With the right strategies, you’ll be managing your home care finances like a pro in no time. Here are six money management tips to effectively grow your agency.
There are different skillsets that go into running an agency, and just because you have one of them (for instance, being great with people) doesn’t necessarily mean you don’t have room to develop others like financial management.
Here are a few things you can do to make your finances manageable (and maybe even enjoyable). It takes a little bit of planning, but it goes a long way and will save you from any last-minute stress.
While the majority of the tips in this guide are probably most useful for newer agencies still in the startup phase, they may still hold good reminders and tips for management at larger agencies as well. However, they are ultimately no substitute for the advice of a professional who’s familiar with the circumstances of your specific agency. Make it a top priority to choose the right accounting professional to provide guidance as needed.
Know the language
Financial accounting is a highly specialized field with jargon that can be overwhelming. As it applies to home care agency owners, it gets even more specific.
Knowing the language upfront will help you be more comfortable tackling the books moving forward. Here are some of the terms that you might encounter as it relates to your home care agency. Categorizing expenses this way can be useful because it makes it easier to compare your data to available industry benchmarking data.
These terms certainly don’t encompass all the accounting jargon you’ll come across, but they should be a good basis getting started.
Separate personal and business finances
While starting an LLC requires a separate business account, it’s all too easy to transfer money between personal and business. If you are short on a payment, don’t have enough funds, and think that you could easily transfer some money and repay it later, we heavily advise you not to. If personal and business finances mix in any way, the IRS could revoke your LLC title.
You never want to have blurred lines between where business expenses end, and personal expenses begin.
While owning and running a home care agency can be 24/7 job that doesn’t have a clearly defined work-life balance, finances are not an area that can be interwoven. Don’t let your personal finances blend with your business finances. It will create more unnecessary problems to solve in the long run.
Make sure to set up separate bank accounts right from the get-go. Trust us, it will make things run much smoother.
Determine which accounting method is best for your agency
When it comes to accounting, there are two methods that you can choose from: accrual and cash-based. Each method will define how you manage your finances and will be tracked differently.
Cash basis accounting is the most commonly used method, especially for home care agencies. It’s simple, and easy to track – at least, for the most part. Cash basis accounting simply records cash as it is received and expenses as they are paid. The cash flow is shown in real-time and highlights money in and out as it happens.
Accrual accounting, while not as popular, is still a great option to consider. Rather than tracking finances by cash, it records revenue and expenses when they were incurred. While you might not get or pay money for a month or even a couple of months, you’ll have your finances tracked on the day that they happened.
One option popular with some home care owners is to use cash basis for tax purposes and accrual for benchmarking. For example, if you were to have a long-term client who fell behind on payments and didn’t pay you until mid-January, you’d be missing out on a hefty sum of revenue. The cash report would show the payroll expense in the correct year but the revenue in another. Accrual accounting would tie the revenue to the date the invoice was created.
Financial reporting and balancing your books
There are a few key documents that you’ll use to report on your finances. These include a balance sheet, income statements, and cash flow statements.
With a simple search, you can easily find these documents for free online.
Just remember, doing the work now will save you from having to try and remember what happened months prior. Your cash flow and payments need to be continually updated. You don’t want to lose track of anything.
As you go about balancing your books and reporting on your financials, you’ll also want to compare your agency to other organizations. In the 2020 Home Care Benchmarking Study, you’ll be able to see profit and loss comparisons as they relate to revenue changes.
Prepare for the future
Taxes are right around the corner, and even if it’s only the beginning of the year, planning for the future is never a bad idea.
Some of the documents you’ll need as you go about paying taxes includes previous tax returns, articles of incorporation, accounting records, bank and credit statements, payroll reports, and more.
Make sure you are paying estimated quarterly payments rather than waiting until the end of the year. If you do so, you may end up with penalties and interest that could have been avoided by paying estimated taxes in April, June, September, and December. The IRS says that you need to pay taxes as you receive income, and “to figure your estimated tax, you must figure your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year.”
As long as you’re keeping thorough records and staying compliant with state and federal regulations, taxes should be fairly simple.
No matter what though, it’s always best to consult with your accountant or tax preparer.
Finance guru Dave Ramsey said it best: “Did you ever wonder why taxes are so often mentioned in the same sentence as death? They’re both unpleasant, and you can’t, in the end, avoid either of them. But that doesn’t have to get you down! Your business is killing it and your customers are being served. You just need to keep Uncle Sam and the KGB—oops . . . the IRS—off your back.”
You’ll also want to make sure to keep your documents safe and secure. You don’t want to lose anything in case you need it for the future. Generally speaking, you want to keep documents at least three years (required), but more than likely about seven years. The statute of limitations is three years, so unless there is any fraud or any other major issues, the IRS can’t look at your tax returns beyond the three-year mark.
Choose the right accounting software
There is a lot of bookkeeping software out on the market. One of the most popular being QuickBooks. In fact, some scheduling software can even integrate with QuickBooks. Specifically, ClearCare and AxisCare. While this is a great option, you should do a quick search to see what would work best for your agency.
Some other popular options include BQE Core, Canopy, Oracle NetSuite, Patriot, and Acumatica.
Take charge of your finances
As we’ve stressed already, the most important thing to remember with home care agency finances is that you should be tracking everything. Yes, we mean EVERYTHING. It’s easy to overlook but will play into other areas of your company as well.
Every agency manages their finances in some capacity. The question is: What are you doing to manage your money more effectively and drive your home care business to the next level?