3 Common Private Practice Bookkeeping Mistakes

“I’m drowning.”

That’s what one of my clients said right before doing one of the hardest things a human can do—reaching out to ask for help.

Chasing money and financial profits is not usually in the makeup of most wellness practitioners. However, there are many reasons for clinicians to feel good about earning money in private practice.

That said, if the financial side of business is not your cup of tea—I understand. You probably didn’t go into private practice because of your love for accounting.

In this article I’ll share some of the most common private practice bookkeeping mistakes therapists and mental health clinicians make when running their businesses.

I get it—the administrative side of running your practice can feel like an endless list of tasks that leave you, in the words of my client, drowning. 

The financial aspects of running a private practice can be overwhelming for a lot of practitioners. However, I would argue it’s much worse to turn your back on your money challenges or to inadvertently make any of the private practice bookkeeping mistakes I’ll discuss below.

Avoid these private practice bookkeeping mistakes

With a little guidance and research, you can take control of the financial health of your business.

Just make sure you avoid these three common bookkeeping mistakes—commingling your books, not saving (enough) for taxes, and hiring before doing the research including updating your budget and business plan.

1. Commingling your books

Maybe you can relate to my client who was running her personal expenses through her business because she didn’t know how to pay herself. This client told my team, “I’m not even paying myself for the work I do!” It’s probably not surprising that she was feeling resentful toward her business.

Turns out, my client wasn’t paying herself a salary, but she was paying for personal expenses through the business. 

That’s called commingling your books. And the IRS doesn’t like it one bit.

Keep in mind that how you pay yourself matters. The rules will vary based on your legal entity and your location, so do some research online. When you’re setting up your practice’s finances, make sure you check any applicable laws in your state.

And, you can always consult a bookkeeping professional if you need more guidance. 

2. Not saving (enough) for taxes

Maybe you fall prey to another common bookkeeping pitfall—not saving for taxes because you didn’t know where to start.

Taxes can be confusing enough for individuals—let alone for a business.

How much you should save aside for taxes can vary based on the nature and size of your practice.

If your practice is fairly consistent year to year, look at past tax bills to estimate what percentage of your income you should set aside.

If you don’t plan for taxes ahead of time, you may find yourself in a situation where you’ve already spent all of your profits and you end up stuck with a big tax bill.

In the event that you do end up with a big tax bill, you can set up payment plans with the IRS and/or your state to help get your business back on track.

It might mean tightening your belt for a year or two. But, as long you have a plan in place, you can get out of your debt.

It’s essential to have clear financial goals to make sure you have that light at the end of the tunnel to work toward. 

If you insist on filing your own taxes, be sure to do your research first.

Don’t hesitate to reach out to me or to another tax professional if you’re feeling overwhelmed. Professionals can help you fix any errors and set you up for success in the future. 

3. Hiring before updating your budget and business plan

Hiring may not be the first thing that comes to mind when it comes to bookkeeping.

However, you may be looking to grow from a solo practice to a group practice.

Perhaps you’re thinking about hiring prelicensed therapists or additional clinicians to grow your revenue or decrease your caseload.

If this is the direction you’re considering, it’s essential to carefully create an advance plan for associated expenses like payroll and extra office space.

Plus, be sure to account for all the extra time on your schedule that you’ll spend training, managing, and supervising your new hires. That’s time that you won’t be spent on other parts of your practice, like client sessions.

Too often, private practitioners don’t plan for the financial aspect of hiring and expanding their business. In these cases, business owners may find themselves overwhelmed by the new hire, when the whole idea of hiring was to reduce your stress and workload.

Yes, hiring can be overwhelming and create additional administrative work, however it’s absolutely worth it if your dream is to grow your solo practice into a group practice.

If this is your goal, it’s important to do your research and lean on your community. There are typically three ways group practices pay their clinicians. 

Reach out to mentors or colleagues who have experience with hiring, and ask their advice.

Also, consider these six questions to ask before starting a group practice.

Before taking this step, make sure you have a solid understanding of your budget, so you know exactly what it’ll mean for your business to hire another clinician. 

The bottom line: Don’t ignore your bookkeeping

I’ve witnessed firsthand how incredibly rewarding private practice can be for clinicians—both professionally and financially.

And, I’ve worked with enough practitioners to get a sense that money isn’t the real reason you went into this business. You’re most likely in private practice to help people.

Because of that, you may not fully consider the financial implications of every important business decision you make right now. In a way, that makes sense, because it’s not always your priority. 

The problem is, avoiding bookkeeping practices and decisions can eventually get you in a sticky place.

Spending some time to prioritize the financial aspect of running your private practice doesn’t mean you love your clients any less. In reality, having the knowledge and confidence to examine your finances head-on can actually make it easier for you to focus on other things. 

Even as a private practitioner, you’re still tasked with thinking and operating like an entrepreneur.

It’s not just about profits. It’s about discovering how the financial aspect of your business can empower you to run a practice that’ll best serve your clients.

When you achieve a holistic understanding of the finances for your private practice, you’ll unlock greater control and ultimately, fulfillment.

How SimplePractice streamlines running your practice

SimplePractice is HIPAA-compliant practice management software with everything you need to run your practice built into the platform—from booking and scheduling to insurance and client billing.

If you’ve been considering switching to an EHR system, SimplePractice empowers you to streamline appointment bookings, reminders, and rescheduling and simplify the billing and coding process—so you get more time for the things that matter most to you.

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