Our Client Had a Bookkeeper for Years. Then We Discovered What Was Wrong With the Books.
By ProfitWise - a Visa Business Plans company
A physician who had operated her medical practice for several years was considering investing in new equipment that would allow her to expand the services she offered patients. The investment was substantial, approximately $150,000, but she believed the additional services could generate enough revenue to justify the expense.
She already had a bookkeeper who maintained her financial records and a CPA who handled her taxes. However, as the practice grew and the financial decisions became more significant, she wanted someone who could help her understand the numbers and evaluate opportunities like this one.
That’s what initially brought her to ProfitWise.
Before analyzing whether the equipment purchase made financial sense, we needed to review the practice’s existing financial statements. As we started examining the books, we found several inconsistencies that raised questions about how accurately the reports reflected the practice’s financial performance.
Some expenses had been categorized incorrectly, certain account balances didn’t reconcile as expected, and the way some transactions had been recorded made it difficult to determine the practice’s actual profitability.
Our client was surprised. She had been paying someone to maintain her books for years and had no reason to suspect that the financial statements she received might not be entirely reliable.
Having a Bookkeeper Doesn’t Automatically Mean Your Books Are Accurate
This is something many business owners don’t realize until they need to rely on their financial statements to make an important decision.
Bookkeeping involves much more than entering transactions into accounting software. Expenses need to be categorized correctly, accounts reconciled, and transactions recorded in a way that accurately reflects what is happening in the business.
For a medical practice, that can involve additional complexities, including physician compensation, payroll, equipment financing, insurance reimbursements, and the distinction between operating expenses and capital expenditures.
When these items aren’t handled correctly, the financial statements may still look perfectly normal to someone unfamiliar with accounting.
The reports may show revenue, expenses, and a profit at the bottom, but that doesn’t necessarily mean the numbers tell the whole story.
In our client’s case, we needed to understand and address the inconsistencies before using those reports to evaluate a $150,000 investment.
The Problem Isn’t Always the Bookkeeper
We also want to avoid assuming that incorrect bookkeeping means someone has been careless or dishonest.
A bookkeeper may be perfectly capable of handling the needs of a relatively simple business but lack experience with the financial complexities of a particular industry.
Sometimes a business grows beyond the level of bookkeeping support it originally needed. Other times, the books have been maintained by several different people over the years, and inconsistencies accumulate without anyone recognizing the overall impact.
A CPA may also be doing exactly what the business hired them to do, including preparing tax returns and providing tax advice, without being responsible for reviewing every aspect of the company’s monthly management reports.
For our client, determining who was responsible for the errors wasn’t our priority. We wanted to establish reliable financial information so she could understand how the practice was actually performing.
Why Those Errors Mattered for the Equipment Purchase
The physician was considering equipment that could expand the practice’s services, potentially increase revenue, and create new opportunities for growth.
But evaluating that investment required understanding much more than the purchase price.
We needed to know how much cash the practice was generating, what existing financial obligations it had and whether it could comfortably support the additional expenses associated with the equipment.
There could be financing payments, maintenance costs, training expenses and changes to staffing or scheduling. We also needed to consider how many additional procedures the practice would need to perform, what reimbursement or payment it could reasonably expect and how long it might take for the investment to become financially worthwhile.
Those calculations depend on having a reliable understanding of the practice’s current financial position.
If the financial statements overstate profitability or fail to accurately reflect certain obligations, the owner could make an investment based on assumptions that don’t hold up.
That’s why correcting the books had to come before analyzing the opportunity.
Specialized Bookkeeping Gives Us a Better Foundation
Once the inconsistencies were identified, the next step was reviewing the underlying transactions, reconciling the relevant accounts, and correcting the records where appropriate.
We also wanted the bookkeeping to be structured in a way that made sense for how the medical practice operated.
For example, separating expenses into meaningful categories could help us understand how much the practice was spending on clinical personnel, administrative support, medical supplies, equipment, and other operating needs.
Consistent financial reporting would also let us compare performance over time and spot changes that might otherwise go unnoticed.
This is an important part of what ProfitWise provides through specialized bookkeeping. We want accurate financial statements, but we also want them organized in a way that helps the business owner understand and manage the company.
And because our clients meet with us monthly, they have the opportunity to ask questions, understand unusual changes and discuss what the numbers are showing.
The Financial Analysis Becomes Much More Useful When the Books Are Right
With a more reliable financial picture, we could return to the decision that had originally brought our client to ProfitWise.
Through our Fractional CFO work, we could analyze the proposed equipment purchase using the practice’s actual financial performance and develop projections based on reasonable assumptions about patient demand, reimbursement, operating costs and financing.
We could also examine different scenarios.
What would happen if the new services generated less revenue than expected during the first six months? How many procedures would be needed to cover the additional costs? Would the investment create pressure on cash flow during the initial period?
Those questions would help our client evaluate the opportunity with a clearer understanding of both its potential and its financial risks.
The purpose wasn’t to discourage her from investing in the practice. It was to make sure the decision was supported by information she could trust.
Who Is Reviewing the Numbers You’re Using to Run Your Business?
Many business owners assume that because someone is maintaining their books, the financial information must be accurate. They may receive monthly reports without the accounting background to spot when something doesn’t look right.
As long as the business keeps operating, those problems can go unnoticed.
They often become apparent when the owner needs to make a significant decision, apply for financing, bring in an investor or sell the business.
Our client’s proposed equipment purchase prompted a closer look at her financials, but the issues we identified could have affected other decisions as well.
That’s why we believe good bookkeeping should involve more than producing reports. Business owners need reliable financial information, regular opportunities to understand what those numbers mean and access to deeper analysis when important decisions arise.
For our client, reviewing the books was the first step toward evaluating the equipment purchase. It also gave her something she would keep benefiting from long after that decision: a clearer, more dependable understanding of her medical practice's financial health.
