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Accounting & Bookkeeping Tips for Running a Successful Private Practice

by
SonderMind
|
Dec 31, 2019

Opening a private practice can be an exciting time, but there are a lot of business details that you must consider. One of the biggest challenges for therapists who are not money-minded by nature is keeping track of finances. Bookkeeping and accounting will help you ensure that you are getting paid properly, taking care of your expenses, and making a profit. Here’s what you need to know.

Accounting vs. Bookkeeping

Although the terms are often used interchangeably, accounting and bookkeeping are not the same thing. Bookkeeping is the process of recording your financial transactions, while accounting is the process of interpreting the raw data. When you start your business, you will need to choose an accounting method.

Accounting Methods

There are two basic accounting methods, cash basis and accrual. Each has its own pros and cons:

  • Cash Basis: Under this method, you record income when you get it and expenses when you pay them. For example, you might see a client in June. He pays his $25 copay before he leaves, but you don’t receive the remainder of your fee from the insurance company until August. You would record the $25 as income in June, and the remainder as income in August. Likewise, if your office rent is due March 1st, but you don’t pay it until April 1st, you record the expense in April. Two major advantages of this method are that you always know exactly how much money you actually have, and you don’t have to pay taxes on money that isn’t currently in your account.
  • Accrual Method: Under this method, you record income when you earn it and expenses when they’re due, even if no money has yet changed hands. In the example above, you would record the entire cost of your client’s visit in June, even though the insurance company hasn’t paid you yet. Likewise, you would record your office rent as a March expense, even though you haven’t paid it yet. This method can be helpful if you’re focusing on growing your practice, since you can make more accurate forecasts.

Bookkeeping Tips

On a day to day basis, you will focus more on bookkeeping than on accounting. You can use a spreadsheet to enter your income and expenses, or hire a professional bookkeeper, but many private practice owners find it best to use a software solution. QuickBooks, Xero, and Sage are among the most popular options. They make it easy to input data and run reports, and they can even integrate with other software products for robust business support.

Regardless of which system you use, it’s important to understand what you need to track. Bookkeeping requirements for therapists include the following:

  • Revenue: Private pay, insurance payments, administrative fees such as no-show charges, and any other sources of revenue should be detailed.
  • Expenses: Everything from office rent and utilities to internet service, office supplies, legal fees, and business insurance should be separately itemized.

Your revenue minus your expenses equals your profit. Other helpful items to track include, but are not limited to:

  • Time: Divide your time into billable hours and administrative hours.
  • Sessions: Itemize your sessions by type (individual, group therapy, couples counseling, family therapy, etc.)
  • Sources: Keep up with where your clients come from.
  • Inquiries: How many people inquired about your services by phone? Email? Text message?
  • Conversions: If you’re running any sort of promo such as a free consultation, how many did you schedule, and how many promo clients scheduled a regular appointment afterwards?

There is no single right way to keep track of your finances as a private practice owner. Be sure to open a business bank account and separate all your company’s transactions from your personal transactions. It’s also a good idea to have a CPA or tax attorney look over your records once a year. Beyond that, choose the recordkeeping method that feels the most intuitive to you.

At SonderMind, we are dedicated to helping both clients and therapists overcome barriers. If you need assistance with setting up your bookkeeping and accounting, or deciding which metrics to track, please reach out to us today.

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