When you run a private therapy practice, you are running a business, which means you need to consider the requirements for accounting for private practice.
However, many therapists have very little, if any, training or experience in financial planning and business maintenance. But that does not make maintaining and keeping books for your business any less important. In fact, more than half of all service businesses, including counseling practices, will fail within the first five years, with most citing cash flow as a grave issue.
Private practice counseling firms have unique challenges when it comes to cash flow. There is often a significant delay in payments from insurance companies and individuals. They might also have to address denied claims and clients who just do not pay.
Having a specialized accounting service can be extremely helpful in tackling these unique accounting and financial challenges.
The Basics of Accounting for Private Practice Therapists
Accounting for a private practice counseling firms means more than just tracking dollars and cents in and out the door. You must tackle day-to-day cash flow issues along with big-picture planning to keep the practice running smoothly.
Below are just a few items that an accounting professional who specializes in private practice accounting may be able to address.
Financial Management for Therapists
Financial management requires an understanding of where your money is going and how it is earned. It touches on timing, increasing revenue, and decreasing expenses, particularly when revenues are low or slow. It addresses questions like:
- How much should the owner draw to ensure there is enough in the business to cover expenses?
- What kind of property should be purchased outright instead of leased?
- How can you adjust to stabilize cash flow?
- How to maintain separate personal and business finances?
- What steps are necessary today to address future financial needs, such as big purchases or expansion?
Having a specialized accounting professional assisting with these questions can be very helpful. They have the experience necessary to address some of the most common financial management issues for private practice therapists—because they have seen them many times before.
Tax Planning and Compliance
Taxes are a huge hurdle for many private practice therapists simply because they do not know how to prepare for them properly. Without careful planning, they may come up short when taxes are due, and they panic, which can lead to poor financial decisions.
Therapists will generally have to deal with:
- Income taxes, which include Social Security and Medicare (self-employment taxes)
- Taxes related to having employees
- Sales tax (in some areas)
- Real estate taxes, if they own or maintain their own facility
Falling behind in any of these areas can lead to stiff fines and interest penalties. Instead, utilizing careful planning will not only help your practice stay on top of obligations, but it can also help you implement money-saving tax strategies.
Billing and Insurance Requirements
Billing insurance companies is rarely anyone’s favorite thing to do, however, it is necessary to adequately service clients in most situations. It requires jumping through hoops for certification and approval, plus you need to meet specific requirements to submit bills. Then, you must wait, sometimes a long period of time, for approval and payment.
A steady stream of invoicing and payment tracking is critical to any private practice therapist’s practice. You may need to follow up with insurance carriers from time to time to ensure payment—they are notorious for poor communication and feedback, so you need to remain proactive for the health of your practice.
A specialized accountant can help with all of these unique issues that private practice practitioners face. They can help you create streamlined processes for billing and tracking, which allows you to focus on patient care.
Growth and Expansion
Once private practice therapists have their feet under them and their practice is generally going well, they may want to consider expansion. If the timing is right, a good move toward growth may look something like this:
- Adding staff
- Incorporating more practice areas
- Bringing on additional therapists
Expanding a private therapy practice takes strategy, which includes a good understanding of your books and client needs.
You should do a full financial analysis before making any expansion moves. Understanding where you are and how potential growth will affect your business will help your practice thrive for years to come. A specialized accountant who knows your practice well will also be indispensable in supporting sustainable practice growth.
Reach Out to Sorenson & Company, CPA, for Help with Accounting for Private Practices
Therapists rarely have extensive financial or business training. They are very good at servicing clients but may need some help to address the business side of their business. Financial management, tax obligations, and cash management all require a thorough understanding of your practice and financial responsibilities—and a specialized accountant can help.
Sorenson & Company, CPA, would like to create a relationship with you and your practice. We can help you optimize cash flow and be your “go-to” when you have financial questions—from growth and expansion to tax planning. Contact us today to learn more.