Starting a private practice is an incredible journey filled with both excitement and challenges. At GreenOak Accounting, we've seen countless therapists pour their hearts into their work, only to encounter financial hurdles that they didn't anticipate. It's easy to get caught up in the passion of helping others and forget to take care of your own financial needs. But here’s the truth: prioritizing your financial stability is not selfish; it’s essential. Without a solid financial foundation, the stress can become overwhelming and lead to burnout. Let's dive into some common money mistakes therapists make when starting a practice and how you can avoid them.
Mistake 1: Mixing Business and Personal Finances
Imagine running a practice and using the same bank account for both your personal and business expenses. This might seem like a way to simplify things, but it’s actually an accounting disaster waiting to happen.
Why? Because when tax time rolls around, you’ll spend hours trying to separate transactions to figure out your true income, expenses, and deductions for your business. Mixing accounts can lead to cash-flow issues if you use too much money for personal items and can’t cover critical business operations. It also creates an unprofessional image that hurts your reputation with clients and investors.
Solution: Keep your business finances and personal money separate. Set up separate high-yield savings and checking accounts for your practice. This helps keep your finances organized and makes tax season much less stressful. Your tax accountant will thank you—and you’ll get so much peace of mind.
Mistake 2: Going into Debt to Build Your Practice
Many therapists feel pressured to take out loans to quickly expand their practice, but debt can become a major burden. The borrower is always slave to the lender, and debt magnifies your mistakes. If you can’t generate profit quickly enough to pay your loans, you put your practice’s survival at risk.
Solution: Operate at the speed of cash. Pay for expenses out of pocket, even if it means growing your practice slowly. Renting until you can buy with cash, outsourcing services, and buying used items are all ways to avoid debt. Making purchases only when you need to and when you can afford them with cash will keep your practice financially healthy.
Mistake 3: Not Knowing Your Numbers
It’s easy to let the bookkeeping fall by the wayside, especially when you’d rather focus on your clients. But ignoring your numbers can lead to big problems. If you don’t know how much money is coming in and going out, you’ll face crises when emergencies happen, and you won’t be able to plan for purchases or taxes.
Solution: Know your numbers. Regularly review your income and expenses, and don’t leave it all to your bookkeeper. Spot-check payables every week and ask questions. Meet with key leaders to close your books monthly and review your profit and loss statement. Regularly reviewing your budget ensures it’s still centered on your goals.
Mistake 4: Starting Beyond Your Means
It’s tempting to start with a professional website, top-tier software, and extensive advertising. However, stretching your budget too thin too soon can lead to financial stress. A little research can go a long way in planning ahead, so give yourself a budget to get started: you’ll need at least a few hundred dollars but typically a few thousand dollars. Also, there’s no shame in starting your practice on the side while working another job to make sure you can support yourself and cover startup expenses. You will have to spend some money to get your practice up and running, but it doesn’t have to blow your budget.
Solution: Start with what you can afford today and upgrade later. Use basic but functional tools and services that fit your current budget. As your practice grows, you can reinvest profits into improvements. This approach allows you to build a solid foundation without overwhelming your finances.
Mistake 5: Not Paying Your Taxes on Time
Late tax payments can rack up penalties and interest, and no one wants to deal with the stress of a huge tax bill at the end of the year.
Solution: Pay your taxes on time. Work with an accountant to understand how much you should be saving for taxes, and save for taxes on a monthly basis, preferably in a separate business bank account. Treat your tax funds as untouchable until it’s time to pay those taxes.
Conclusion
Starting a private practice is a rewarding journey, but it doesn’t have to be a lonely one. With the right support and resources, you can build a thriving, sustainable business. At GreenOak Accounting, we’re here to help you every step of the way. Our course, "Money For Therapists: Practice Startup," is designed to help you navigate the financial landscape, avoid costly mistakes, and build a practice that thrives and serves you. Let’s make your dream practice a reality—starting with a solid financial foundation.
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This article is designed to provide information only and should not be considered legal or tax advice. Because of the complexity of the law and the variables in your own personal tax situation, you can’t rely on our advice specifically related to your unique circumstances. In order to get the best tax savings and legal advice available to you, you should consult with your own accountant, attorney or advisor regarding your particular facts and circumstances. GreenOak Accounting is an accounting firm that specializes in working with counselors and therapists in private practice. We provide monthly accounting & bookkeeping services, 1-time services and online courses. For more information on our specialized services for therapists please visit www.greenoakaccounting.com
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