Bookkeeping (Part 1)

Now that you have your new state medical license and DEA number, your pockets are $2,000+ lighter.  You also probably spent an additional $100 to $200 in mailing costs. 😥 This is only the beginning of your spending spree! Remember that scene in Pretty Woman where Julia Roberts goes on a shopping spree on Rodeo drive? It’s kind of like that, but you’re shopping for toilet paper and trash bags at Office Depot with your 15% off coupon, while eating a chicken sandwich from the 99 cent menu at McDonalds because that’s all you can afford now.  Yeah…Good times.  😐

Although it seems like you’re light years away from collecting a single penny in revenue, you will ultimately become profitable, and the IRS will eventually come knocking on your door. You will have so many expenses lined up that if you don’t start keeping good track of them NOW, it will cost you dearly when it’s time to file your tax return in April.

At this point of your solo practice career, you’re most likely using your personal checking or credit card for your business expenses. There is nothing wrong with doing so. However, to keep things simple, I recommend using one dedicated credit card for business expenditures only. Don’t make any personal purchases with this credit card. It’s just easier to keep track of your business expenses this way. Of course, as your spending adds up, some times you will have no choice but to tap into another credit card or account. That’s what I had to do. That’s perfectly fine too. As long as you keep detailed records, you can technically mix your personal and business expenses as much as you want. It just gets super messy if you do so indiscriminately.

I also don’t recommend using cash to make any business purchases. First off, it’s harder to keep a paper trail. Second, you don’t get any rewards points for anything you buy. We’re going to eventually go over the various credit cards you can get. Given that most of you will not be going on too many vacations during this period, a cash back rewards card might possibly be more appropriate. Having said that, you will most likely make some business trips for your practice, so a travel rewards card might still work out.

Once you’re farther down in the process, you’ll end up opening business checking accounts and credit cards. At that point, your practice will need to reimburse all the expenses you had made using your personal accounts. I know it feels like you’re passing the same money around from one account to another, but you NEED to learn to separate business expenses from personal expenses NOW. Otherwise, the IRS will eventually burn you in an audit.

I just can’t reiterate enough the importance of strict bookkeeping. You need to make it into an art form. Everyone has their own preferred software, and mine is the good old fashioned Excel spreadsheet. I currently separate all my expenses into about 40 categories. These are mostly the same categories that Turbo Tax asks you to input when I do my tax returns every year. (I’ve been doing my own tax returns for the past 5 years. I’ve used a few accountants in the past, and they were all awful in their own unique way. Another topic for another post, another time.) For a startup practice, I would start with the following:

  • Accounting
  • Business Gifts
  • Credit Reports
  • Charitable Contributions
  • Computer Services
  • Delivery & Freight Costs
  • Dues & Subscriptions
  • Equipment
  • Gas & Parking
  • Insurance Premiums
  • Legal & Professional Fees
  • Licenses & Permits
  • Loan Costs
  • Meals & Entertainment
  • Nondeductible Expenses
  • Organizational Costs
  • Phone & Internet
  • Postage & Mailing Costs
  • Printing & Copying Costs
  • Rent
  • Supplies (Clinical)
  • Supplies (Office)
  • Tenant Improvement Costs
  • Training & Education Costs
  • Travel Costs

Here’s a screenshot of my spreadsheet from 2010. As you can see, I didn’t follow any of my previous advice, because I had no clue what I was doing back then.  🙂

Screen Shot 2017-09-04 at 10.35.25 PM.png

I recorded the date, expense item description, cost, and method of payment. I still use this same format today, but just with different categories that are appropriate for a mature practice. Howie’s bookkeeping practices are probably way different than mine, but many ways to shear a sheep.

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