Most behavioral health practices keep their books on a cash basis: revenue when the deposit lands, expenses when the bill is paid. It is simple and it is what many small-business accountants default to. It is also the reason so many owners cannot answer the question "how did we do last month?" with any confidence — because the cash-basis answer describes when payers happened to pay, not what the practice did.
The two distortions
First, timing. A session delivered in March is paid in April or May depending on the payer. Cash-basis revenue for March reflects January and February sessions; a strong month of clinical work can look weak, and a slow month can look strong. Second, collectability. Cash-basis books never record the sessions that were delivered and will not be paid — denied claims, unpaid patient balances, timely-filing losses. The practice's true revenue per session is invisible, and its receivables are either unrecorded or recorded at face value.
Worked example
A 12-clinician group delivers 2,050 completed sessions in March at an expected net of $111 — $227,600 of earned revenue. March deposits, however, total $198,400, because February was a slow session month and Medicaid is running 60 days behind. Payroll for March's sessions is paid in March.
| Cash basis | Accrual basis | |
|---|---|---|
| Revenue | $198,400 | $227,600 gross of allowance |
| Allowance for uncollectible (4.2%) | — | ($9,560) |
| Net revenue | $198,400 | $218,040 |
| Clinician compensation (March sessions) | $121,900 | $121,900 |
| Other operating expense | $58,700 | $61,300 (incl. accrued malpractice, unpaid vendor invoices) |
| Operating result | $17,800 | $34,840 |
| Operating margin | 9.0% | 16.0% |
Illustrative figures for a hypothetical practice; not a client's data.
The owner looking at cash-basis books believes March was a mediocre month and may hesitate on a planned hire. The accrual books show a strong month — and also show, for the first time, that 4.2 percent of what the practice earns is never collected, a number worth $115,000 a year that nobody was managing.
What a real close includes
- Revenue recognized by date of service from the practice management system, reconciled to claims submitted and to cash received.
- An allowance for uncollectible receivables, by payer and age, updated monthly from actual collection history.
- Clinician compensation accrued to the sessions that generated it, including bonuses earned but not yet paid.
- Expenses accrued when incurred: unpaid invoices, insurance and software prepayments amortized, rent straight-lined.
- Balance sheet reconciliations: bank, credit cards, payroll liabilities, deferred revenue on any prepaid packages, patient credit balances.
- A close calendar with owners and a target — business day seven to ten is achievable for a practice of this size.
Why buyers and lenders insist on it
A lender sizing a line of credit and a buyer performing quality-of-earnings both rebuild the practice's results on an accrual basis. A practice that already keeps them that way is credible on day one; a practice that hands over cash-basis books spends the diligence period explaining, and usually loses value doing it.
What we would do in the first 30 days
- Map the practice management, billing, and accounting systems; confirm session-level data can be exported by date of service.
- Rebuild the last three months on an accrual basis alongside the cash-basis books to show the owners the difference.
- Compute the allowance rate by payer and age from twelve months of remittance data.
- Design the close calendar, reconciliation checklist, and owner for each step.
- Run the first full accrual close for the current month and present both views side by side one final time before retiring the cash-basis report.