One question that comes up time to time in our thread is whether you should do your bookkeeping yourself or outsource it to an accountant. Accountants typically charge $175-200 per month to keep your books, which is a small cost compared to how much your time is worth seeing patients and doing what you’re good at, right?
First of all, you need to keep track of every penny that goes in and out of your practice. This goes back to billing and the revenue cycle, but you need to know when the ERAs and EOBs post to tell you how quickly payers typically pay, and what their allowed amounts are so you might be able to negotiate rates or even drop low paying carriers in the future.
In terms of expenses, you need to know where everything is going to make sure there isn’t any waste, like there is in big groups. I don’t prepare a budget with an over/under variance for the month and to date for my practice. For my first year I winged my estimated expenses off of Ho Sun’s original blog (it turned out that my monthly expenses are significantly lower because of cheaper rent in Phoenix compared to the Bay area, as well as less amortization of startup and initial equipment expenses and interest).
As the owner of the business, you need to know how much you spend on rent, employee salaries and benefits, advertising, equipment interest and principle, credentialing fees, EHR and practice management fees, insurance (business as well as malpractice), utilities and other expense.. some of these companies will try to sneak in an annual rate increase when all it takes is a quick phone call or email to keep the rate the same. You also need to know all of these numbers to be able to make decisions about your practice growth.
Secondly, we have heard of stories where the physician owner handed over the “keys to the kingdom” to their accountant, only to find that the accountant stole from the practice. Unfortunately, this isn’t an isolated incident. Even if I hired an accountant for bookkeeping, I would double check their work, to make sure that there was no funny business.
Thirdly, although $175-200 per month doesn’t sound like much, in reality, it’s a job that pays $400,000 per year. And how did I arrive at that number?
Most of the folks on our Google group that do their own bookkeeping use Quickbooks, which I hear isn’t rocket science. I use an iPhone app called Expensify. I create a report every month for expenses, and another report per year for equipment purchases, mileage, and formerly meals and incidentals (there are stricter rules on entertainment deductions with the TCJA new tax law).
In each monthly report, I have an entry for each expense, including the date, company, amount, and reason for the expense. There is also a place where I can take a picture of the receipt. All of this is stored in the cloud and available on my iPhone, iPad, or computer. Every month, I print my report with the expenses, and save a copy onto my computer hard drive for backup.
So how long does that take me? I have, on average, 25-35 entries per month. If it takes even 40 seconds for each entry, that’s half an hour. At the end of the month, I look at all of my credit card and bank statements, and compare the withdrawals to my report to make sure that all my expenses are reported, and that there’s no funny business. Maybe another half hour, which I’d have to do anyway if I hired an accountant or bookkeeper to make sure they weren’t doing anything funny.
And at the end of the year, I spend 2-3 hours categorizing expenses. This isn’t exactly rocket science: look at form 1120s (form for S corp return). Expenses fall into salaries and wages, repairs, reents, taxes and licenses, interest, depreciation, advertising, retirement plans, employee benefit plans, and other. You can break down the “other” into utilities, insurances, office supplies, mileage, travel, credentialing fees.
So if you pay $200 a month that’s $2,400 per year. If you spend 12 hours of work on this per year, that’s $200 an hour, so unless you are making more than $408,000 (which some on our thread are), you need to do your own bookkeeping. And as I said, even if you’re making more you still need to understand where your expenses are going- and it doesn’t take much longer to do the entries in Quickbooks or expensive yourself.
And even if you’re making over $408,000, the next two paragraphs are Ho Sun’s take:
“I agree that if you’re a big dog, it makes no sense to dwell on tasks that can be delegated to someone with an associates degree. However, most of us will never become the mascots of industry with large empires. Even David Chang was a nobody peon early on in his career. If you spend your free time learning the basics of business, instead trying to break the minesweeper world record, when you first open your practice, you will reap the benefits later on when you no longer have the time or interest to deal with these things. Stop bad habits and practices from growing into an uncontrollable exponential monster in the beginning.”
This is the same as learning how to manage your own personal finances rather than hiring someone under a 1% AUM (assets under management) fee- the so called “experts” want to make it sound like managing your portfolio or doing bookkeeping is some heavy time and labor involved expense which involves specific expertise. This is the low hanging fruit where doctors get hosed out of their money. Sorry, your accountant is probably hiring a bookkeeper at $15 an hour and it takes them two hours to do what it takes me 30 minutes- and the bookkeeper is more prone to errors.
The point I’ve been trying to make is the costs of outsourcing is MUCH higher than you think compared to the time it takes you. Keep good records and do your own bookkeeping.
Here’s Ho Sun’s take (originally posted October 23, 2010). He started out with Excel spreadsheets for his bookkeeping, which is more labor intensive but has since switched to quickbooks. Also with the cloud and print backups no need to store every receipt:
I’ve always been a stickler for keeping strict financial records. When I was an eBay seller in college, I kept track of the cost of inventory, sales, and profits. I tried my best to document the most trivial expenses, such as photocopies, envelopes, etc. You will be surprised how a few extra pennies per sale can make the difference between profit and loss. I also tried to keep strictly honest poker records during college and medical school as well, no matter how painful the truth may have been during some losing streaks.
Accurate records help you in many ways:
1. They help you to track and to monitor your business’ performance.
2. They address areas that may need more proper and efficient money management.
3. They provide correct figures for tax purposes.
4. They correctly identify and monitor debts owed and monies due to you.
Throughout this whole process, I kept strict financial records for both my personal and business spending. I continued to alter my pro forma accordingly, factoring in my spending and changes to actual costs from estimated costs. I know at all times where my budget lies, and what I need to spend and where I need to make cuts. In addition, keeping track of my business spending will help to maximize my deductions when I file my tax return.
As for my personal spending, I document every single penny I spend, including nominal fees such as toll, dollar donations to homeless people, etc. As I mentioned in a previous post, I’m trying to keep my personal monthly budget under $3,000, which includes $500 in monthly student loan repayments. Without keeping track of my spending, it’s so easy to get carried away and go over budget. Believe me, I know, because I’ve had times during residency where I stopped keeping track of my spending.
As for my business spending, I keep an Excel spreadsheet with subcategories such as equipment, credentialing, insurance, business trips, etc. Every postage stamp and photocopy gets posted onto my business spending file.
In addition to keeping proper records, I’m realizing that you have to have a nice filing system to store and organize various documents such as receipts, contracts, licenses, invoices, etc. I still haven’t gotten quite organized in this area yet. All I’m doing is just separating these files into manila folders and piling them up in a corner. I need to get a filing cabinet. Given that I’m an anti-hoarder, and I always look for reasons to throw things away and simplify my surroundings. I’m not too hot about collecting all this paper. Unfortunately, I can’t throw these documents away either. Maybe I will go through them one day to see if I really need to keep everything.