Is your private practice bookkeeping lacking? Or, just curious the best practices your private practice bookkeeping needs?
Whether you’re a group practice owner with many clinicians or, a solo practitioner checking out QuickBooks Online on your own, here’s some great steps to take to start mastering your private practice bookkeeping
The transcription is below:
It’s Nate from Navigator Bookkeeping here with three things your private practice needs in its bookkeeping. Now, I’m not going to cover the basics like, hey, you should definitely do your bookkeeping monthly at least, or at least weekly, and hey, make sure you do it as accurately as possible, reconcile things like that, I’m talking about next steps after that, as far as doing your bookkeeping.
#1 – Be specific in your Private Practice Bookkeeping Classifying
Here’s the first one, be specific in your classifying transactions. So what does that mean? I mean, don’t put everything in office supplies, sometimes we see books, there’s meals in there, there’s travel in there… Everything is in office supplies. That’s kind of a catch-all, be as specific as possible with your classifying. So that means even if you’re doing travel, split that into different types of travel, this is for a conference, this is for meeting a new employee, this is for a team get-together, split it up, and that goes for all things.
You can split up revenue to cut it into a couple of different revenue bands, you can do your clinician pay, make sure that’s specific by whether people are paid in a certain way, or maybe the part-timers vs full-timers different locations there’s a lot of ways to do it, but the more specific you classify, the better information you’re going to have.
You’re going to be able to get more insights from that information, if you’re super basic with your classifying, just put everything in a couple of big buckets, like office supplies advertising, maybe some job supplies, which is super generic, that doesn’t really help you when you’re looking at your books, doesn’t help you when you’re looking at the financial story, your business, so be specific, be full of information as much as you can. And then when you look at your books and you review your information, you’re going to have a lot of actually helpful takeaways from that… That’s number one.
#2 – Build & Watch Clinician Profitability for your Private Practice
Second one, clinician profitability. Now, this is going to take a couple of steps. If you are not classifying specifically, this isn’t going to help, clinician profitability means, is there a way that we can look at our clinicians and see how much profit each of them are bringing in for our practice?
Now, why do we want this? It’s not to fire someone who is not that profitable or give someone a raise who’s super profitable to… In extreme circumstances, that could be the case, really what this is going to tell you is what’s the best way to pay my clinicians, what’s the best way for them, and for me as a practice owner to get… For them to get paid, is that using a split, maybe it’s a 60-40 split, maybe it’s a 50-50 split with maybe… If they bring in this much revenue that we’re moving that split up… Is it a salary? Is it hourly? Looking at the clinician profitability, it’s going to give you all this information. So when you hire new clinicians, you’re going to have a good idea of how much money they’re going to bring in for your practice, and really how much overhead they kind of should be covering with the revenue they’re bringing in…
Let give you a quick example, if someone’s bringing in $10,000 a month in revenue for your practice and you’re paying them a 50-50 split, obviously, it’s super easy, now they get $5000, you get $5000, but then you have to think about what’s kind of the overhead cost of that clinician also needs to be covering for me. That means rent, all of your tech stack. Right. What’s the software that they’re going to have to have all those seats for that you have to pay for it, whether that’s Google, Microsoft, your EHR, all that good stuff. What’s kind of a full cost they’re taking on right, so covering all those costs and figuring out what’s kind of the break-even point every clinician needs to get to,
I’ll give you a quick hint, if they’re bringing in around $10000 month, they’re probably going to be pretty profitable this is really going to be more of a case when you have people bringing in $4000, $5000, $6000 a month or less, and you’re trying to figure out what’s kind of that amount I need my clinicians to get to be profitable for me. And this is what the clinician profitability table is going to do for you.
Now, this is just a pretty simple spreadsheet that we make for our clients, if you would like a copy of this, I would love to send you one, you just got to email me and I’ll send it right over to you.
My email is below, it’s [email protected] and send me an email and say, Hey, can I have the clinician profitability sheet? I’ll send that over to you and you can start using it. So you get that clinician profitability sheet, fill it out monthly, check it out, and you’re going to also have a lot more information about how to hire and how to pay clinicians in a way that’s profitable for you and makes sense for them too, ’cause obviously we want to treat our clinicians well, and pay them in a sustainable way as well. So.
#3 – Find & Track your Private Practice Bookkeeping Margins
That’s the second one. The third one is you need to find your margins and track them frequently right. Now, what are margins? There’s a couple different margins that sounds like kind of a crazy accounting term, maybe if you’re someone who doesn’t like numbers and financial numbers that much, margins just mean basically how much money are you keeping on the revenue that’s coming in?
So we have two types of margin that we’re talking about most of the time, gross profit margin is the first one, what that means is What’s your revenue minus what’s the cost that you’re paying all your clinicians. Usually for most practices, this is gonna be somewhere, and I’m giving you a big range here, but somewhere between 40 and 60% if you’re a solo practitioner it’s gonna be higher, if you’re a large group practice, it might be lower as you add on benefits and things like that, but really what this is saying is how much money is staying in the practice after paying all of your clinicians…
Now, the clinician profitability sheet that we just talked about is actually gonna help you figure this out, but basically if you’re running QuickBooks, you’ll see this noted as gross profit margin to see this, now you’re gonna have to have your clinician pay, benefits, things like that, set up as a cost of goods sold or cost of service, if you don’t have it there, you’re not gonna see this margin. I do like putting my clinician pay there because it gives me a good idea of how much money am I actually keeping after paying everybody, and then I can start looking at overhead costs, so that’s the first one, gross profit margin.
The second one is net profit margin, net profit margin is basically how much money am I keeping at the end of the day, now, this isn’t gonna include distributions, owners distributions, but it will include owner salary, that’s another conversation, It’s gets a little crazy, but just so you know that if you’re taking the large amounts of distributions out of the company, this is not gonna show up in net profit margin, but net profit margin is basically… If I bring in $100,000 in a month, how much of that is actually staying with me in the practice after all is said and done? Let’s say you bring in $100,000 a month in revenue. You keep $10,000, your net profit margin is 10%, right? Those numbers make it easy, but that’s what it basically is, now, you wanna track these monthly and look at them, put them in a spreadsheet, and you can look at a month over month, year over year.
And see where you’re trending, okay, what’s my normal gross profit margin if it’s normally 50% and one month, it’s all of a sudden 30%. What happened was there like, an extra pay period? Did I hire some new people? Did my benefits were benefit prices increase? Something like that. But when you’re looking at those monthly, you’re going to have a really good idea of whenever something changes, if it’s usually 50, all of a sudden it’s 30, red flag, Hey, I need to look at this.
Net profit is the same way. That’s going to tell you more any changes that are happening with your overhead expenses, so if my gross profit margin is the same for a month at 50%, stays around 50%, and my net profit margin is usually 12%, but this month it’s two… What happened there? Did I pay myself a lot more in salary, did we pay two rent payments for some reason. So these are just gonna be really high level indicators that if you look at them monthly, you’ll have a great idea of what’s happening in the business, and you’re going to have a really nice little warning.
So I’d say definitely create a spreadsheet for yourself, just track those metrics, gross profit margin in net profit margin, and when you start looking at those monthly, quarterly year over year, you can have a really good picture of where is the business trending and what are the areas you need to tweak, if you see that your gross profit margin is way lower than it should be compared to the industry, maybe it’s down 20%, 30%, something needs to change there that’s an issue, if your net profit margin is way lower than industry standards, if you’re at two or three or 4% net profit margin. That’s too tight. So something needs to change there as well. So when you start looking at these indicators, you can at least start to have those conversations of, Hey, what needs to change here and what can I work on?
Conclusion
So those are my three tips, I know I’m throwing a lot at you, so if you have questions, feel free to leave a comment below the video here and I will respond quickly that I’m happy to answer any questions. Let me know if, you have any more questions And we’ll talk soon, thanks.