When it comes down to setting up your medical practice, hiring an accountant might not be the first thing you think about. After all, there are so many other things on your plate – like picking the right location, hiring staff, setting up bank accounts, and preparing your office for new patients. However, having a strong accounting team for your medical practice can not only support you in setting up your medical practice, it can also save you money on your tax bills and help you prepare for the future. Here are 3 ways accountants can help with the accounting for your medical practice.
1) Establishing your accounts payable system
The opening and operation of your new medical practice comes with bills to pay – you’ll be receiving invoices from suppliers as well as bills for things like rent, utilities, water, Internet, and phone. Not only can your accountant make sure you make all these payments on time, they can also help you set up a system to track these expenses on a monthly, quarterly, and annual basis.
With the help of your accountant, you’ll need to create a process for each new invoice that comes in, including inputting the expense into accounting software, taking copies of the invoice for your records, and keeping a log of all the cheques you write or EFT payments you send. This process not only ensures that your invoices get paid on time, but keeps a record of any recurring payment amounts, double payments, or overdue balances. For example, if you forget to pay an Internet bill, your accounting software – and your accountant – will remind you that this expense is missing from your monthly numbers.
Getting the right process in place will depend on the size and nature of your medical practice. In smaller practices, simple accounting software like QuickBooks, combined with manual cheque writing and a record of each cheque written, may be sufficient. However, manual systems have downsides in the amount of time that they can take, as well as the potential for error. As your medical practice grows, you may need to automate the process of your accounts payable or find a more robust accounting software package. Custom accounting software will allow you to do recurring payables, automate the cheque signing process, or do everything by EFT. Whichever you choose, your accountant will be the one to assist you in facilitating and implementing this system, so ask lots of questions and work together to find a system you feel comfortable with.
2. Establishing your accounts receivable systems
The next system you will use in accounting for your medical practice is accounts receivable. Similar to accounts payable, your accounts receivable system is a way to track and receive all income flowing into your medical practice. This system could look different depending on the nature of your business. How many doctors are billing from your office? Do you bill mainly to insurers, or do you also see private clients? Do the physicians in your practice share an accountant or bookkeeper?
Using a billing system is the first step to staying organized with your AR. With a good billing system, you can easily see the amount you’ve billed and collected in the month, as well as any write-offs (which is how we do it here at Dr. Bill). This allows you to track the amount you’ve worked, process any claims, and see if there are any changes in the amount you’re billing every month. The spreadsheet data from your billing system can then be imported by your accounting staff into the same software you use to manage your accounts payable and other financial statement items. As with AP, you’ll need an accounting software simple enough for your accountant to use, but robust enough to manage the number of clients and transactions your medical practice requires.
If you have any additional income besides billing – for example, if you rent out a portion of your office space to another business or generate income from speaking, teaching, or lecturing – your accountant will be able to include this amount in your monthly receivables as well, along with creating a system of invoicing to make sure that nothing gets missed. Taking an inventory of all the different ways your business gets paid with your accountant is a good way for them to better understand the needs of your business, and more easily plan the best AR system for you.
Keeping track of your AR will be crucial in helping you maintain your monthly, quarterly, and annual financial statements. These are what will be provided to your lenders as backup for any loans you may have used to finance your operations, so it’s extra important to ensure they are correct. To reduce error, automate your billing practice as much as possible. This will also be helpful at tax time, since you will have a clear idea of how much you’ve earned – without scrambling for receipts.
3. Setting up your payroll system
Accounting for your medical practice also means payroll. Setting up the payroll system you’ll use in your medical practice doesn’t have to be difficult – but it does need to be organized. How you do your payroll will depend on the nature and needs of your medical practice, but you can be sure it requires an organized system, a strong knowledge of provincial and federal regulations, and a good deal of planning. With so many federal and provincial requirements, including source deductions, overtime hours, tax remittances, and record keeping, it can seem like a daunting task. Luckily, you don’t have to handle all of this yourself. With the help of your accountant and your staff, you can create a payroll system to best suit the needs of your medical practice.
The first thing to consider is the amount of money you’ll be putting out every pay period. As a small business owner, you have the flexibility to decide what to pay yourself and your staff. How many employees will you be hiring for your office? Will you be paying them a salary or an hourly rate? If you are a corporation, will you be taking a salary for tax reasons and putting the rest of your billing into dividends? Having a good idea of the dollar amount going out will give you a better idea of the kind of system you need. If you are a smaller medical practice, it may be feasible to set up your payroll manually – but be careful. Even small errors in th
e amount of an employee’s payroll deductions could cost you at tax season, which is why it’s a good idea to work with your accountant beforehand and to use a payroll management software.
Whether you’re a small practice or a larger one, payroll software is a good idea. It will help you manage source deductions, GST remittances, and link back to your accounting software. These systems will help you to keep all your employee information – like their birth date and social insurance number – safe, while also calculating the correct amount of deductions and keeping track of them over the course of the year. Simpler payroll systems will handle the deductions for you, while more sophisticated systems are able to track things like employee vacation, time off accruals, or pay rate changes. If your clinic tracks hours by punching timecards, ensure that it is able to interface with your payroll system either directly or through an import functionality.
Even with a software in place, your accountant or payroll administrator will still have to be careful to correctly input the payroll amounts for each period, including any hours worked, overtime pay, stat holidays, or deductions. If you’re finding this difficult to manage with the size of your medical practice, there are other options – you could hire someone to come in to the office at the end of every month, turn the whole operation over to an external consultant, or hire a company specifically focused on payroll.
Once you’ve set up your AP, AR, and payroll systems, you should have a pretty good idea of your medical practice’s accounting needs by knowing exactly how much income your business is bringing in, as well as how much you are spending to operate your business. The next important thing to think about is the taxes you will pay, both provincially and federally. The right accounting systems will ensure you put the right amount of money aside to pay your GST/HST remittances on your accounts payable invoices, as well as the employer portion of any employer-paid benefits on your payroll system such as EI and CPP.
Whichever option you choose, be sure to check the details – payroll is a foundation of any small business, and having a solid system in place will help things to run smoothly for years to come.