How to Manage A Chiropractic Office Budget & Practice Finances
- Financial management is crucial to the health of your chiropractic practice.
- There are several good sources for practice loans, including your current bank and the Small Business Administration.
- An accountant who knows the specific needs of chiropractic practices can help.
- The four basic income elements of a practice are revenue, expenses, losses, and gains.
- Your ability to bill for services efficiently will play a direct role in the success of your practice.
You became a chiropractor to help patients, but successfully managing your chiropractic income determines your ability to thrive in your practice. It may never become 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. Here are some ideas for getting the financial backing you need:
- Apply for a loan at the institution where you have your business checking account.
- Seek out companies offering practice loans, since these institutions will understand your business. Expect practice financing to offer up to 15-year terms, and for real estate financing, terms up to 30 years.
- Consider a Small Business Administration (SBA) loan.
Small Business Administration Loans
It’s a good idea to look into chiropractic loans from the Small Business Administration (SBA), which are competitive but 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 all of the following:
- Revenue management
- Choosing the right business entity – LLC, partnership, or 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.
Keeping Financial Records
You will need to keep track of your chiropractic income, expenses, and sales 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 the 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 chiropractic 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 cash flow statement and balance sheet.
The cash flow statement deals with your practice’s cash inflows and outflows, while the balance sheet concerns the following:
- Current and fixed assets
- Short-term liabilities
- Long-term debt
Creating Financial Projections
You can use your P&L statement to create financial projections for your practice. This will tell you what to expect in a week, a month, or a year as well as helping you plan for and predict slower times of the year.
It’s important to review your P&L documents regularly to 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.
Operating revenue is the amount of money your practice takes in through billing, including co-pays, insurance payments, and self-pay payments from customers.
Operating expenses involve the necessities of maintaining your practice, such as rent or mortgage payments, utilities, insurance, and employee salaries and benefits.
Employee salaries are one of the largest expenses for any chiropractic practice. In addition to the providers — and depending on the size of a practice — a typical practice could include a chiropractic assistant, office manager, biller, front desk staff, or some combination of these.
Investment in the right chiropractic practice management software can help a new or growing practice cut staff expenses considerably. ChiroTouch, the cloud standard in chiropractic EHR software, is the best choice a practice can make.
For example, ChiroTouch streamlines the check-in process and facilitates online appointment booking, which reduces the need for front-desk staff.
Other practice expenses could include advertising and credit card payment processing costs.
Special expense categories for tax purposes are depreciation, or the reduction in value of an asset over time; and amortization, the allocation of the cost of a capital investment asset over time.
Depreciation applies to some capital investments, including the following:
Items in these categories are not written off in the year your practice buys them. Instead, they are depreciated over the span of their useful life. The IRS determines a piece of property’s useful life. For example, computers depreciate over five years, but the term for office furniture is seven years. For practices that own their office buildings, 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.
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.
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.
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 is completely integrated EHR and chiropractic practice management software — an all-in-one system to help manage your practice’s revenue.
Whether you’re running a cash or insurance practice, ChiroTouch is the first step in successfully managing your practice’s finances.
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As always, have a well-adjusted day!