Arranging the Financial Puzzle Pieces of Private Medical Practice

Let me start by reminding you I am not an accountant or lawyer. I want to give you my suggestions of how to set up the private medical practice’s financial parts when opening your practice. You and your accountant should review your plan before you do the same. I’m hoping the financial advisors on this site will weigh in on this most important topic also. I want to give you the 20,000 foot view; they can give you the turn-by-turn directions.

Once you’ve incorporated and named your business/practice, you get a Federal Tax ID number. This important number is like your social security number. You’ll use it to open business bank accounts and also to get paid by managed care companies, etc. These managed care payments are usually made by check with an attached EOB (Explanation of Benefits), although direct deposit is often available too.

As an aside, I opened a PO Box as my “pay to” address, where the payments and EOBs are sent, as well as copay and other payments that patients mail if they didn’t pay at the time of their visit. Only my office manager and I have access to that P.O. Box. That is where my credit card and other bills are sent as well. I did not want that mail getting mixed in (and potentially lost, or stuck into a magazine by accident) with my general office mail.

I also opened a business savings account where extra checking account funds were swept into each night. This savings account was really a money-market acocunt with a little more interest paid to me than a regular savings account could offer. This account offers online bill payment so that I rarely write a paper check anymore.

You should get a business credit card to start establishing credit for your company/practice. If you get it from the bank where your business checking account is located you can usually link it to your checking account for easy payments, as well as overdraft protection. I chose a card that gives me points for dollars spent, and I use it to pay for the supplies I need as well as other payments I can make with it, and the rewards are nice little bonuses. Only chose a rewards card if you pay off the balance each month (at least the majority of the time) because rewards cards usually charge a higher interest rate on unpaid balances than non-rewards cards do.

Next, set up an unsecured line of credit (LOC) with the bank (if you can find one to do that for you these dismal banking days). It is invaluable for smoothing over cash flow issues to meet payroll, especially in the early days of your practice while waiting for the insurance companies to pay you (which may be 2-3 months after seeing your first patient). Use this LOC as a temporary resource, with the goal to pay it off quickly after tapping it.

You might want to consider taking credit cards for co-pay payments and other charges your patients must pay. Your bank can get you set up with a credit card processing company who usually gives you the card scanner for free, or very cheap.

Finally, I highly HIGHLY recommend you use a payroll service to assist you in paying your staff (and yourself, although your check will be a “draw check” and you’ll probably be paying estimated taxes. Discuss that point with your accountant.) Keeping track of taxes and other payments due is difficult, and I find the payroll service to be well worth the little bit of money I pay them to keep everything straight and on-time. They make tax time much easier also.

One last suggestion is to consider utilizing a bookkeeper or having your accountant make a visit to your office every 2-4 weeks to balance your checkbook, or enter monies you received or paid, into a computerized accounting system like Quickbooks. Just keep your receipts and other records handy for them to check. Quarterly taxes come around quickly, and developing the discipline or system to keep your books balanced makes estimating taxes much easier. Plus you’ll have a relatively up-to-date accounting of your practice’s financial health each week or two although I’ll predict you’ll check your balances daily especially when first starting up.