Bookkeeping for Therapists: Private Practice Accounting Solutions
In the business of mental health therapy and coaching, professionals are usually focused on their clients and providing the support that they need. This is good, of course, because that’s their job. However, for those private practice owners and independent therapists, running the business will also be a primary concern.
There are several tools available today that can help private practices employ better accounting and bookkeeping strategies and processes so that they can manage the books without having to mitigate all the stress.
It’s recommended that you talk to a financial professional or accountant that knows the laws in your state and can help you understand what is expected of you as a small business owner with a private practice. State laws and guidelines vary and change regularly, so it’s helpful to know what the current rules are.
It will be even more valuable if you can find a private practice focused bookkeeping service that speaks your industry’s language and knows the legal and tax nuances applicable to your industry.
The Basics of Bookkeeping for Therapists
Even if you hire someone, it’s still a good idea to understand the tax implications and best practices for bookkeeping and accounting in your private practice. Mental health professionals aren’t typically required to take any type of accounting education, so this may become a “later problem” that doesn’t catch your attention until tax season, or until you realize that you’ve dropped the ball and need to pay taxes, file amended tax returns, or even prepare for an audit.
Terms 101
Let’s start with a look at some common terms you’ll need to be familiar with.
Income/Revenue: This refers to any money that comes into your business, usually in the form of clients paying for your therapy/coaching services. If you sell books or other items, those sales will be included here, as well.
Expenses: These are costs involved in running your business. The list could include rent, supplies, office equipment, utility bills, phone bills, etc. Some people also call this “overhead” and it refers to any money spent on the business itself.
Draw/Distribution: This is what you get paid from the business. Typically, this pay will come out of the business income. The amount will vary based on what you can afford or what kind of profits you have.
Equity/Contribution: This refers to money of your own that you invested in your business.
Profit/Net Income/Taxable Income: When you subtract your expenses from your income, the amount remaining is your profit, also sometimes called net income. It’s what the IRS and states use to calculate taxes owed.
Profit & Loss Statement/Income Statement: This is an essential business document that outlines your income and expenses, including all the calculations, to determine whether your business is operating at a profit or a loss.
Balance Sheet: This statement is used to report all of the business assets, equity, and liabilities.
These terms will help you better understand all aspects of your accounting and bookkeeping, no matter what type of private practice therapy business you have.
Small Business Owner Struggles: Keep Records Separate
The next important conversation is regarding the separation of records, spending, tax deductions, and other financial elements. You need to keep your finances separate. Your personal finances and business finances should never mix. That includes using your debit card for business purchases– upgrade to a business card as soon as possible or at least open a separate business account with its own linked debit card.
You also need to keep business expenses separate from personal expenses. Don’t buy copy paper with your personal cash and don’t expense that Starbucks latte– it sounds like a pretty common sense concept, but many people overlook or aren’t sure.
Especially in small businesses, it’s often easy to accidentally mingle personal and business money. Being a sole proprietor or having a small LLC means you have fewer options for business financing and spending, so you might feel stuck using your personal bank or credit cards.
If you have to do this, create separate accounts for the business, at the very least. Even if they are standard accounts for now, or a personal credit card you earmark for your therapy business, at least you have the separation of the expenses and bills.
Electronic Records and Bookkeeping Software
Today, there are so many great tools and resources out there that it’s a wonder why anyone is still trying to keep paper records. One of the best things that you can do for your private practice is to find bookkeeping software or a third-party provider of digital bookkeeping services to help you track your business finances and tax information.
Modern cloud-based software platforms are designed to help businesses file taxes, manage business expense accounts, and even provide assistance with various accounting services, from balancing the books to monitoring the incoming and outgoing money and allocating it accordingly.
Hire People to Handle Your Bookkeeping Software
Of course, you’ll want to be sure to find the balance between software and using real humans to help with the finances– there are some things computers just can’t do. And often the DIY path can often create more problems then problems solved. The good news is that if you do your research, you may even be able to find a service to handle your transactions and other small business financial matters that can also manage the software that you’re using.
Ideally, you’ll want to choose a solution that can handle record-keeping automation, tax optimization, financial tracking, and even advisory support so that you can get your questions answered and get the best outcomes with your finances. Custom solutions can be created for each therapist or practice with a focus on what matters most to them.
When you let someone else handle the finances, you can dedicate more time to your client base and ensure that your bills and taxes aren’t getting neglected. Many therapists and coaches get overwhelmed by the money matters that small businesses have to deal with, so they prefer to rely on an accountant or another financial professional to help with their bookkeeping.
Other Quick Tips for Private Practice Owners
Private practice therapists/owners are in a unique position. In addition to expenses and operating costs, you also have to consider taxes and other financial matters. Ask the accounting services that you consider hiring if they can help with taxes, reporting and expenses, balance sheets, and other aspects of your private practice that need a trained, experienced expert.
You could save several thousand dollars and find a lot more money in your business when you’re running things better. With a dedicated accountant, you will know that everything is taken care of, including your tax services, so that you can focus on your patients.
Professionals know the tax laws. They know how to maximize tax benefits and minimize expenses, as well as how to make your business more financially streamlined and efficient. They will be able to not just at tax time, but throughout the year as your finances require attention.
To sum up:
Tax preparation, bookkeeping, and all other financial matters in your private therapy practice require expert attention.
Choose bookkeeping software and solutions that make sense for your needs.
There are a lot of details to cover so it’s always a good idea to get a second set of eyes.
You probably can manage your own finances and business expenses, but private practice accounting experts are a much better choice.
Give yourself access to a dedicated team of experts who can help with everything from billing to taxes and even weekly and monthly expense reporting, and more.
If you want to make sure that your bookkeeping and tax strategy is in the best hands, contact Wellness Fi to find out how our all-in-one solutions offer a holistic approach to your financial well-being. You can sign up for a free 20 minute consult here.