Enhanced accounting practices, over $100,000 in tax savings, and improved communication have led to superior financial management and more informed decision-making for the medical practice.
Overview
This case study reviews a single-owner, California S-Corporation medical practice
employing approximately 45 employees across 6 California locations. The company was only formed a few years ago and the owner has utilized the same national firm since the beginning. After speaking with colleagues in a similar space, he felt something was missing from the existing CPA relationship. As the owner mentioned, “he felt like another number”.
From an accounting perspective, the books and records were maintained by an Executive Director (ED) familiar with medical practice operations that spent the majority of their time managing other areas of the Company. Due to the immense growth of the Company, the ED was having difficulty keeping up with the financial statements. The ED did not have a degree in accounting nor desired to become an expert, however, the ED was very detail oriented. During the year, there was not much communication or guidance on accounting oversight, so the ED was left to handle the accounting on their own.
Frustrated by the lack of support from their CPA, the owner made the prudent decision to seek out a referral from a physician with a successful practice of his own. The owner was ready to see what other CPA firms had to offer his growing medical practice.
Implemented location-based accounting, modified the chart of accounts, and allocated expenses to provide clearer financial statements leading to better decision-making. Discovered and corrected previous accounting errors, including recovery of
$55,000 in profit-sharing and reclassification of $56,000 in capitalized equipment
to improve tax result.
Accounting Enhancements
Tax
Savings
Identified and implemented missed deductions and tax credits, resulting in an estimated annual tax saving of $83,000, plus an additional $8,900 CA tax savings and $15,900 federal tax credit, totaling
$107,800
in tax savings.
Approach
Rood & Dinis was presented with the opportunity to provide an analysis of the Company makeup, including accounting improvements, tax opportunities and the implementation of our communication model. We questioned the ability to begin accounting for revenue and expenses by location. We thought this would assist the physician owner make more informed business decisions and present a pattern that could be replicated in the future. We also felt that CPA oversight of the accounting each month would provide a better representation of the financials and alleviate the ED’s time to focus on operations. We also noticed that there were some tax savings opportunities that were not currently adopted. These tax savings instruments were primarily from missed deductions; however, more were found in the first year as the relationship grew. Furthermore, what really seemed to be missing was some form of regular communication.
After meeting with the owner to present our findings and opportunities, Rood & Dinis was engaged to implement these improvements on a recurring monthly basis. We introduced location-based accounting by modifying the chart of accounts and implementing an expense allocation method, resulting in clear, industry-specific financial statements.
We also addressed the previous CPA’s lack of communication by providing quarterly income tax projections to prevent unexpected liabilities. This approach ensured timely and accurate tax payments throughout the year. Within a few months, our enhanced communication model, supported by a fixed fee arrangement, fostered a stronger relationship with the owner. We responded promptly to inquiries, conducted in-person and virtual meetings, provided QBO training, and offered proactive financial advice. With up-to-date financials, the owner was able to make informed decisions and was highly satisfied with the improvements.
Rood & Dinis responded to emails and calls within 24 hours, provided proactive insight into a better tax outcome and
regularly updated client on project statuses.
Communication
OVERALL IMPACT
- The transition to our model led to significant financial benefits, improved tax efficiency, and better management of accounting responsibilities.
- The practice experienced a higher level of communication and support, leading to a more effective and strategic approach to financial management.