Generating financial reports can be tedious. You either spend a little time each month (or a lot once a year) or you hire someone like your CPA, a bookkeeper, or a team member to produce them. Naturally, we prefer that you choose our bookkeeping services for optometry practices.
A topic my team frequently discusses is how optometry practices can enhance their focus on financial reporting. There are several reasons this might be challenging:
- Financial reports can be complex, and practice owners often prefer to concentrate on their strengths, such as providing exceptional eye care to patients.
- Most practices are financially stable. Even though vision care plans haven’t increased payouts for independent optometry recently, practices not under financial strain might not see the immediate need for detailed financial oversight.
- It costs money to hire an expert, and many owners view cutting costs as key to financial management. However, sometimes spending a little on areas outside their expertise can free them up to concentrate on what they do best.
- Some practices focus on only meeting the basic requirements for tax filing.
If you’ve ever sent a box of receipts to your CPA at the end of the year, you’ve been in the Number 4 group. Let’s discuss why taxes aren’t the only reason to keep up with financials, considering two other reasons to keep up with your accounting.
Taxes
Taxes are an inevitability for everyone. To determine how much you owe to the federal, state, and local governments, it’s important to have a clear understanding of your income, as most taxes are income-based.
One of the best ways to manage tax planning is to avoid surprises, and that’s where keeping up with your accounting really makes a difference. Any time a practice goes through extreme changes, especially when they involve growth in revenues and profits, there can be a surprising tax bill due. If your practice is changing, consider scheduling an extra tax review with your CPA.
A final, important tip for tax planning: year-to-year tax planning is largely based on income. Many practices don’t focus on personal property taxes or inventory use taxes. As a result, there can be room for improvement when organizing their balance sheets.
For most of a practice’s lifetime, this won’t matter. But when you sell, a lifetime of balance sheet errors can come back and bite you. Restating assets might lead to taxable income, so make sure to ask your CPA how “Depreciation Recapture” could affect the taxes when selling your practice.
Operations
This is our bread and butter. While you need a P&L to file a tax return, the only number from that P&L that matters in tax planning is the Net Income on the bottom line. In most cases, everything else that comes between Collected Gross Revenue and Net Profit is immaterial, unless an owner is trying to claim personal benefits as business expenses.
A carefully organized Chart of Accounts (how your Income Statement is organized) can help to illuminate how much it costs to provide patient care. By adding benchmarks to these organized financials, you can gain deep insights into where your practice is inefficient or under-resourced. My most common role as a consultant is telling practices where they need to spend money, not where they need to cut costs.
Selling Your Practice
Finally, your financial statements matter when it comes to selling your practice. Essentially, the value of your business boils down to two key factors:
- The income a future owner can expect to earn from your practice. This is a future expectation, but you’d better believe that history will color a buyer’s expectations.
- The likelihood (risk) that they can sustain or grow that income. A lower risk means a higher multiple of earnings.
Some owners put off tightening their financials until selling the business is imminent. However, keep in mind that many owners don’t sell on a pre-determined timeline. There are five D’s that can cause an urgent sale: Death, Disability, Divorce, Disaster, and Disagreement (such as a partnership breakup). I’ve seen all five in my career.
Ready To Make the Most of Your Accounting?
If you’re ready to go beyond just filing taxes annually and want your financials to provide a clear picture of your practice—ensuring you’re prepared to exit whenever the time is right—contact us to schedule a call.
Books & Benchmarks produces timely, accurate, and meaningful financial reports for our clients every month. Let us create a firm foundation for your financial reporting.
