In my bookkeeping business, I’ve seen an uptick in the number of people contacting me who run Adult Family Homes (AFHs). People with a calling for caregiving are not always “numbers people.” They already face the daunting challenges of healthcare management and business operations. They don’t always have the time, or inclination to learn bookkeeping and accounting.

Nonetheless, keeping up with the bookkeeping is crucial for running a successful AFH. There are lots of regulations around compliance, optimizing resources, and maintaining financial health. If they are neglected it can cost you penalties or endanger your license to operate.

What is an Adult Family Home?

Before diving into bookkeeping specifics, let’s clarify what an Adult Family Home is. In Washington State, an Adult Family Home provides residential care to smaller groups of adults, typically serving those who need assistance with daily activities or those with disabilities. These homes offer a more personalized level of care in a homelike setting.

An Adult Family Home is often a preferred alternative to larger, more institutional settings like assisted living or nursing homes. Some homes specialize in caring for older adults working with the conditions related to aging, like mobility or cognitive challenges. Some homes specialize in supporting people with intellectual and developmental disabilities.

Adult Family Home Bookkeeping Basics

For all small businesses, and particularly for those in caregiving industries like and Adult Family Home, maintaining accurate books is essential. Here’s how you can lay a strong financial foundation:

1. Separate Personal and Business Finances

   You may own a “home based business” but it’s fundamental to separate your personal finances from your business accounts. This separation simplifies accounting processes and is crucial for clear financial tracking and reporting.

2. Regularly Update Financial Records

   Consistent record-keeping helps in tracking expenses, understanding profit margins, and preparing for tax season without any surprises. For an Adult Family Home, this means recording daily expenses related to caregiving, staff wages, and utilities.

3. Understand Your Cash Flow

   Managing cash flow effectively ensures that you have enough cash on hand to cover payroll and other operating expenses. This is vital in the healthcare industry, where unexpected expenses can arise suddenly. You don’t want to find yourself unable to buy what is needed for a client’s care.

Adult Family Home Bookkeeping – A Deeper Dive

When it comes to Adult Family Home bookkeeping, some practices are specific to the industry.

1. Track Resident Fees and Payments

   Ensure that resident fees are billed correctly and that payments are received and recorded on time. Late payments should be followed up promptly to avoid cash flow issues. Have a plan for late payment fees and bill collections.

2. Manage Staff Payroll Efficiently

   Staff costs typically represent the biggest portion of your expenses. Accurate payroll processing ensures compliance with tax laws and employee satisfaction. It’s advisable to use payroll software or engage a payroll professional to handle this complex task. You don’t want to get to tax season and find out you’ve miscalculated withholding and now your staff  has to scramble to cover the cost. This is not a place to DIY your business.

3. Allocate Costs Appropriately

   An Adult Family Home can incur all kinds of expenses from medical supplies to household items. Properly categorizing these expenses is critical for budgeting and tax purposes. It also helps in analyzing which areas are more resource-intensive and may need budget adjustments. Tracking this is how you’ll find out where money is leaking out of the business.

4. Plan for Major Expenses

   As a home healthcare provider, it’s pretty likely that you’ll need to make significant investments in safety equipment or facility upgrades to meet regulatory requirements. Putting money aside for these expenses well in advance prevents financial stress and makes sure you are in compliance with state regulations.

5. Tracking Home Expenses

   Often people who run AFH’s also live on premises. This means that a portion of the utilities, rent and insurance is allocated to personal and the rest to the business. These home expenses have tax consequences for both business and personal.  Owners should talk to their tax experts to get the full picture.

Technology is a Friend to Owners of an Adult Family Home

Leveraging bookkeeping software tailored to the needs of small healthcare facilities can streamline the financial management process. These tools offer features like automatic billing, expense tracking, and financial reporting, which are invaluable for busy Adult Family Home owners.

By implementing these practices, owners improve finances, create efficiency, and provide better care to their residents. Remember, effective bookkeeping is not just about keeping numbers in check; it’s about building a sustainable future for your business and those under your care.

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Note: This blog article is for informational purposes only and should not be considered legal, financial, or tax advice. Please consult a qualified professional for personalized advice tailored to your business needs.