Bonus Season Reality Check for Medical Practice Owners
Writing those checks should not be a guess based on how much is in the bank today.
Once a medical practice crosses about $400k in revenue, a bonus based on a gut feeling can look fine in December and still squeeze you in January. The check goes out. Then taxes, payroll taxes on that bonus, and slower payments in the new year all show up at once.
At that size, the bank balance is no longer enough. It shows what’s in the account today. It doesn’t show what’s already spoken for.
Before you write the checks, look at three things the bank feed won’t tell you:
1. Money in hand, not work you’ve done
A busy month is not the same as cash you can share.
If you pay bonuses to your team based on visits billed and the insurance payment is still weeks away, the practice is lending the money. Pay the bonus on what has actually come in after the lower amount each plan already allows and after the costs of running the practice.
2. Cash already owed for taxes
A strong fall does not all belong to the bonus pool.
Part of that cash is for the tax bill that comes with a good year, including taxes on the bonus itself. Set that money aside first. What’s left is what you can safely share.
If you don't set that money aside first, the bonus is being paid with cash that was never free. January is when that shows up as:
estimated taxes,
payroll taxes on the bonus, and
the owner draw you still need to take.
3. How much of the allowed payment you actually collect
This is the share of money you were supposed to receive that actually arrived.
Insurance discounts don’t count against you. Those were agreed when you joined the plan. What does count against you is money that should have come in and didn’t:
claims that were denied,
bills patients never paid, and
balances written off.
A common warning line is 95%. That means you collected at least 95 cents of every dollar the plan allowed. Under that, a big bonus can make it look like the month went well when claims were denied or never paid.
Your billing system has this number. The bank account does not.
A bonus that holds up
Set the tax money aside first.
Pay the bonus from dollars already collected.
Do it only after the practice has covered its costs.
That rewards the team without borrowing from the first quarter.
This is the structure I help practice owners build. The decision is based on the numbers, not on how the account looks today.
Don’t guess at your profitability.
Own your numbers.
Nina Guidi, CPA
This article is for general information only and is not tax, legal, accounting, or insurance advice for your specific situation. Rules depend on your facts and current law. Talk with your CPA and, when needed, an attorney before you file, elect, or change anything.