Bookkeeping for therapists: an interview with Andrea Rotondo
The tax season is approaching and many therapists would love to find out more about managing their finances. Andrea Rotondo from Liquid Cents Bookkeeping, came in to answer a few questions about bookkeeping for therapists in private practice.
Andrea Rotondo is the owner of Liquid Cents Bookkeeping. Helping women in business gain simple yet powerful knowledge from their numbers is what she loves to do! Andrea enjoys doing this because she's also on a journey to build the life and wealth she wants for herself and her family.
Andrea, What made you decide to focus your bookkeeping services on therapists?
I’ve always been interested in understanding how our brain works, and the relationship between our experiences and our behavior. In fact, my degree is in Psychology because a long time ago my plan was to become a counselor. So, when I was thinking about a niche for my bookkeeping business, I knew I wanted to work with therapists.
Not only is it a field that I love, but I also think that therapists are great listeners. This is highly important because I’m all for helping my clients connect and “listen” to their money.
Why is it so important for therapists to be organized financially?
Therapists don’t always see themselves as business owners. And that perspective leads to many erroneous practices, such as avoiding the reality of the finances of their practice, not preparing for taxes, overspending or not spending enough, or not setting up systems and workflows that support their financial goals.
On the other hand, when you take steps to become financially organized, you are improving the quality of your business, the way it runs, and the chances of its success.
Think about it. The fuel for your business is cash. But this is a somewhat foreign or even controversial topic for this field. Therefore, many therapists avoid looking closely at their numbers because they are “not in it for the money”. I may be biased, but I think that one of the first steps to financial clarity is organized records. Without those numbers, there’s no real data or information to look at for reference.
One of the first steps to financial clarity is organized records
what's the first step for a therapist in keeping track of their finances when starting their own?
The easiest first step when launching your practice is to keep your personal finances completely separate from your business finances. In other words, open a business bank account as soon as your business is created.
Even if you don’t have an LLC created yet and you’re operating as a sole proprietorship, you can still do this by opening a new personal bank account that is used exclusively for the practice. This applies to everything related to your finances: merchant accounts, credit cards, Paypal, and all bank accounts.
The second step would be to schedule at least one money meeting per month where you go over all your business transactions to make sure all the bills have been paid, you have collected all the payments owed to you, and to give some thought to the way the money is moving.
What hidden expenses should therapists keep in mind when they're preparing to pay taxes?
According to the IRS, an expense that is ordinary and necessary qualifies as a deduction for your taxes. For example, the software expenses you need to run the practice, your team members, your office expenses, business licenses, and permits, professional licenses, continuing education, business travel expenses, business meals, clinical supplies, insurance, etc.
You can ask yourself if I didn’t have my practice, would I be spending money on this product/service?
Or, are my peers purchasing this too?
Additionally, there could be other expenses such as health insurance, retirement contributions, home office, mileage, and vehicles, that could potentially be deductible as well. The best thing to do when in doubt is to have a conversation with your tax accountant.
Work with someone knowledgeable in small business who is willing to listen and answer your questions so they can really help you take advantage of all the benefits you have as a business owner.
Another benefit of working with someone like this is that you won’t have to wait until the moment you file taxes to find out what your tax situation is. Ideally, you will know how much money to pay the IRS on a quarterly basis and you won’t have to worry about surprise bills every year.
What's the number 1 bookkeeping advice you can give to therapists today?
I’ve heard many therapists say that because they are not math people they are not good with money. This ends up creating a clunky and confusing process to keep track of their finances that only pushes them farther away from their numbers.
Because of that, my best advice is to simplify the process. In my opinion, this is accomplished through accounting software made specifically for businesses.
This might look different for different people. Before making decisions, think about your short-term and long-term goals, and pick a financial system that can easily be implemented today but that can also adjust as your business moves and grows.
For example, for my clients, this means they no longer need to input transactions manually in a spreadsheet or wait for their accountant to respond to their email, or be in the dark because nothing was being done.
A simple process will connect with your bank so your transactions are being pulled automatically, will make the categorizations process easier and faster, will give you the ability to customize categories for your money, and will easily generate financial reports.
It’s super important to point out that accounting software assumes you know what you’re doing bookkeeping/accounting-wise, and can’t be blindly trusted to do all the work for you.
Want to know more?
If you found Andrea's advice helpful, you can learn more about her company and bookkeeping services on her site https://www.liquidcentsbookkeeping.com