In last week’s article on “Risk Management in Healthcare,” I talked about what risk is and where you can expect to find it in your business. If you missed the article, you can catch up and read it right here.
Hopefully, you’ve had a chance to go through your office and get started with your risk assessment. After all, you can’t make any adjustments unless you know that there’s a problem.
Now, identifying existing risk is one thing… what to do about it is another story altogether.
So this is what we’ll tackle right now. Today I want to talk about the business aspect of your practice… what you can do to reduce your risk in this area of your practice.
Let me talk about two crucial areas for any business, including your practice: taxes and finances.
Regardless how outstanding the quality of care you provide to your patients, if you repeatedly ignore your taxes or finances, you WILL get into trouble. It’ll be just a matter of time until it catches up with you.
So how well did you do in the area of taxes?
If you had to give yourself a score on a scale from 1 to 10, what would be your score?
Don’t worry, I won’t ask you to share that number with me. As long as you know it, that’s all that matters.
- Have you filed all tax reports on time?
- Have you paid your business taxes on time (local, state, and federal)?
- Have you withheld enough taxes from revenue generated?
- Have you paid all employment taxes (state and federal)?
- Do you keep impeccable tax records?
- Do you know where your records are?
- Do you retain all records for the required length?
- Do you track your business mileage?
- Do you maintain all proper records to proof your deductions?
- Are your records such that you can take all allowable deductions?
I’m a firm believer of paying my fair share of taxes… but not more than that. Of course, you can only do that if you keep good records. If you don’t, you’ll miss out on deductions and end up paying more than your fair share.
If you didn’t score as high with your taxes as you would have liked to, chances are your bookkeeping is not up to par.
Here are two very specific suggestions to help you improve.
1. If you do your own bookkeeping…
I’m going to assume you’re using a program such as Quickbooks, Freshbooks, Wave Accounting, or something comparable to it. Not using any software at the moment? Or thinking about switching to a new program? Check out this comparison of small business accounting software… perhaps it will help you find a better solution.
But let’s get back to bookkeeping. Chances are you don’t use your software program on a regular basis… that’s counter-productive.
Believe me when I say “it’s easy to fall behind”. I know… I’ve been there. Before you know it, you can’t remember all the details and consequently forget to document deductions or expenses.
So here’s what you’ll do…
Put yourself on a schedule and stick to it. Pick a date (weekly or monthly) and enter anything that needs to be entered into your bookkeeping program. Commit to sticking to your schedule!
Once you’re following your schedule you’ll see just how much easier it is to stay up to date with your bookkeeping. Your life will be so much easier. And your sleep is guaranteed to improve!
2. If you outsource your bookkeeping…
Either you get someone to come to your office or find a bookkeeping business and take your records to them.
No matter what route you’ll go, find someone you can trust and feel comfortable working with. Get your records in order on a predefined schedule… and stick to it.
When tax time rolls around, you’ll be prepared and ready to file and pay your taxes… on time!
Taxes Can Get You In Trouble
Taxes have the potential to get a business in trouble. Don’t let that happen to you. Do everything you can to stay current and on top of your taxes.
File all reports, returns, and pay all taxes. If you don’t have the money to pay, contact the taxing authority and arrange for a payment plan. But don’t ignore your obligation!
Neglecting your tax obligation or keeping poor records can shut down your business… never mind getting slapped with all sorts of unpleasant fines and fees.
Stay informed and in compliance with all your tax obligations; it’s an important step in limiting your exposure to risk.
So let me state the obvious here if nothing else but for the record…
You do not want to get in trouble with the IRS or any other taxing authority!
Let’s move on to business finances. How did you score in that area? Did you do alright, or could your business use some improvement?
- Do you pay all bills, on time?
- Are you on top of your practice finances?
- Do you know what you bill out and what you take in?
- Do you pull financial reports for your practice?
- Do you track your financial standing and progress?
- How would you know if someone embezzled money from your practice?
If you found your business finances are not up to “snuff”, how can you improve them?
Track All Money
For starters, you want to track all monies entering and leaving your business.
- You need to know what’s coming in and what’s going out.
- You need to know what gets paid and when.
- You need to know how much is in your bank account.
- You need to know who is spending what.
- You need to know how much you’re paying for supplies, salaries, etc.
Here are some suggestions to help you improve the financial management of your business.
Get comfortable with the business portion of your Practice Management software. If you don’t have time, delegate the task to someone you can trust to do it for you.
Pull reports from your practice management system: daily, weekly, and monthly… and of course, review them.
- Cash Report. Are you collecting co-pays and deductibles from patients? How much is collected and when?
- Payer Who are your payers? How timely are they paying you? Are you relying too heavily on one or two payers?
- Number of patient visits.
- Codes billed.
- Accounts receivables (AR).
- Accounts receivables by payers.
- Accounts receivables by aging: 30, 60, 90, and 120 days.
- Any other report useful to tracking practice performance and progress.
Run and review your reports on a regular basis. After just a time you’ll start to see patterns. You’ll also get a good feel for “your numbers”.
You will know:
- If there is enough cash in the bank to pay the bills.
- If your AR is too high.
- If you’re relying too heavily on a single payer.
- If a particular payer has a habit of not reimbursing in a timely fashion.
- If all claims get billed in a timely fashion.
- If there is adequate follow to unpaid claims.
Perhaps you need to adjust your payer mix or stop working with a certain insurance company. But unless you pull reports and diligently review them, you won’t know that. Neither will you know much about the cash flow in your business.
Reviewing reports from your practice management system tells you about revenue, money coming into your practice. Do the same for expenses, money leaving your practice. You can do this by going to your bookkeeping software and run the proper expense reports.
Once you know your numbers, you can spot problems and intervene before they have a chance to take you down. You’ll be actively managing the risk of finances or cash-flow negatively affecting your practice.
Set-up Your Buffer
There is one more thing I’d like to address regarding financial risk in your practice.
Have to set up a buffer for yourself, for your business? Let me explain…
Let’s say you find yourself in the midst of a temporary cash shortage, perhaps to no fault of your own…
- Medicare is holding back payments.
- One of your main payers is upgrading software, leading to delays in reimbursements.
- You’re hit with an unexpected tax bill (of course this happened before you read this article…)
- A balloon payment is due.
- Whatever the reason…
You get the idea. You need extra money for what has to be paid, so you can stay afloat until you get reimbursed.
Either way, you need more money than you have on hand. What would you do to make it through a cash shortage?
Ideally, you planned ahead and established a line of credit.
Let me suggest that you apply for a line of credit to deal with any unforeseen circumstances… that have the potential to affect your business negatively.
Simply go to your bank or credit union and establish a line of credit before you need it.
Let me emphasize that you want to do this before you ever need a dollar. As strange as it sounds, banks don’t like to give money to those who really need it.
Knowing that you can fall back on a buffer helps you manage financial risk in your practice.
Here’s what to do next:
Examine your current practices and procedures using the above suggestions…
- Do you have a solid record keeping process in place?
- Do you need to improve the way you keep records?
- Do you know what your tax obligations are?
- Do you keep impeccable tax records?
- Do you know what reports to pull?
- Do you know your numbers?
- Do you have an established line of credit?
As always, let us know what you think…
By Johanna Hofmann, MBA, author of “Smart Business Planning for Clinicians” and regular contributor to the NPBusiness blog.