Bookkeeping for Therapists: Everything You Need To Know

Bookkeeping is not just a record of all the funds that come into and leave your business. Often, people believe that financial activities are only necessary when they need to calculate taxes and file documents for the Internal Revenue Service. In fact, accurate bookkeeping allows therapists to understand how things are going in their practice so that they can make rational decisions. In this blog post, we will get acquainted with all the profits of bookkeeping for therapists and the features of managing it.

What is bookkeeping for therapists, and why does it matter?

Bookkeeping for therapists organizes, classifies, and creates financial documents to run your private office. This activity involves recording transactions and storing reports to monitor organizations’ financial state. Today’s practices choose electronic accounting methods, ranging from simple spreadsheets to complex software.

Whether you keep your books in-house or outsource them to a Certified Public Accountant (CPA), here are the key benefits of a modern bookkeeping process:

• Control your tax-deductible spending: In most cases, you can deduct expenditures necessary to run your practice, including attending conferences, purchasing laptops, subscribing to professional journals, etc. Track all your expenditures, no matter how large, so you may report it when you file your taxes.
• Track your cash flow: If you understand how money flows in and out of your business, you correctly set up payroll processing and other services while ensuring you have a profit.
• Keep track of patient bills: Running a business can become difficult or impossible if clients don’t pay their bills on time. Funds from patients directly impact your cash flow and availability of capital to pay your bills.

Remember that the Health Insurance Portability and Accountability Act (HIPAA) requires healthcare professionals to adhere to strict data security standards. You may face a fine or jail time if you disclose a patient’s medical information. Therefore, you must always adhere to HIPAA compliance.

How to manage cash flow

Cash flow is a term used to describe the intricacies of capital financial management. As we know, income in a therapeutic area may be unstable: in one period, it falls; in another, on the contrary, it increases. We have collected a few simple actions that you need to take to work with your cash flow successfully:

• Don’t forget about budgeting: When you calculate how much you need to earn to cover all expenditures, you will be shocked. If you set the sum you must earn each month, you can focus on activities that generate profit. Don’t forget to consider the seasonal demand for services, as this may cause cash flow to rise and fall.
• Create cash flow forecasts: This document displays how much money you plan to receive and spend in the next period, e.g., within 3, 6, or 12 months. This way, you can identify the most difficult periods when an expense increase occurs simultaneously with a decrease in revenue.
• Get paid the same day or in advance: Many clinicians strive to be paid the same day services are performed, but some professionals issue invoices at the end of the month. During the patient’s first visit, discuss your terms of cooperation.
• Study your expenses and allocate them correctly: Remember to update your spending at different times of the year. Consider setting up a distributed payment system, even if it requires additional costs. Don’t forget to include funds in your budget to cover unexpected expenses.

It is critical to minimize the number of debtors. Monitor bills regularly until they are paid. If clients are not completing financial settlements as agreed, talk to them about it as soon as possible. Don’t let the bills pile up; it’s terrible both therapeutically and business-wise.

How to track and budget for client insurance changes

As a practice owner, you have to make an important decision: whether to accept self-pay patients, insurance clients, or both. Each option has pros and cons, and the choice depends on your business’s characteristics, purposes, and administrative abilities.

Among the main reasons to accept self-pay clients are:

• More straightforward billing and administration: Cash-paying people pay quickly and directly in most cases, decreasing the administrative burden of processing insurance claims, billing, and receiving reimbursements.
• Maximum transparency: If the patient pays upfront, the clinician may disclose his fee and openly inform him about spending, establishing a trusting relationship.
• Opportunity to create a more extensive client base: Interaction with self-pay people allows a healthcare professional to advise patients without insurance coverage or who want to pay cash for various reasons, including confidentiality and maximum control over therapy.

The main disadvantage of this solution is the possibility of higher customer churn due to high costs.

There are also several arguments in favor of interacting with insured clients:

• Stable income: Although insurance claims are not always received on time, they provide stable and predictable earnings, improving therapists’ financial position.
• Maximum affordability: Collaborating with insurance makes the clinician’s services accessible to visitors who cannot pay out of pocket, meaning the clinician may help a wide range of people.
• Insurance referral: Therapists who cooperate with insurance firms can expect such companies to refer them to their users and encourage new clients.

The primary downside of cooperation with insured clients is sophisticated administration and invoicing.

Clinicians who accept self-pay clients and visitors with insurance receive the most significant benefits.

Primary aspects of tracking customer coverage

Accurate patient billing involves accurately understanding clients’ insurance coverage and implementing a simple tracking process that typically includes the following steps:

• Check insurance standards: Read professional portals, subscribe to topical newsletters, and attend conferences to learn about the latest insurance conditions and regulations.
• Review policies: Once you know about the updates, review your patients’ standards to understand how the adjustments affect their coverage.
• Monitor patient eligibility: Verify your patient’s eligibility and ensure you receive reimbursement before providing services.
• Documenting policy and eligibility changes: It is critical to record any innovations that may affect patients and future care.

Different tracking and budgeting technologies exist, including manually performing all the procedures. However, special software is more effective if you run an organization with an extensive and sophisticated insurance portfolio.

Tips and reminders for therapists

When you’re busy seeing patients, it’s easy to fall behind on the bookkeeping. You must keep your books up-to-date, provide tax planning, and realize how well your practice operates. Here are several steps you need to take to catch up on your financial performance:

• Separate individual and professional finances: If you are just starting a practice, you can combine individual and business operations, complicating the bookkeeping. You can categorize transactions at the end of each month or quarter and then approach your bank to open a business account.
• Remember bank reconciliation: This procedure ensures the amounts in your account match those in the general ledger. Typically, discrepancies in numbers occur unless you use accounting software that automatically imports data from your bank.
• Generate financial statements: Once your bank accounts are reconciled, starting your financial statements is an excellent solution. They summarize the data in your books to demonstrate your practice’s operating efficiency. Typically, such documents cover one month or quarter. The most popular reports include a profit and loss statement, balance sheet, and cash flow statement.

If you frequently have to fill gaps in bookkeeping for therapists, correct errors in financial records, or have nightmares about filling out your books, it’s time to consider outsourced services.

Final words

While treating patients, remember the financial aspect of running your private practice. Ensure you control your books and invoicing, and select the proper instruments to optimize your accounting.

Don’t wait until you open a new private practice unit or tax season starts to optimize your finances. With professional services from BooksTime, you can save time and optimize your finances now. Based on extensive experience serving small businesses in the USA, our specialists have the knowledge and skills to solve all your bookkeeping problems.