Accounting software can be a huge asset for your therapy practice, giving you the tools and information you need to track the financial health of your business and prepare for tax season.
However, accounting software can’t protect you from user error. It’s up to you to make sure you understand the fundamentals of making bookkeeping entries and generating financial reports. Using software is no substitute for hiring a qualified bookkeeper or accountant.
If you do decide to use accounting software, here’s what you can do to make sure you choose the best option for your therapy practice.
Why therapists use accounting software
Accounting software maintains bookkeeping ledgers for you. The most important of these is the general ledger, where you record all of your business transactions.
You categorize each item in your general ledger according to whether it is income or an expense, and sort it into an account. This “account” isn’t like a bank account—it’s a category used to manage transactions in your general ledger. Your full list of accounts (or categories) is called your chart of accounts.
Most accounting software is able to connect to your bank account, automatically import transactions and—once you create rules for the software to follow—categorize them. That means you no longer have to record every transaction in your general ledger by hand.
Accounting software may also generate financial statements for you. The three main types of financial statement are:
For bookkeeping and accounting purposes, each of these financial statements is generated on a monthly or quarterly basis. You should also plan to create annual financial statements, after the year ends, which you’ll use to file your taxes.
Accounting software gives you the tools to do your own bookkeeping and prepare the information you need to file taxes, but it isn’t some kind of robot accountant. You, the user and business owner, need to have a basic level of financial competency in order to use it.
That includes having a firm understanding of:
- Double-entry bookkeeping
- Transaction categorization and the chart of accounts
- Credits vs. debits in the context of the general ledger
- How to read the three main types of financial statements
- The relationship between assets, liabilities, and equity
- The difference between income and expenses
This is in addition to learning how the software works. The learning curve for accounting software varies according to which particular one you use.
In comparison, when you hire a bookkeeper, they make entries into your general ledger for you, and keep your books up to date. There is no new software to learn, and you won’t need a crash course in double-entry bookkeeping in order to track your finances.
Why therapists quit using accounting software
Many small business owners start out using accounting software to manage their bookkeeping, but eventually hire a bookkeeper to track their day-to-day finances, and an accountant to help file their taxes.
Reasons for this include:
- Time cost. Even if your accounting software automatically imports transactions from your business checking account, you still need to double check that every transaction is categorized accurately, and clear up any ambiguities the software may run across.
- Learning curve. The people who design accounting software do their best to make it as intuitive as possible, but it can still take a considerable amount of time and energy to get the hang of it—particularly if you’re not already familiar with bookkeeping.
- Costly errors. Accounting software is only as useful as the data you feed into it. User errors—miscategorizing and omitting ledger entries are common ones—can lead to mistakes that take a lot of time and effort to untangle. Inaccurate bookkeeping gives you a flawed vision of your business, and could lead to errors when you file your taxes.
As an experienced professional, a bookkeeper helps you avoid these problems, as well as taking bookkeeping tasks off your hands completely, so you have more time to focus on other aspects of your therapy practice.
While bookkeepers handle day-to-day tasks—recording and categorizing transactions—accountants help your business on a larger scale, providing guidance with long-term planning and helping you save money when you file your taxes. An accountant uses information compiled by a bookkeeper to do so.
Our article on accountants vs. bookkeepers for therapy practices covers their differences in greater depth.
Therapist-specific features of accounting software
There is no DIY accounting software designed specifically with therapy practices in mind.
However, the accounting software covered below can be used by any business that:
- Is a pass-through entity (sole proprietorship, S corporation, or partnership)
- Uses accrual accounting
- Has one or several owners (e.g. a sole practice or a group practice, respectively)
- Has few, if any, employees
- Files quarterly estimated taxes
- Does not maintain inventory
- Is a small business
These criteria apply to many therapy practices, so they were taken into account when preparing the list of accounting software options below.
EHR/EMR and practice management integration
There is one feature shared by some accounting apps that is relevant to therapists in particular: integration with electronic health record (EHR), electronic medical record (EMR), and practice management software.
Popular EHR/EMR/practice management tools used by therapists include:
These handle some tasks that overlap with accounting software—namely, billing clients—while including features that no accounting software can provide (particularly those requiring HIPAA compliance, like medical record management).
The good news is that some accounting software integrates or otherwise works with some EHR/EMR/practice management tools. Meaning, when you bill clients and receive payment, you can import that information into your accounting software, so the transactions are recorded on the books.
The not-so-good news is that this type of integration is very limited. Nonetheless, it’s included below, in the sections for each accounting software option, in case you’re specifically looking for a tool that integrates with your EMR/EHR/practice management software.
Lacking integration, your only other options are to manually enter the transactions in your software and/or to import them from your bank account.
When you bill a customer, you’ll need to manually enter it into accounts receivable using your accounting software. When you receive payment, the software should automatically import the transaction from your bank account.
It may take some experimentation to determine what kind of workflow works best for you, and your results will vary depending on the accounting software you use.
The third option: Heard
Heard is the only bookkeeping and accounting solution designed specifically for therapists. Our goal is to give you back your time, so you can spend less time worrying about bookkeeping, and more time helping your clients.
When you use Heard, you have access to a financial dashboard that shows you how your business is performing. That includes a general ledger that lists all your transactions, plus monthly financial reporting.
A team of bookkeeping professionals categorizes all your transactions for you, prepares your financial reports, and can answer any questions you may have about your books.
You can choose a plan that’s right for you here.
Three accounting software solutions for therapists
Spoiler warning: the top three accounting products for therapists are also the top three accounting products for small businesses in general.
New accounting products are being released constantly, with various features meant to draw new users away from the most popular options. Very few of them succeed.
Three accounting software solutions have come to dominate the market:
- QuickBooks Online (QBO)
Of these three, QuickBooks is the industry standard. If you hire a bookkeeper or accountant in the future—either in a support role (filing taxes), or in order to hand off your financial back office work to a professional—they most likely already use QuickBooks (either QBO or a desktop version).
That being said, QBO has a steeper learning curve than other options, costs more, and may come with a load of tools you never use. In that case, it’s worth comparing to Xero and Wave, the other options on our list. Read on for a breakdown of each software solution.
Most Popular: QuickBooks Online (QBO)
Simple Start is $25 per month, and offers minimal features.
Essentials is $50 per month, includes more features, and allows access for 3 users.
Plus is $80 per month, and includes features for managing inventory and contractors.
Advanced is $180 per month, and includes advanced analytics, add-ons, a dedicated support team, and access for up to 25 users.
If you already have a firm foundation in bookkeeping, and you can set aside a few hours a week to learn how the software works, QBO may be a good choice for your therapy practice. The Simple Start or Essentials packages should cover the needs of most therapists.
QBO is a cloud-based solution, so all of your bookkeeping is stored online, and accessible anywhere. This has increasingly become the standard for accounting software in general—it’s also the way Xero and Wave operate.
However, you’re limited in the number of users who can share QBO with you, whereas other options (like Xero) don’t set a limit. QBO is also more expensive than competitors.
But if you’re planning to learn more about doing your own bookkeeping, or eventually hand off your books to a professional, QBO is the best option of the three. Not only is QuickBooks an industry standard, but it avoids some issues that other accounting software faces.
For instance, QBO formats its financial reports in a way that follows the same best practices accountants use. Any accountant looking at a QBO financial report should be able to easily read it, and enter the data into their own system.
Xero flouts these best practices, and while its financial reports are simpler to understand if you have limited accounting knowledge, it seems as though they aren’t designed to be shared with professionals.
QBO also offers more advanced options in terms of how you generate cash flow statements, taking into account factors like depreciation. And it directly links your bank account balance, as recorded on the books, to the balance in your actual bank account, leaving less room for user error. Not all software does this.
Overall, while it’s a little more difficult to get the hang of than other options, and costs a little more, QBO offers more features and long-term value, and that’s partly why it’s the most popular accounting software.
- Multiple options (direct and indirect) for cash flow reporting
- Support calculating quarterly and annual tax returns
- Expense tracking app (scan and import receipts)
- Compatibility with software used by bookkeepers and accountants
- No EMR/EHR/practice management apps directly integrate with QBO
- SimplePractice allows you to export your billings in QuickBooks format
Least Expensive: Xero
Early is $11 per month, and allows you to send 20 invoices and enter 5 bills each month.
Growing is $32 per month, and allows you to send limitless invoices and enter limitless bills.
Established is $62 per month. It includes all the features of Growing, plus support for multiple currencies, and tools for project management and expense claims made by employees.
The general consensus among small business owners seems to be that Xero is simpler and more intuitive than QBO, meaning it takes less time to learn how the software works and get your bookkeeping up and running.
For $11 per month, the Early package allows access for a limitless number of users, making it a good choice if you have business partners who need access to your books.
However, the Early package also features a hard limit on the number of invoices you can send per month, and the number of bills. That may or may not be a problem, depending on how you charge clients.
As mentioned above, the way Xero prepares financial reports is non-intuitive to most bookkeepers and accountants, which could lead to complications when it’s time to hire a bookkeeper or have an accountant prepare your taxes.
Beyond that, Xero’s suite of features is very similar to what QBO offers.
- Over 800 add-on apps and integrations available
- Online payment integration
- Limitless number of users
- Functionality comparable to QBO
The following practice management and billing tools integrate directly with Xero:
Most Basic: Wave
- Basic accounting (including invoicing) is free.
- Credit card processing costs 2.9% plus $0.30 per transaction for Visa, Mastercard, and Discover; American Express is 3.4% and $0.30.
- ACH transfers cost 1%, with a $1 minimum fee.
- Payroll services cost $35 per month, plus $6 per employee or contractor, and they’re handled by Wave (not available in all states).
Wave may be a good choice if your practice is brand new, you’re just starting to do your own bookkeeping, and you need basic accounting functionality.
For as little as zero dollars per month, you can track and categorize transactions and prepare financial reports. Just by doing that, you’ll make tax season easier, get some insight into how your practice is performing, and be able to take advantage of itemized tax deductions.
Wave makes money by charging fees when a client pays an invoice using a credit card or bank transfer (ACH). If the bulk of your income comes from recurring billing of clients, and you’re already taking care of that using a practice management or EMR/EHR system, you won’t be charged anything extra.
Wave offers recurring billing, but it is not HIPAA compliant.
Wave offers good basic tools, but when it comes to advanced reporting, and sharing data with accountants and bookkeepers (most of whom are trained to use QuickBooks), it falls short.
- Simple and intuitive interface (short learning curve)
- Basic accounting tools, with no extra bells and whistles
- Did we say “free?”
Wave does not integrate with any practice management or EMR/EHR tools.
Accounting software is no replacement for human bookkeepers and accountants. Our guide to bookkeepers vs. accountants for therapy practices explains what each one does, and how they can help your business thrive.
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.