Why Bookkeeping Matters for Canadian Multidisciplinary Health Clinics

Running a health clinic that offers multidisciplinary services, such as chiropractic, physiotherapy, RMT (registered massage therapy), and more, means you have multiple revenue streams, multiple subcontractors, and overhead costs like rent and a receptionist. In this blog post, we will discuss the importance of bookkeeping for clinics to monitor gross margins on each service line, and navigate subcontractor fees. We will also touch on correctly recognizing sales tax on expenses and differentiating taxable and non-taxable services.

The Significance of Bookkeeping for Clinics

Here are a few reasons why bookkeeping is vital to making good business decisions that grow your business:

1. Tracking Gross Margins

By maintaining detailed records of revenue and expenses associated with each service line, clinics can calculate gross margins for each service. This allows them to identify which services are most profitable and make data-driven decisions to optimize pricing, resource allocation, and marketing efforts.

2. Evaluating Total Profitability

Bookkeeping enables clinics to assess their overall profitability by considering all revenue sources and expenses. This big-picture view helps identify areas of strength and potential improvement, allowing clinics to answer the big questions:

“Can we afford to hire another Physiotherapist without becoming unprofitable?”

“Is our business model working? Should we look to open or acquire a second location?”

“As the owner, can I afford to withdraw additional personal funds out of the business each month?”

3. Pricing and Payout Strategies

Accurate financial reports empower clinics to set competitive prices for their services. Further, by understanding the impact that your overhead costs have on your margins, you’ll be confident in the subcontractor fee structure you’re willing to offer in order to attract good staff without extinguishing profits. Higher overhead costs (living in Downtown Toronto or Vancouver, for example), mean subcontractors should inherently be paid less unless you’re charging them rent and administrative fees.

Monitoring Gross Margins on Each Service Line

To effectively monitor gross margins, clinics should follow these steps each month:

1. Identify Revenue Streams

Categorize monthly revenue based on the different service lines offered, such as chiropractic, physiotherapy, RMT, and others. You can do this pulling monthly “sales by service” reports from your POS system (Maybe that is Jane App, Juvonno, Noterro, etc). 

2. Allocate Direct Costs

Assign direct costs (subcontractor fees and any supplies or equipment specific to each service line) to calculate the cost of delivering each service each month. The simplest way to do this is by setting up the correct general ledger accounts are set up and allocated in your accounting software (We love Quickbooks Online). 

3. Calculate Gross Margins

Subtract the direct costs from the revenue generated by each service line to determine the gross margin for that specific service each month.

By regularly monitoring gross margins, clinics can identify profitable service lines, detect any inefficiencies, and make data-driven decisions to optimize their marketing and scheduling for each service.

Correctly Recognizing Sales Tax on Expenses and Taxable Services (Ontario Specific)

Properly recognizing sales tax on expenses is crucial for tax compliance and maintaining accurate financials. It involves identifying taxable and non-taxable services, and pro-rating the sales tax on expenses in accordance with this taxable/non-taxable revenue ratio.

Here's a summary (Note that this is not professional advice):

Taxable Services

In Ontario, athletic therapy, psychotherapy, and RMT services are generally subject to HST. 

Non-Taxable Services

In Ontario, Chiropractic and Physiotherapy services are generally exempt from HST.

By correctly recognizing sales tax on revenue, you can then calculate the portion of sales tax on eligible expenses that can be claimed as a refund on your sales tax return. For example, if 50% of revenue is a taxable service, then 50% of your sales tax (ITC’s) on expenses can be claimed on the sales tax return, and the other 50% are expensed through net income. This is a simplified example and the full calculation can be more complex depending on the type of expenses that are included in the calculation. For example, if an RMT subcontractor charges you HST, that HST is 100% deductible on a sales tax return, because it 100% relates to RMT (sales tax eligible) revenue. This is a critical component of HST allocation that if recorded incorrectly, can shrink your gross margins drastically and cause significant profitability and cash flow issues relating to taxable services! Read that again!

Accurate bookkeeping is essential for your clinic. It allows you to monitor gross margins on each service line, navigate subcontractor fees, and correctly allocate sales tax on expenses. By maintaining clean books and reviewing your financials on a MONTHLY basis, you can make informed decisions that optimize your pricing, maintain profitability, and ensure long-term success in a competitive landscape.

If after reading this, you are excited about doing your own bookkeeping, we wish you all the best. If not, give us a call.