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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.
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.
There are two basic accounting methods, cash basis and accrual. Each has its own pros and cons:
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:
Your revenue minus your expenses equals your profit. Other helpful items to track include, but are not limited to:
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.