How to Manage Your Practice’s Finances
You became a chiropractor to help patients, but successfully managing your chiropractic income determines your ability to thrive in your practice. It may not prove your favorite part of the job but managing your income is a crucial part of your business. Here’s Finance 101 for Chiropractors.
Getting Started with a Loan
Many small businesses require financing to get started, and chiropractors are no exception. You may want to apply for a loan at the institution where you have your business checking account or seek out companies offering practice loans. The advantage of the latter is that they understand your business, while a lender that does not specialize in such practices may not understand your industry and is thus more likely to turn down a loan or require extensive amounts of information. In general, practice financing offers up to 15-year terms, and with real estate financing, terms may extend up to 30 years.
Another loan option for chiropractors is the Small Business Administration (SBA). These loans are competitive and may require less collateral or equity than regular bank loans. The SBA helps businesses that may not qualify for conventional financing. In addition, the SBA can help chiropractors develop a business plan, essential for obtaining a loan with them or any financial institution.
Accounting for Chiropractors
Your choice of accountant greatly impacts your practice’s success. Your accountant does more than just file your tax returns. While daily bookkeeping is practice-based, your accountant helps you with your revenue management, choose the right business entity – LLC, partnership, corporation – retirement planning and overall business planning. When choosing an accountant, look for a person or firm familiar with the chiropractic industry and practices of your size. Ask other chiropractors for recommendations. Your attorney or lender is another source of information for good accountants.
Keep Financial Records and Creating Financial Projections
Keep track of your chiropractic income, expenses, sales and create financial projections through your profit-and-loss (P&L) statement. This essential document provides a financial picture of your practice during a particular year, quarter or month, showing you what your practice is doing correctly and what areas need changing. The P&L is also known as income, earnings or operation statement. A potential lender wants to see your P&L before making a decision to determine your practice’s creditworthiness.
The P&L boils down to “sales minus expenditures, equals profits,” or your net income. It permits you to determine the practice’s net profits so you have the numbers to make financial projections. Along with the P&L, your practice’s business documents must include the balance sheet and cash flow statement. The former concerns:
- Current and fixed assets
- Short-term liabilities
- Long-term debt
The cash flow statement deals with your practice’s cash inflows and outflows.
It’s important to review these documents regularly. For example, your P&L will tell you what parts of your practice generate the biggest profits, and what parts are not cost-effective. Another plus for periodic perusal: You may not identify a trend in your practice until you see it written down. In terms of tracking your finances, your accountant can recommend the appropriate accounting software for your practice, along with the best methods of breaking down costs.
The Four Basic Income Elements
The four basic income elements consist of revenue, expenses, losses, and gains.
Here’s what each entails:
Revenue: operating revenue is the amount of money your practice takes in.
Expenses: operating expenses involve the necessities of maintaining your practice, such as rent or mortgage payments, utilities, insurance and employee salaries and benefits. Other expenses could include advertising and credit card payment processing costs.
Also listed in the expense category is depreciation (the reduction in value of an asset over time) and amortization (allocation of the cost of an asset over time) of your capital investments. Some capital investments, such as equipment, technology, and furniture, are not written off in the year your practice buys them. Instead, they are depreciated over the span of their useful life. It is up to the IRS to determine a piece of property’s useful life. For example, computers depreciate over five years, but it’s seven years for office furniture. If you own your chiropractic building, most structures have a 39-year depreciation schedule.
Think of amortization as an intangible asset depreciation of your intangible assets. Intangible assets include things like trademarks, brand recognition, and intellectual property. Amortization may not relate to most aspects of your practice, but your accountant can tell you if any of this is applicable.
Losses: when expenses exceed revenues, your practice ends up with a net loss for that period. Practices may experience a month or quarter with a net loss. You must figure out why these losses happened and attempt to prevent a repetition.
Gains: these are usually one-time occurrences boosting your bottom line. For example, receipts from a specific event, like product sales or an open house for new patients.
Chiropractic Billing
Part of chiropractic office budgeting involves purchasing the right software. When it comes to chiropractic billing and bookkeeping for your practice, the right software is essential. You and your staff need software that is intuitive, fully integrated and automatically updated. ChiroTouch provides an all-in-one system to help manage your practice’s revenue. It is the first step in successfully managing your practice’s finances.