Bookkeeping

Why is Bookkeeping Important for Therapists?

Headshot of Andrea Rotondo
June 1, 2023
June 1, 2023
Andrea Rotondo
Contributor

Have you ever wondered about the difference between handing everything off to your CPA once a year to do your taxes and tracking your income and expenses throughout the year using a bookkeeping system? 

Typically, a relationship with your CPA is one in which you only provide year-end statements. It tends to be transactional, where a conversation hardly occurs, and there’s no valuable information obtained from the numbers. The biggest (or only) result from this process is checking off tax filing from your to-do list.

Many therapists block off an entire weekend in April before taxes are due to search for receipts and calculate the totals for each category of their expenses. This tends to be a very stressful and overwhelming experience.

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Doing your own therapy practice finances doesn’t need to be stressful

It doesn’t need to be this way. A simple, organized, and ongoing bookkeeping system to track your therapy practice finances can not only result in a very smooth tax season, but it also has benefits throughout the year. 

In this article, we’re going to cover five benefits of bookkeeping for self-employed therapists. 

Bookkeeping gives you an inside view of how you’re managing your practice finances

Self-employed therapists, and business owners in general, tend to overestimate their income and underestimate their expenses. That gray area of not knowing actual numbers might work every now and then, but is not sustainable long term.

Tracking your income and your expenses as a business owner gives you a front-row view of how you and/or your team have managed your money.

In other words, you have access and control to how your money moves. With a simple and efficient bookkeeping system, you can stay on top of this “movement” on a consistent basis instead of being surprised by it whenever you look at your bank account. 

Similarly, this will remove the pressure from your shoulders to know what’s going on in your bank account off the top of your head, and expect yourself to know if the current balance is your profit or if it’s been earmarked for something else. 

Bookkeeping impacts your personal finances

Business finances and personal finances go hand in hand, especially if you’re taxed as a sole proprietor. If you’re reading this, chances are the income from your therapy practice feeds some or most of your personal finances. 

So how do they compliment each other? Let’s look at two ways in which this can occur.

First, having “messy” numbers in your business will feel very uncomfortable if you are very organized in your personal finances, or vice versa. Therefore, implementing a simple and organized system on one side will trickle down to the other, creating a massive positive impact.

Second, clarity on one side will bring clarity to the other side. For example, keeping clear bookkeeping records in your practice will help you see how much money you can pay yourself. This will provide your personal finances budget with a clear starting point for the month or year, and can help you plan ahead. 

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Bookkeeping helps you prepare for taxes

Taxes are one of the most burdensome aspects of running a business. When you were an employee, your employer took care of those taxes for you on every paycheck. Now as a business owner, the responsibility lies on your shoulders.

But it doesn’t have to be a nightmare! A good financial report in combination with a conversation with your tax professional throughout the year is what you need to stay on top of those estimated payments, local tax, and what to expect during tax season every April.

For example, if your tax professional tells you that based on your whole financial situation, you should expect to set aside 30% for taxes from your private practice, then you can look at your profit and loss (P&L) statement for a specific period and multiply the net income by 30%. 

Bookkeeping supports your growth process

Whether you want to stay as a solo practitioner forever, or grow into a large group practice, you’ll need a vision and a clear path to get there. The numbers in your financial reports can help create and map out your journey. 

For example, knowing how much you need every month to keep the lights on can help you figure out your savings goal before you make a big change, or help you project your expenses at a larger place, or help you see how much more you should make in order to increase your own pay.

Additionally, if you’re working with a business coach, financial advisor, or a similar professional, showing up with your numbers will help them help you more effectively. 

Bookkeeping improves your financial and admin workflows

Your bookkeeping is not an isolated area of your business. Regardless of how you choose to track your finances, this process will bring attention to your entire workflow and systems. 

This focus will potentially help you catch areas that are underperforming, or connect you with the right technology or people that can make things even better. 

For example, privacy is a very important factor in your operations. By working with a bookkeeper who is familiar with therapists, you will likely find out that third party apps like Paypal or Zelle are not meant to be used to receive payments from therapy clients since they’re not HIPAA-compliant.

If you feel like your finances are simple, then a simple system will suffice. Heard, or another similar service, are great options for therapists that don’t need to hire someone full time for this task, but also want the support and help from an expert. 

As with everything else in your business, bookkeeping will provide you the most benefits if it’s tailored to you and your needs, and if you’re spending time with those numbers trying to connect the dots between them and your business. 

Read more about the difference between an accountant and a bookkeeper.

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.

Andrea is a bookkeeper and the owner of Liquid Cents Bookkeeping. She supports women business owners who want to build wealth and whose mission is to help others. She lives with her husband and kids in South Florida.

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Run your therapy practice with confidence

Run your therapy practice with confidence

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When to Hire a Bookkeeper for Your Therapy Practice

What Does a Bookkeeper Actually Do?

The Complete Guide to Bookkeeping for Nonprofit Therapy Practices

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