Starting a Practice

Should You Do Your Own Bookkeeping as a Therapist?

Headshot of Bryce Warnes
June 3, 2024
May 27, 2024
Bryce Warnes
Content Writer

If you’re planning to launch your own therapy practice—or even if your practice is up and running—bookkeeping may be the last thing on your mind.

That’s why many therapists start off by doing their own bookkeeping, more as an afterthought than anything else. And that’s why many of them run into trouble later on: inaccurate accounting, chaotic tax seasons, and even IRS penalties.

There are definitely occasions when it makes sense to tackle your own bookkeeping hands-on. But there are other times when you’re better off hiring a professional. 

Here’s how to tell the difference.

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What is bookkeeping for therapy practices?

Simply put, bookkeeping is the practice of recording and categorizing all of your business transactions.

Every time your therapy practice earns money, it’s recorded on the books and categorized as revenue. Every time your practice spends money, it’s recorded on the books, and categorized according to what type of expense it is.

You—or a professional bookkeeper or accountant—use this information to generate financial reports. A profit and loss report (P&L) tells you how much you spent and earned over a particular period, and how much you retained as profit. A balance sheet tells you how much money you have, and in which accounts.

At the end of each financial year, you—or, again, a professional—use this information to generate end-of-year financial statements, summarizing the year’s financial activity as a whole. You use that information to file your taxes or give it to your accountant, who will file them for you.

For a closer look at bookkeeping, as well as the benefits of bookkeeping—and the trouble you may run into if you fail to keep books—check out our article on why bookkeeping is important for therapists.

And if you’d like to know more about the different ways therapists handle their bookkeeping, whether on their own or with professional help, check out our guide to switching accounting systems for therapists.

Pros and cons of doing your own bookkeeping as a therapist

It’s possible, with just a simple spreadsheet, to do your own rudimentary bookkeeping for your therapy practice. And if you’re financially savvy—or else willing to learn the ins and outs of double-entry bookkeeping—you can use accounting software.

The alternative is to hire a professional, or a solution like Heard, to do your therapy practice’s bookkeeping for you. 

Before you decide to take that step—or, ideally, before you start doing any bookkeeping at all—you should consider the pros and cons of doing your own bookkeeping.

Pros

  • You could save money. When your practice is brand new and cash flow is tight, paying a monthly fee for professional bookkeeping could seriously strain your finances. In that case, doing your own bookkeeping may make more sense.
  • It’s simple for small practices. If you don’t have many expenses to track, and you don’t have any employees or contractors to pay, DIY bookkeeping can be fairly straightforward. 
  • You love bookkeeping. Maybe you’ve taken some accounting courses, or maybe you have a reputation among your friends as someone who handles their personal budget like a pro. If you’re naturally attracted to bookkeeping and accounting, doing your own books could be a chance to expand your skills. 

Cons

  • Hidden costs. Setting up a spreadsheet to track your finances may be free. But your time is not. When you run your own business, every hour counts. Is your time better spent on bookkeeping, or on expanding your practice and treating clients?
  • Mistakes can be costly. Even a minor error filing your taxes, the result of a small bookkeeping oversight, can result in IRS penalties that hurt your finances.
  • Tax season may be stressful. Disorganized books make for a stressful tax season, even if you hire an accountant to file taxes for you. Are you willing to undergo the extra stress of a busy tax season? What impact could it have on your practice as a whole?
  • Missed savings. Having organized books means having correctly categorized expenses with organized records to back them up. Both are essential for claiming tax deductions. Disorganized books may mean you miss out on tax-reducing deductions that could seriously benefit your practice.
  • It’s not a problem until it is. When a self-employed therapist switches from DIY bookkeeping to a professional solution, it’s almost always because of some wake-up call: a costly tax filing error, an overdrawn bank account, or burnout looming as their work schedule spirals out of control. How will you know when it’s time to switch?

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DIY bookkeeping vs. professional: a cost comparison

There are hidden costs to doing your own bookkeeping. And there are clear, upfront costs to hiring a professional to do it for you. Here’s how to compare the two options.

The cost of hiring a bookkeeper

Large companies have their own, in-house bookkeepers working for them full time. Smaller businesses typically hire a freelance bookkeeper, bookkeeping firm, or a remote solution like Heard, to do their bookkeeping for them.

Bookkeeping is priced a few different ways:

  • Hourly. Your bookkeeper charges an hourly rate every month for doing your bookkeeping. The more time it takes to do your books, the more you pay. The average hourly wage for a bookkeeper is $21, according to Salary.com. Until you know how many hours it will take to do your books each month, it’s difficult estimating how much bookkeeping will cost.
  • Flat rate. Some bookkeepers—as well as remote bookkeeping solutions like Heard—charge a flat monthly rate for all your bookkeeping services. This rate varies widely depending on what you need done by the bookkeeper, ranging from $100 to $1,000 per month, according to Forbes Advisor.
  • Per transaction. Some bookkeepers charge you for every transaction recorded and categorized. The average rate per transaction is $1.20, according to TaxDome, but the per-transaction cost may decrease for higher volumes of transactions each month. You may also pay a flat rate for a maximum number of transactions each month, and then pay on a per-transaction basis above that maximum.

All of these rates vary, also, with the extent of the services you sign up for. For instance, if your bookkeeper is handling payroll in addition to day-to-day bookkeeping, you can expect to pay more each month.

The price of Heard

When you sign up for Heard, our team handles your bookkeeping, tax prep, and even tax filing for you. There are no added costs for filing your taxes each year. You can view our transparent pricing here. Please note that we do not offer tax-only services.

The cost of doing your own bookkeeping

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). Time, in this case, really is money. In order to understand the cost of doing your own bookkeeping, apply an hourly rate.

Disclaimer: When time is more than money

The time you spend living your life outside of work also has value, a value that can’t be expressed by an hourly rate. When you consider whether to do your own bookkeeping, take into account the effect it might have on your time outside work—whether that means putting in extra work on the weekend, or losing sleep over financial stress.

Calculating the cost of your time

To get a sense of how much doing your own bookkeeping could cost you and your therapy practice:

  1. Calculate how much time you spend each month on bookkeeping. Include time it takes to research bookkeeping topics. (That even includes reading this article.)
  2. Apply your average hourly rate as a therapist to the time you spend bookkeeping each month.
  3. The outcome is the amount your practice, in effect, spends on bookkeeping every month.

For example: You track time spent on bookkeeping over the course of one month, and find it adds up to four hours.

Now, suppose you charge clients $150 per session.

4 x 150 = 600

That’s $600 you’re spending each month on bookkeeping!

Or, to take a more conservative approach: It’s unlikely you spend 40 hours per week seeing clients. Most full-time, self-employed therapists spend 20 to 25 hours per week seeing clients. The remaining hours are spent on notes, business admin, and professional development.

If you spend 20 hours per week with clients, at a rate of $150 per hour, and spend the rest of your work hours on other tasks, your gross full-time income is $3,000 per week.

Divide that amount across 40 hours:

$3,000 / 40 = $75

Your gross income is $75 per hour.

Multiply that by the time you spend on bookkeeping:

4 x 75 = $300

You’re still spending $300 per month on bookkeeping. Even at that price, you could hire a bookkeeper (or a solution like Heard) to do your bookkeeping for you, and avoid the errors you risk making by doing your own books.

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When should therapists do their own bookkeeping?

Ultimately, you’re the best judge of whether it makes sense to hire a professional bookkeeper for your therapy practice.

But here are some signs you may be better off sticking to the DIY approach for now:

  • Your practice is still part-time. If your practice is part-time—10 to 15 clients per week, or even fewer—you may not have enough transactions to record to justify the expense of a professional bookkeeper. 
  • Your expenses are minimal. Particularly if your practice is 100% remote and home-based, there may not be many expenses you need to record on the books. This, again, brings down the number of transactions you need to deal with each month, meaning a professional bookkeeper may be superfluous. 
  • You really, really like doing your own bookkeeping. Can’t wait to create a chart of accounts? Salivating at the thought of generating monthly P&Ls? Go ahead. Get your hands dirty. Doing your own bookkeeping may be a thrill—but make sure you make plans in advance to bring in professional support when the going gets rough. 

When should therapists hire a bookkeeper?

Here are some signs you may need to hire a pro to tackle your bookkeeping:

  • You quit being a sole proprietor. Once you register your practice as an LLC, or an S corp, or an LLC filing as an S corp—or else bring on partners and form a partnership—the stakes are higher. You need to pay yourself, which likely means finding a payroll solution, and you may need to file annual reports with your state. No matter what size your practice is, it’s time to hire a bookkeeper.
  • You’re full-time. A full-time practice means a full-time bookkeeping load. Once you’re seeing 20 to 25 clients, and putting in at least 32 hours working for your practice each month, it’s time to get serious and hire a bookkeeper. It’s essential for making your thriving business successful in the long run.
  • You make a major error. Maybe you miscalculate how much cash you have in the bank and overdraw your account. Maybe you file your taxes, make a mistake, and get penalized by the IRS. Once bookkeeping errors start having material effects on your business, it’s time to hire a pro. 
  • You’re expanding your practice. Hiring employees? Partnering with other therapists? Signing a commercial lease? Time for a professional bookkeeping solution. Not only is your practice about to become more complex, but the stakes are rising, too. Bookkeeping errors could have serious ramifications.
  • You’re losing money and you don’t know why. If your practice runs into financial difficulties, but you don’t have the information you need to figure out why, it’s a clear sign you need help from a bookkeeper. It may be counterintuitive to pay a professional for help when your cash flow is in a sad state, but it could be the key to saving your business.
  • It’s cheaper. If you do the math and find you’re paying more in personal work hours for DIY bookkeeping than you would pay in cash to hire a bookkeeper, it’s time to talk to a pro.

Ready to make a switch from DIY bookkeeping and accounting to something more robust? Learn how to switch accounting systems for your therapy practice.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult their 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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