As we approach the end of 2024, there are many aspects the physician enterprise should consider in preparation. Effective year-end accounting practices are critical for maintaining an organization’s financial health, improving tax positions, and setting the stage for future growth. Below are key areas that physician enterprises should focus on during this period.
Analysis of Financial Statements & Reconciliation of Accounts
The fundamentals of accounting become critically important at year-end. Although proper accounting is needed throughout the year, conducting an in-depth look at the physician enterprise’s financial statements in preparation of year-end not only allows the stakeholders to assess their current financial position, but also aids in identifying areas for improvement and adding value. This process may include performing simple trend analyses, such as month-over-month or year-over-year trending. High-level analytics also may add value during year-end. Analytics could include comparing annual costs as a percentage of revenue or calculation of other standard financial ratios. Physicians and their financial teams should confirm that revenue and expenses are accurately recorded, helping the financial statements reflect a practice’s true financial position. Particular attention should be paid to large or unusual transactions, as well as seeing that all accounts receivable and payable are accounted for. The reconciliation process involves matching the internal records of a practice with external statements from banks, suppliers, and other third parties. Key accounts that require reconciliation include bank accounts, credit card statements, and any outstanding loans or lines of credit. Proper reconciliation helps ensure the financial records are accurate and complete, reducing the risk of discrepancies that could lead to financial misstatements.
Cash Management & Accounts Payable
Accounts payable (AP)—the money owed to vendors or suppliers for goods or services purchased on credit—is a process that includes receiving vendor invoices, reviewing, approving, and determining the timing to process the invoice for payment. Paying close attention to expenses and maintaining internal controls can help the organization protect cash and assets and avoid paying inaccurate invoices. Cash and expense management plays an important role in the AP process, and maintaining an organized AP process is key. Expense and payables management can be one of the most time-consuming and cumbersome tasks for an accounting team, and this function is critical to any physician enterprise, large or small. It is vital that an organization create a process that is efficient and effective. This could include streamlining and automating the cash management and/or AP functions. A physician enterprise’s management of cash and AP at year-end should be considered in connection with income tax goals and an organization’s strategy for cash. An organization also should consider the impact of both cash and payables management on any year-end physician and/or owner compensation plan.
Tax Planning & Compliance
Year-end is an important time for tax planning. Throughout the physician enterprise’s lifetime, there are tax planning items that need to be considered on an annual, if not quarterly, time frame. For many organizations, payroll, including wages and payroll tax, may be the most significant cost of operations. A year-end review of payroll decisions would include classification of a worker as an independent contractor or W-2 employee, directly impacting tax expense and tax compliance. Other tax considerations may include making or planning for contributions to retirement plans, purchasing equipment and related decisions regarding the timing of depreciation, charitable giving, or taking advantage of tax credits and deductions available to medical practices. It also is important to make sure applicable tax regulations are complied with, including the filing of any required forms or payments. This includes but is not limited to income, payroll, sales, and state and local taxes. The world of tax compliance and consulting is complex, ever-changing, and requires consulting a qualified professional. Physician enterprises should work with tax professionals to look over their current tax positions and identify strategies to help reduce tax liabilities.
Fixed Asset & Inventory Management
Fixed assets often represent one of the most significant sources of organizational capital investment. Adding in the value of inventory to the equation, these tangible assets can be the physician enterprise’s most valuable assets. Year-end is an important time to confirm the organization is tracking purchases, reporting acquisitions and disposals, and properly recording any related depreciation expense. For practices that maintain an inventory of medical supplies or pharmaceuticals, year-end is the time to conduct a physical inventory count. This process helps ensure that inventory records are accurate and any discrepancies are identified and resolved. Accurate fixed-asset and inventory management is essential for proper cost accounting and also can impact tax liabilities, as depreciation expense and the value of inventory on hand may affect the calculation of taxable income.
Budgeting & Cash Flow Planning for the New Year (& Years to Come)
Physician enterprises should use the year-end period to develop a budget for the upcoming year. Budgets can help managers, department heads, physicians, and any other stakeholders make decisions based on capital available and capital needs. The process of budgeting involves forecasting revenue and expenses based on historical data, anticipated changes in the healthcare landscape, and the enterprise’s strategic goals. A well-prepared budget serves as a financial road map, helping a practice to allocate resources effectively and achieve its financial objectives. The budget process can be high level and basic or extremely complex and granular. The key is that the drivers are an accurate link to the business’s financial performance. You may not want to spend time on complex calculations if what is being calculated is not a relevant line item for your business.
Other Areas for Consideration
Whether it’s year-end or during the organization’s strategic deliberation, the following are additional areas for consideration:
- Revenue Cycle Management: For physician enterprises, revenue cycle management (RCM) is a critical area of focus. The year-end period provides an opportunity to assess the efficiency of the RCM process, including billing, collections, and claim denials. Practices should see to it that all outstanding claims are processed and any uncollectible receivables are written off. In addition, practices should review their payor contracts to confirm that they are receiving the correct reimbursement rates and that all contractual adjustments are accurately recorded.
- Benchmarking: An essential component for successful growth is the utilization of proper benchmarking. Benchmarking allows you to compare current financial performance against several key metrics to better understand how your physician enterprise stacks up in the healthcare industry, as well as how current performance compares to prior periods. Industry benchmarks are widely available through various associations such as the Medical Group Management Association (MGMA) and the Healthcare Financial Management Association (HFMA). As an organization approaches the end of a reporting period, particularly at year-end, a review of the physician enterprise’s benchmarks—both internal and external—can provide insightful information to help the organization improve and enable continued success.
- Internal Controls: Year-end is an ideal time to assess the effectiveness of internal controls within the physician enterprise. This includes looking over policies and procedures related to financial reporting, cash handling, and expense management. Controls in areas such as cash management, fixed assets, and inventory can be complex, depending on the organization’s size. However, these are common areas that need attention. Strong internal controls are essential to help prevent fraud, ensure the accuracy of financial statements, and maintain a practice’s overall financial integrity.
- Digital Accounting Readiness: “Digital transformation” is a buzzword thrown around in today’s business environment. In the context of the accounting department within the physician enterprise, digital transformation is a process of moving from manual, labor-intensive processes and calculations to an automated flow of the data, allowing technology to do the hard work. There are many opportunities to be explored within the cloud-based accounting environment to support growth and, ultimately, increase the bottom line. There also are opportunities to integrate capabilities across various systems, such as the practice management and accounting systems.
Key Takeaway
Year-end accounting is a detailed process that requires careful attention to detail and proactive planning. Focusing on the considerations outlined above can help physician enterprises close the year on strong financial footing and position themselves for success in the year ahead. If you have any questions or need assistance, please reach out to a professional at Forvis Mazars.
Additional Accounting & Year-End Resources
- By the Books: Forvis Mazars' Complete Guide to Small Business Accounting & Finance
- Employee vs. Independent Contractor – U.S. Worker Classification
- **COMING SOON** Year-End Tax Planning Guide: Read our Tax Planning Guide to learn about federal, state and local, and international tax matters for businesses, as well as insights for individuals.