How to Catch Up on Bookkeeping for Your Therapy Practice

Consistent monitoring gives you clear insight into your practice’s financial health. After all, you started your practice to help people, not to become an accountant. Too often, therapists wait until tax season arrives to sift through the previous year’s worth of receipts and expenses. The quality of your patient care should never be compromised by bookkeeping responsibilities.

• Maintaining accurate books helps keep the business organized and reduces the likelihood of mistakes or discrepancies.
• The first way is to have an identified client whose mental health symptoms are creating functional impairment in the relationship.
• These professionals can identify tax-saving opportunities and implement effective tax planning strategies, often making the investment in their services more cost-effective than anticipated.
• Every January, I hand the document over to him and he takes care of my taxes.
• Typically, it will cover a period of one month or one quarter (three months).
• I’m Sara, your therapist friend who actually feels energized by the financial side of business.

Understanding Typical Profit Margins in Therapy Practices

These notes should capture the couple’s communication patterns, shared goals, and progress in therapy. As a private practice therapist, determining how to pay yourself can be a nuanced decision that impacts your financial health and business sustainability. It is crucial to understand self-employment taxes, including the 15.3% tax for Medicare and Social Security, and the importance of making quarterly tax payments if certain income thresholds are met. Understanding how to navigate this process efficiently requires knowledge of various therapist income strategies and business structures. As your practice grows, you may find that bookkeeping takes up more time than you can afford to spare.

First step in private practice bookkeeping

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. State laws and guidelines vary and change regularly, so it’s helpful to know what the current rules are. Digital record-keeping software makes storing financial records and receipts much simpler than the old days of stuffing papers into filing cabinets and receipts into empty shoe boxes. Cloud-based accounting platforms allow you to easily upload your expenses and receipts and categorize them appropriately. One mistake often made in private practice accounting is recording items that should go on the balance sheet on the P&L statement instead.

• Here are signs that it may be time to outsource your practice’s financial monitoring.
• Cloud-based accounting software like QuickBooks, Xero, or Wave can significantly simplify the bookkeeping process by automating many tasks and allowing you to access your financial information from anywhere.
• All Counseling can help connect you with people who need your services.
• If the patient changes doctors, you need to be able to transfer that information to the next care provider smoothly.
• This concludes how to use the Therapist Bookkeeping Template to manage the financial affairs with ease.
• We’ll verify that your books are a 1-to-1 mirror of the transactions as listed by your bank.

Unpredictable Cash Flow

The above process needs to be followed for entering transactions related to income or expenses or assets or liabilities for a Therapist using the template. An accountant takes the information your bookkeeper prepares, and uses it to file your tax return, taking advantage of as many tax deductions as possible. Here are the steps you can take immediately to catch up on bookkeeping for your therapy practice.

It’s also important for growing your practice and making a profit. If money flows out faster than it’s coming in, you could rack up a lot of debt. If it takes too long for clients to pay, your ability to meet your short-term obligations suffers.

Others, like QuickBooks Online, a highly-secure platform, are transparent in that they don’t comply with HIPAA standards. Your bookkeeper or accountant can prepare cash flow forecasts to show how much cash your business will likely have on hand at a given time. A general ledger, a spreadsheet, bookkeeping software, or a mobile app are the best ways to organize business expenses. Be sure to keep your receipts in case of an audit, ledger account as you will need proof of purchases. After working with over a thousand therapy practices, we’ve created the complete chart of account for therapists. When you earn profits, any cash you don’t take as an owner’s draw or salary becomes Retained Earnings.

How to Set Up a Chart of Accounts for Your Therapy Practice (with Example)

These professionals can identify bookkeeping for therapists tax-saving opportunities and implement effective tax planning strategies, often making the investment in their services more cost-effective than anticipated. When you’re a self-employed therapist, every hour of your workweek is an hour you could spend earning income by treating clients (or pursuing alternative income streams). In order to understand the cost of doing your own bookkeeping, apply an hourly rate. Every time your therapy practice earns money, it’s recorded on the books and categorized as revenue.

• Maintaining a separate business checking account is crucial for a clear separation of personal and business finances.
• I felt comfortable asking questions and appreciated her support throughout the workshop.
• The team at Heard clearly cared about helping therapists understand what a financially healthy business looks like and empowering them to reach those goals.
• You’ll do that as part of step 4 (below), when you reconcile your bank accounts.

It also means you run the risk of mixing the two—claiming a personal expense as a business expense, for instance. It’s possible, depending on your bookkeeping practices, that you have paid bills sitting in AR. That is, you’ve been paid the Accounting for Churches amount outstanding, but haven’t converted it on the books from AR to cash. 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.

Complete a Daily Financial Data Update

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. Regardless of where you find help, check their experiences and references to see whether they understand the nuances of bookkeeping for therapists. If you want them to use existing software, make sure they’re familiar with it. Once you’ve identified your needs, it’s time to scout a candidate. Websites like Upwork offer a vast pool of freelance accountants and bookkeepers actively looking for work. Recording liability payments as an expense would mean double-counting that cost on your financial statements.