Financial Health Check - The ‘Heart’ of your accounts

BDO Healthcare - Financial Health Series Part 1

Just like that medical appointment, a ‘check-up’ of your chart of accounts is long overdue.

Maintain accounting accuracy

Vital information to any business owner or stakeholder in assessing the state of a business lies in the underlying accuracy and timeliness of the information presented in the accounting file (i.e Xero). Financiers, owners, and stakeholders are regularly presented with a sanitised and, often by the time they receive it, dated version of the information input by the file preparer, whether that be bookkeeper, healthcare practice manager or owner.

Advisers rely heavily on the source data within an accounting file, and the ‘quality in, quality out’ principle applies. It stands to reason that the higher the standard of work presented to the advisers, the more the focus can be shifted towards strategic and ‘value-add’ discussions and decision-making. To make a medical analogy, as practitioners, you always want to make your diagnosis on the most up-to-date and accurate medical information, plus scans and results – your accounting philosophy should follow the same logic.

Chart of accounts

The emphasis then becomes cultivating an accounting file that most accurately reflects the businesses’ activity in ‘real-time’. A straightforward way of doing this is by tailoring your chart of accounts (COA) to your business. Your COA is the index of classifications (‘accounts’) to which you can record transactions.

Medical business accounting

Medical businesses are unique and have many characteristics that a pro-forma COA from a software solution (e.g. Xero) may not incorporate. Your COA must reflect the specific characteristics of your business and industry. A few potential examples include:

Patient fees
Service facility fees
Patient fee liability/Medical fees held on Trust
Clinic consumables.

Akin to the clinical realm – misclassifications, if undetected or untreated in the accounting file for a medical entity, can potentially lead to particularly adverse outcomes, including:

Significant under/over recognition of revenue
Significant under/over recognition of GST liabilities
Exposure to payroll tax risks
Exposure to superannuation guarantee and PAYG withholding liabilities
Accentuating variances between practice management software and patient fees receipted.

These risks are particularly pertinent given the appropriate treatment for accounting purposes is often contingent on the agreements between practitioner(s) and practice(s). This nuance needs to be fully understood and presented to those responsible for preparing the accounting file, thereby increasing the risk of misstatement.

Business ‘health check’ steps

It stands to reason to take the following steps to ‘health check’ your accounting file:

Review your chart of accounts to ensure it aligns with your business and its activity
Review your practitioner agreements (if any) to ensure accounting file treatment aligns with their contents
Ensure your accounting file is being utilised in a manner that enhances the output and information being provided to decision-makers and stakeholders.

Optimise your financial health

BDO’s team of Healthcare specialists can assist you with how you can best utilise your accounting software to facilitate strategic decision-making.

This article is the first in the multi-part series covering ‘Financial Health’ through the medical lens.

If you have any questions in relation to the above content, contact our team.