Is your healthcare practice's cash flow suffering from clogged arteries? Take our checkup and find out.

Open Your Mouth and Say "Aargh!"
Most practitioners enter the healthcare field because they want to help people, not because they want to run a business. But failing to observe good business practices can create cash-flow problems that impede your practice's ability to provide quality care. Furthermore, insurance reimbursements and a thicket of regulations make healthcare an especially complicated business.

The complexity starts with third-party billing systems, which have become as much a part of healthcare as jokes about hospital food. Any healthcare provider who accepts insurance as payment is required to submit a bill with a current procedural terminology (CPT) code to the billing department. While larger hospitals typically have an in-house billing department, most smaller practices outsource that responsibility to a third party.

This blog was originally published on the ricklochner.com website.

…we’re going to jump to light speed!”

I still remember the audience’s reaction to this scene in “Star Wars: A New Hope” in 1977. We had never seen anything like it on the big screen until then and, of course, now it seems almost archaic! Today’s 21^st century business environment can feel very much like everything is moving at perpetual light speed. It is also this metaphor we use to highlight the first of five Keys to Success initially mentioned in last month’s newsletter (click here to read). The first Key to Success is Get Ready to Warp (warp speed is faster than the speed of light). Simply stated, it is not the ability to adapt that matters as much as the speed at which the leader is able to adapt in order to stay relevant. Here are three things a 21^st century leader can do to stay relevant:

• How well do you know your industry? While I was once asked if I had a crystal ball to see the future, no one has that ability. However, we do have the ability to understand our industry well enough to understand key trends and how those trends impact the leader’s current and future business. In the May-June 2018 issue of “Harvard Business Review,” Jason Trujillo, IBM’s Director of Leadership Development sums up this dynamic with one sentence. He states, “IBM’s cultural transformation is aligned with the reinvention of our business, with almost half our revenue coming from businesses we weren’t in six years ago.” Six years to a company as large as IBM is virtually light speed!

Whether you own a startup or a growing business, a professional bookkeeper will help ensure you're following standard business practices and provide the financial information you need to make better business decisions.

From recording daily transactions in the general ledger to delivering in-depth financial reporting, here are several of the key tasks a professional bookkeeping service can perform:

1. Compiling Key Financial Reports
At a basic level, the goal of any business is to take in more money than it spends. But figuring out if the business is actually doing that can be surprisingly difficult. In order to fully understand what's going on, you need to review an array of financial reports. Of particular importance — especially in the startup phase, where cash is often in short supply — is the cash flow statement. If you or your bookkeeper don't understand the implications of this statement, the results could be disastrous.

The Sierra Nevada Children's Museum, a popular family destination in Truckee, California, is poised for growth with a projected 80% increase in visitation over the next 20 years. To keep pace with this growth, the museum needs to boost fundraising to finance building a larger facility.  

Working with a complex chart of accounts and item list, combined with a slow, server-based software system, occupied much of Executive Director Carol Meagher's time. She wasn't able to fully focus on fundraising and community outreach — which were vital for the museum to keep pace with its projected increase in visitation.

To compound this problem, the museum's bookkeeper decided not to return from maternity leave, and a prospective replacement didn't pan out. In order to reach its potential for growth, the museum needed to establish a strong foundation in bookkeeping that included special events tracking, operational reporting, grants management, and preparing financials for the board.

Fifty percent of new small businesses fail within five years. That statistic has held steady for so long, it might lead you to conclude that business is a game of chance and success is as random as the outcome of a coin flip.

That's not the case. With research and preparation, you can push your odds of a successful launch well above 50/50.

1) Do your market research.
Too many entrepreneurs think with their hearts instead of their heads. Just because you love to do something doesn't mean people will pay for your product or service in sufficient numbers for you to turn your avocation into a vocation.

So before you quit your job and sink your life savings into pursuing your passion for cupcakes and baking, you'd better figure out how many people would be inclined to buy your cupcakes, how much they'd be willing to pay, and whether you can bake your cupcakes cheaply enough at scale to turn a profit. If the numbers work, then go for it. If not — and you need to be brutally honest with yourself — then don't quit your day job.

With special thanks to Mariya Luqmani, CPA, MST, President of MLCPAS Inc specializing in business and international taxation, for her contributions to the article.

Lately a lot of my small-business clients have been asking me about C corporations. I understand why. The Tax Cuts and Jobs Act (TCJA) has bestowed a very preferential 21% flat tax rate on corporations, replacing the previous graduated tax rate of 15% to 35%.

Does converting to a C corp make sense for you? Since the graduated rate was based largely on taxable income, the simple answer would appear to be to determine whether your company's taxable income is closer to the 15% mark (in which case converting would be a bad idea) or the 35% mark (in which case converting could be a great idea).

But as with most simple answers, the reality isn't so simple. This is particularly true of businesses that are still in the planning stages, where projecting the bottom-line taxable-income numbers is just that — a projection.

So what's a small-business owner to do?

If you run a small business, the holidays can be a distraction. It's easy to lose focus during the rush (if you're in retail) or the lull (if you're not). Either way, this is a crucial time. You need to take stock of where your financials are as this year ends and the next begins.

Don't drop the ball before watching the ball drop in Times Square. As the year ends, resolve to …

Keep good records all year long. Yes, we offered the same advice at this time last year. Did you follow it? And if you didn't, don't you wish you had? Wouldn't it be nice to relax and enjoy some holiday time with family and friends instead of scrambling to pull together 12 months of records?

It's worth repeating: At a minimum, performing monthly reconciliations and keeping accurate, up-to-date records — including all expenses, such as equipment updates or mileage, as well as W-9 and 1099 forms — will make your life (and your bookkeeper's life) much easier at tax time. It will also prepare you for any unexpected audits. Perhaps most important of all, thorough records give you insights into your business that can make it easier to create accurate budgets and forecasts.

"Small businesses lose almost twice as much per scheme to fraud" as larger businesses. That's just one of the disturbing findings in the Association of Certified Fraud Examiners (ACFE) "2018 Global Study on Occupational Fraud and Abuse."

According to the study, small businesses (which the ACFE defines as having fewer than 100 employees) sustained a median loss of $200,000 per fraud scheme, compared to $104,000 for larger businesses. Moreover, the study found that "a majority of the victims recovered nothing."

A Big Problem for Small Businesses
Why are small businesses particularly vulnerable to fraud? There are several reasons. First, many small-business owners start out in the corporate world (where high-level financial controls are part of the infrastructure) before venturing out on their own. So they tend to take security measures for granted and are too trusting of the people they bring onboard to operate their new business. Let's face it: No one hires an employee whom they think will try to defraud them.

Congratulations — you have an idea for a potentially lucrative small business. All you need is the funding. Several avenues are available, and you should take the time to explore them all before deciding what's best for you.

In case you missed the emphasis, the operative word there is best. With that in mind …

1. When evaluating financing options, remember that it's not always about the interest rate. Terms and conditions matter quite a bit. Even as a C corp, S corp or LLC, you can lose what you've invested, and you may be asked for "personal guarantees" that will entangle you long after a business fails.
2. Match the duration of your financing with the duration of your assets. If you have two-year loans with a big balloon payment at the end and you can't roll your debt in two years because of a major recession, that's a big problem. Ever hear of Lehman Brothers? Yeah, they did that.

Like many medical professionals who operate their own practices, Beverly M. Shafer MD, FACS (Fellow, American College of Surgeons), is under tremendous pressure to manage her time as efficiently as possible. "It drives me crazy when there are gaps in the schedule," says Shafer, a renowned plastic surgeon who has practiced on the North Shore of Massachusetts for over 30 years.

Shafer's combination of compassion and surgical artistry has created a high demand for her services. Meanwhile, her practice's back-office functions have become more time-consuming over the years, due to the growing complexity of insurance-reimbursement bureaucracy and a migration from paper-based to digital bookkeeping. Staff turnover compounded the problem; an outside CPA firm wound up doing many basic bookkeeping tasks. That wasn't cost-effective.

Specialized Bookkeeping Services for Healthcare Practices
A business contact encouraged Shafer to reach out to Supporting Strategies Founder and CEO Leslie Jorgensen. "I loved her immediately," Shafer says. A leading provider of outsourced bookkeeping services and operational support, Supporting Strategies began reconciling all of the practice's accounts on a monthly basis, "which is super-complicated, honestly," Shafer says. "They interface with my CPA to provide them the necessary information to do what they need to do, and they also interface with my paychecks company to get my staff paid and make sure that their taxes are correct."