Accounting

How to Build a Budget for Your Therapy Practice

May 4, 2022
May 4, 2022
Bryce Warnes
Content Writer

Creating a budget for your therapy practice helps you anticipate expenses so you can be sure you have enough cash flow to do fun things like pay rent.

Even more importantly, your budget keeps you in touch with reality. Your budget not only states how much you can expect your expenses and revenue to be. It also tells you how much they really are. 

That keeps you in tune with how your business is actually performing, versus how you expect it to perform—making it easier to keep your private practice financially healthy and sustainable in the long run.

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What is a therapy practice budget?

The budget for your therapy practice does three things:

  1. It covers a specific period of time. A monthly or quarterly budget is the most useful budget to have on hand when you’re making purchasing decisions or planning your revenue for the month. Comparing these with an annual budget lets you see how you’re performing over the course of the year.
  1. It includes revenue as well as expenses. Your budget isn’t just a list of bills you have to pay. It also includes every type of revenue your business earns, so you can plan precisely how you will cover your expenses.
  1. It features projections as well as actual numbers. Your projections are what you aim for. Your actual numbers are the ones you hit. Going over budget means spending more than you anticipated for expenses, or earning less than you anticipated in revenue. Staying on budget means spending less than anticipated on expenses, or earning more than anticipated in revenue.

Fixed vs. variable expenses for your therapy practice

Each expense in your budget is either fixed or variable.

A fixed expense is one that remains the same month to month and quarter to quarter. Office rent is a good example of a fixed expense. Depending on the conditions of your lease, your rent may increase each year—but you can still consider rent a fixed expense for the purpose of creating monthly or quarterly budgets.

A variable expense is one that changes month to month and quarter to quarter. Variable expenses can be split into two categories: Necessary and discretionary.

Necessary expenses need to be paid so your practice can keep running. Your electric bill is a good example. It may change month to month, but if you don’t pay it, you’ll be conducting client sessions in the dark.

A discretionary expense benefits your business, but it isn’t absolutely necessary. For instance, advertising your practice on Facebook could help to bring in new clients, but you don’t need it in the normal course of doing business.

The Heard therapy practice budget template

Want to create a budget for your therapy practice, but feeling overwhelmed? Use the Heard therapy practice budget template to get started.

Adapted from Lynn Grodzki’s Building Your Ideal Private Practice (2nd Ed.), our template includes most of the budget items solo therapy practices need to track.


How to customize the therapy practice budget template

This therapy practice budget template is meant to work for as many therapy practices as possible. But that doesn’t mean it’s perfect for your practice in particular.

You can copy and paste the table above, and add or remove items as needed. Beyond that, there are a few more ways to make this template work for your practice.

Give your budget some history

You can get better at setting realistic budgets for your therapy practice by learning from what has—and hasn’t—worked in the past.

For instance, if you’re creating a budget for the fourth quarter of the financial year (Q4), try including both the projections and actual numbers for each of Q1, Q2, and Q3. This lets you see how your budgeting skills have performed over time. 

To add historical numbers to our budget template above, insert columns to the left of the “Projection” for each period you’re tracking. Your table may become wide, at this point, so you may want to transfer it to Google Sheets or Excel.

Build a budget calculator

If you have a bit of experience with spreadsheets, you can create a simple calculator to add up each category in the template (eg. “Office,” “Utilities,” etc. under “Expenses”) and create sum totals. 

Especially when it comes to looking at historical data over multiple months or quarters, a budget calculator gives you a simplified overview of your projections and your actual numbers, without the distraction of each individual item.

How to build a budget for your therapy practice

There’s no cheat sheet that can tell you exactly what your budget should be.

One therapy practice may project an expense of $1,000 per month for print ads. Another may project $0. So long as both practices stay on budget—that is, their projections line up with reality—they’re both right.

That being said, there are some simple steps you can take to create accurate projections when you first build a budget.

Focus on the easy items first

Some budget items will be virtually the same month to month and year to year. For instance, your rent is likely easy to predict, as are your phone and internet bills.

Focus on budgeting for those first. You may be surprised to see how much of your budget is made up of predictable expenses. That makes tackling the rest of your budget less overwhelming.

Use the law of averages to your benefit

Your revenue may fluctuate if you find you’re regularly adding or removing clients. Expenses like business travel or continuing education may spike or dip unpredictably. How do you create projections for numbers like these?

By calculating an average value for a budget item during a particular period, you can create an accurate projection for what to expect next.

For instance, suppose the heating bill for your home office fluctuates, and you’re budgeting for next month. To create a projection, you’d add up the cost of 12 prior months of heating, divide the result by 12, and arrive at an average.

This is a simplified approach, and may need some tweaking. (Certain expenses—like heating—may ebb and flow seasonally.) But it’s more accurate than a wild guess, and it will get you started with your first budget.

Talk to your colleagues

Sometimes, building a budget is as simple as asking around. If you know another therapist with a practice similar to your own, offer to take them out for coffee in exchange for info on how they build their budgets.

If you’ve never paid for them before, some expenses are hard to predict. (Examples include the cost of professional cleaners for your office space, or hiring a designer for your website.) Talking to someone who has already made these purchases will set you on the right path.

Who uses your therapy practice budget?

So long as you’re in charge of generating revenue and paying for expenses, you’re the number one user of your business budget.

Your bookkeeper, if you have one, won’t make much use of your budget; it’s their job to track expenses and income, not make decisions about how you run your business. That said, the information they compile for you (such as your categorized expenses) is useful for creating budgets.

Your accountant can provide helpful input on how to create and manage your budget. They can also give you the info you need to include tax payments as part of your budget.

New to tracking expenses for your business? Learn about the most valuable tax write-offs for therapists.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post.

Bryce Warnes is a West Coast writer specializing in small business finances.

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