Starting a private therapy practice can easily be overwhelming. Talking about finances in private practice leaves many therapists wanting to bury their head in the sand. Most therapists didn’t go to business school and want to spend their time just doing therapy. But, at the end of the day, our practices are businesses and they need to be healthy so that we can provide quality services to our clients. This requires having good financial systems in place so that you can focus on your therapy. Here are a few things to consider about finances when running your practice.
Get a Business Bank Account for Your Practice
I hear from so many therapists that don’t feel like they need a business bank account because they are just starting out. However, they quickly find that sorting through all of their expenses gets confusing and they aren’t able to tell how much money they are actually making. This becomes a nightmare when it’s tax time. Setting up a business bank account from day one will make your life so much easier. It becomes clear what your expenses are and how much money you are making. Sites like Quickbooks Self Employed and Wave Financial allow you to track and categorize your spending which is invaluable at tax time. Many banks and credit unions offer business bank accounts, but you will need to make sure you have a registered business with your state and an EIN from the IRS.
Set Your Fees and Get Your Money
Deciding what to charge clients (if you’re private pay) can be stressful. Most of us went into this profession to help people who are hurting and it is easy to feel guilty about charging for that. However, we all paid a lot of money for graduate school, continue to pay a lot of money for continuing education, and provide an incredibly valuable service. We help people get their lives back on track and that is no small thing. We are also humans who deserve to live lives that are comfortable and that allow us to take care of ourselves and our families. Therapists can’t do good work if they are struggling to pay their bills or are working too many hours. When setting your fees, it can be helpful to check out other therapists in your area to see what they charge. You can also use this amazing calculator from Tiffany McLain (an amazing therapist turned money business coach) to help you get the lifestyle you deserve.
It’s also important to figure out how you are going to collect your fees. Finding a credit card processor you like can make the process very simple. Most Electronic Health Record systems have built in credit card processing that keeps your client’s information secure. IVY Pay is a separate processor that is HIPAA compliant and developed exclusively for therapists (feel free to use code annr853 for $1000 in free charges). PayPal, Venmo, and Zelle are not HIPAA compliant and therefore not the best way to collect fees from clients.
Paying Yourself in Private Practice
Now for the fun part, paying yourself! When starting out, most people are filing as a sole proprietorship so that’s what we’ll address here (the IRS has really helpful information for small businesses here). This means you are transferring money to yourself from your business bank account to your personal bank account. You can do this as often as you like but many people like to stick to the every other week system most of us had at traditional jobs. Figuring out how much to pay yourself can be tricky but there are great resources out there to help you figure it out. Profit First is a really helpful book and many therapists have used this method to help keep their finances on track. The Profit First method suggests spending about 30% of your gross earnings on business expenses, pay yourself 50%, set aside 15% for taxes, and 5% for profit.
Private Practice Therapist Taxes
When you are a sole proprietor, you have to pay federal taxes quarterly because they are not being taken out of your paycheck on a regular basis. The amount you pay is an estimate but software like Quickbooks Self Employed or of course an accountant can help you figure out how much to pay each quarter. States also require you to pay taxes quarterly. If you don’t pay quarterly, you may be hit with a fine once you file your taxes. You can read more about estimated taxes here.
An S-Corporation is a tax formation where you pay yourself a salary as an employee, therefore taxes are taken out each payroll. This typically becomes beneficial when you reach a certain gross income in your business and the guidance of an accountant would be best for this situation.
A lot of this might feel overwhelming in the beginning, but once you get the hang of managing your finances, the business side of therapy can feel more fun. For more support with building your practice, join RightFit’s free MeetUp group The Business of Therapy.