Annual memberships and enrollment fees in your books

When a member pays for 12 months up front, you've collected a year of cash, but you've only earned one month of it so far.

Cash in the bank isn't the same as revenue earned

Revenue is money you've earned by providing the service. An annual membership is a promise to care for that member for 12 months. On the day they pay, you haven't done that yet.

Here's a made-up example. Say a member pays $900 for a year on January 1. That's $75 a month of care. In January you've earned $75. The other $825 is money you're holding for care you still owe. Each month after that, another $75 moves from owed to earned, until December, when the last $75 is earned and the balance is zero.

The account where that held money sits is often called deferred revenue. It's a fancy name for a simple idea: cash you've collected for work you haven't done yet. On accrual books, it shows up on your Balance Sheet, not your P&L.

Why it matters for your monthly numbers

On a cash basis, the full $900 lands as January revenue, so January looks like a great month and the next eleven look worse than they are. If 30 members do that in the same month, your P&L swings up and down for reasons that have nothing to do with how the practice is doing.

It also makes metrics like revenue per member less useful, because one month is stuffed with a year of dues. And it can make cash feel bigger than it is. That $825 is spoken for. If a member leaves in March and you refund the unused months, the money comes back out.

Cash or accrual is your CPA's call

There are two common ways to keep books. On a cash basis, income is recorded when the money arrives, so the full $900 would show in January. On an accrual basis, income is recorded as it's earned, so you'd see $75 a month.

Which method your books and tax return use is a decision for you and your CPA. I won't make that call for you. What I will say is that even if your books are on a cash basis, it's worth tracking annual prepayments on the side so you know how much of your bank balance is already owed to members as future care.

Enrollment fees

If you also charge a one-time enrollment or registration fee, that's a separate decision. Some treat it as earned when it's paid. Others spread it out. How it's handled ties back to the same cash or accrual decision, so it belongs in the same conversation with your CPA.

Whatever you decide, record enrollment fees on their own revenue line, apart from monthly dues. Lumping them together makes a busy sign-up month look like your dues went up.

What I'd check this week

• Count how many members are on annual plans right now.
• Add up how many months of prepaid care you still owe them.
• Look at whether enrollment fees have their own line on your P&L.
• Ask your CPA whether your books are on a cash or accrual basis, if you don't already know.
• Check how your membership platform's payout report shows annual payments, so they can be recorded correctly.

If your platform is Hint, remember deposits arrive net of fees, refunds and failed payments. An annual payment and its fee should be recorded separately, so the full dues amount shows up and the fee shows up as an expense.

Knowing how much prepaid care you owe is a good habit even if nothing changes in your books. It tells you how much of your cash is yours to plan with.

Common questions

Can I spend annual membership money right away?
You can, since it's in your account. I'd treat the unearned part as already owed, because a member who leaves early may need a refund.

Should I offer annual plans at all?
That's a business decision, and annual plans can help cash flow. The important part is knowing how much of that cash is still owed to members as future care.

Do I need accrual accounting for this?
Whether your books use cash or accrual is your CPA's call. Either way, you can track prepaid months on the side so you know what you still owe.