies, take up the lion's share and aren't as easy to predict. Having an apt income distribution method lets you meet your monthly expense obligations.

The best approach entails associating incoming revenue with the generated costs. That could mean allocating revenue to work performed, including cash revenue, charges, and relative value units. Your revenue distribution method must account for the diversity in procedures and schedules. This allows you to come up with competitive compensation plans that help attract and retain top talent.

6. Hire an Accounting Expert 

As mentioned earlier, accurate financial records are essential when running a medical practice. The data associated with accurate financial records helps to determine your market position and improves your negotiating powers. It lets you profile your patients, their insurance companies, and employee performance. 

Collecting and reconciling detailed financial records can be a grueling job, and it eats into your main duties as a physician. Seeking professional help frees up your time and keeps your practice in excellent financial health. It allows you to focus on what you do best, caring for patients.

An experienced accounting firm will compile the raw data into detailed but easy-to-understand reports. They can assist you with monthly financial statements, internal production reports, compiling and analyzing key performance indicators, and more.

Professionally prepared financial reports let you understand your financial position at a glance. It makes running your private practice go as smoothly as possible while shielding you from potential financial mistakes. Like staying healthy, running a sound private practice boils down to consistent, good financial habits and seeking professional advice.

If you need an experienced accounting firm to help you keep your books, please contact us. You can also learn more about our healthcare and bookkeeping services or read related articles on our healthcare blog or outsourced accounting blog.