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Bookkeeping for Therapists: Simplifying Accounting for Your Therapy Business


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What does bookkeeping for therapists look like and why is it important?

A therapist’s main duties is to help their clients keep healthy mentally and emotionally. However, as service-based business owners, they are also responsible for their own business’ financial health as well.


Understanding Bookkeeping Basics

Key Components of Bookkeeping

Some of the essential bookkeeping tasks include:

  • Invoicing and Tracking Payments  – creating billing documents that detail the amount due for services rendered or goods sold 
  • Journalling – recording and categorizing transactions between you and the client
  • Reporting – preparing financial statements 
  • Payroll – Managing and tracking your payments to workers and staff 
  • Expense Management – Tracking, reporting, and reimbursing business expenses (those that employees pay and require compensation for) 


Choosing the Right Bookkeeping Software



Therapists already have a lot on their plate. As doctors, they are instantly reviewing and brushing up on treatment plans and new studies and developments. They are committed to continuous education. The last thing they need is another software that requires them to learn how to be accountants as well as counselors. 

The best kinds of bookkeeping software  are the ones that are accessible to anyone from a layman to an expert. Look  for one that’s intuitive with a good user experience and also consider ones that have a mobile app so you can use it on the go. 


Features Tailored for Therapists

Healthcare providers need tools to store patient data that is both secure and streamlines the administration process. As a therapist, you need to know the patient’s history and other medical records. If the patient changes doctors, you need to be able to transfer that information to the next care provider smoothly.

EHR (electronic healthcare records), EMR (electronic medical records), and PMS (practice management software)  are such tools to help with this. 

Bookkeeping for therapists means having software that integrates or supports plugins for these. PMS and the like helps you track sessions, treatment plans, and any medication prescribed. They can serve almost as secondary journal entries and receipts to track your transactions.


Managing Financial Transactions Effectively


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Streamlining Patient Billing and Insurance Claims


Billing Techniques 

Here are some techniques to ensure timely patient payments and better manage insurance billings.

  • Offer multiple methods of payment to make the process as smooth as possible. 
  • Some bookkeeping software offers payment management and integrations with payment gateways. This means patients have another method to pay and you get the benefit of automatic payment tracking. 
  • Check that the recording of information is accurate the first time. Make it a point to update patient records frequently to lower the risk of denials. 
  • Invest in EHR and PMS software, which helps make this process a lot easier. You can also outsource billing and other similar processes to a virtual assistant with experience in this area. You can focus on the treatment and they can focus on the transaction. 
  • Other ways to improve your billing process include leveraging automation, and tracking, disputing, and following up on denied claims. 


Cash Flow 

Maintaining cash flow and proper documentation is also helpful to prevent payment issues​​.

Monitoring cash flow is necessary to keep business going. It gives you an idea of how many patients to book, and how much you need to adjust your rates and services. That way, you can pay your workers and keep your practice open.

It’s also important for growing your practice and making a profit. If money flows out faster than it’s coming in, you could rack up a lot of debt. If it takes too long for clients to pay, your ability to meet your short-term obligations suffers.

Good management of accounts receivable is making sure clients pay you in a timely manner. It also involves setting up billing dates strategically. That way, you don’t cut too close to your own payment deadlines like rent or payroll.


Utilizing Advanced Bookkeeping Tools

Speaking of upgraded tools, there are certain bookkeeping software features and or integrations that provide a better experience for both you and your clients. 

This includes client tracking and automated payment collections. 

Client tracking is essentially part of client management software (CRM). It helps you collect, organize, track, access, and update client information. 

Automated collections is part of debt management solutions. It involves leveraging AI, automation and client facing portals to simplify the payments process. 


Bookkeeping for Therapists: Compliance and Legal Considerations


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Staying HIPAA Compliant

Bookkeeping for therapists also involves compliance with the Health Insurance Portability and Accountability Act. 

Here are some best practices for safeguarding patient information and financial data​​.

  • Don’t skimp out on your accounting, medical recordkeeping, and practice management software. The more reputable and well-known software might seem pricier. However, it’s worth the investment to keep that data (and your medical license!) safe.
  • Use tools and software that have comprehensive security policies, measures and guarantees in place that ensure accountability for inputted data.  
  • Make sure your accounts are password protected. Consider using secure programs like LastPass for that extra layer of protection. 
  • Never conduct online therapy sessions using public WiFi. These types of networks are more vulnerable to cyberattacks. This risks not only your financial and personal data, but that of the client on top of sensitive medical information. Always use your own internet connection. 
  • Conduct regular risk assessment and educate yourself and staff on vulnerable practices. 
  • Data encryption is HIPAA-required and offers another degree of protection. Even in the event of a breach, the data will be nearly impossible to decipher. 


Navigating Key Tax Obligations and Deductions



The government taxes you based on the structure of your business. Therapists operating on a small-mid business level are likely to fall under S corps, LLCs, sole proprietorships, or partnerships. 

If you fall under these structures, you can qualify up to a 20% deduction on qualified business income. The exception is your income cannot exceed the total taxable income amount set by the IRS. 

Bookkeeping for therapists also includes knowing which deduction you specifically can qualify for. This includes utilities, rent, home office fees, software and licenses, and events tied to your practice. It’s useful to know which deduction you qualify for apply to you 


Self-Employment Tax 

This is the tax freelancers need to pay on top of what they would need to pay as an employee. This is because you are responsible to pay the full amount for Medicare and Social Security. That’s 12.4% on the first $168,600 (as of 2024) for Social Security and 2.9% for Medicare on all income.  

You can deduct half of what you owe in self employment tax as an income tax deduction. You can do this via Form 1040.


Enhancing Your Practice with Expert Help


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Benefits of Outsourcing Bookkeeping for Therapists

Outsourcing bookkeeping provides you with more flexibility. You can focus more on research and personalized patient care while experienced professionals focus on your books. Monthly bookkeeping services help ensure accuracy, adherence to industry standards, and compliance. 


Consulting with a Small Business CFO or Business Coach

Hiring a professional financial advisor can help you as a therapist expand and manage your practice efficiently. 

A CFO or Chief Financial Officer can help you with your overall financial strategy. They assess strengths and vulnerabilities within your finances. Budgeting and cost management is also a major priority. They can offer advice regarding budgeting, cost management, and investment opportunities. 

Business coaches are usually business with real experience failing before they found success. They can help you avoid common pitfalls and give you tips and strategies on how to manage your business well. 

Both positions use their expertise, experience, and tried and true methods and processes to guide you to greater success. 


Keeping Your Finances in Check

Regular Review and Adjustment of Financial Practices

If you want to maintain accurate financials and avoid and catch discrepancies, here’s what you need to do. 

  1. Do daily reconciliation to ensure bank and card statements align with accounts in your ledger.
  2. Regularly review your financial statements. This can reveal potential accounting errors and problematic expense and budget management. 


Frequently Asked Questions


How often should I review my financial statements to stay on top of my practice’s health?

We recommend doing this at least once a month. 

What are the common signs that I might need to switch to a different bookkeeping software?

  • Doesn’t have the integrations you need
  • Doesn’t have flexible services/plans

Can I handle my bookkeeping if I only have a few clients, or should I consider outsourcing immediately?

We are big advocates when it comes to DIY bookkeeping. It helps you understand your business on a deeper level.  

Consider bookkeeping outsourcing when it becomes unmanageable or interferes with your main therapist duties. 

What are the first steps to take if I suspect a HIPAA violation in my practice’s financial management?

  1. Notify the person in violation and gather the specifics of the violation
  2. Report it to a Privacy Officer (internal) or to the proper external authorities 

How can I determine if my practice is ready to expand and hire more staff?

Consider if you have the time, budget, and monetary and human resources to do so. Assess if you can maintain the quality of service while taking on more clients. 


What Is AccountsBalance?


AccountsBalance is a monthly bookkeeping service specialized for agencies & SAAS companies.

We take monthly bookkeeping off your plate and deliver you your financial statements by the 15th or 20th of each month.

You’ll have your Profit and Loss Statement, Balance Sheet, and Cash Flow Statement ready for analysis each month so you and your business partners can make better business decisions.

Interested in learning more? Schedule a call with our CEO, Nathan Hirsch.

And here’s some free resources:


In Summary

Proper bookkeeping for therapists is essential for smoother practice operation in general. It helps you stay compliant, tax-wise and HIPAA-wise. Through intuitive software, you can do your own books or outsource the work. You can even enlist the help of advisors to help ensure your business receives a positive financial health diagnosis.

Want help with your bookkeeping? We make it easy. Get startedSpeak w/ a Founder, or Schedule a Callback

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Julia Valdez

Julia Valdez

Julia is a career freelancer and agency owner turned coach for those seeking abundance and victorious living. A professional teacher and decades-long lover of the art of words on paper and the stage, she loves sharing actionable advice on life-changing topics. When she’s not helping freelancers and other small business owners grow, you can find her sharing lots of laughs over little crazy things.

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