When you run your own therapy practice, it’s all too easy to fall behind on bookkeeping.

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Keeping your books up to date is important: if you’re behind on bookkeeping when tax season arrives, you could find yourself rushing to catch up and get your taxes filed on time.

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On top of that, having up-to-date books gives you important insight into how your therapy practice is performing as a business—including how much profit you’re making, and how much cash you have on hand to cover expenses.

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Here are the steps you can take immediately to catch up on bookkeeping for your therapy practice.

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Round up missing receipts

There are two reasons you need to hold on to receipts for all your business expenses:

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1. To record and categorize them as transactions in your general ledger
2. To support any deductions you claim when you file your taxes

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This is the time to hunt down any receipts you’ve misplaced. That may include emailed receipts, or printable and exportable receipts you can get online (eg. from your scheduling app, practice management software or other SaaS (Software as a Service) you pay for monthly).

Record and categorize transactions

If you use accounting software, it’s likely most of your expenses are automatically imported from your bank account. But, in some cases—for instance, if you pay for an expense with cash—they won’t be. 

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In that case, referring to the receipt tells you what you paid, when, and for what. 

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If you don’t use accounting software, but rely on spreadsheets or another DIY method to track your transactions, you’ll need receipts for every expense you’ve incurred since you fell behind on bookkeeping.

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Support any deductions you claim

In the unlikely event the IRS audits your therapy practice, and believes you could be withholding information, they can go as far back as six years into your tax returns looking for discrepancies.

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You’ll need to prove that every therapy practice tax deduction you claimed was legitimate, and that means providing a receipt proving you paid it. 

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Proper records management and storage is an essential part of any bookkeeping plan. Make sure you’ve got all your receipts ready when tax season comes—both so you can double check you aren’t missing any deductions, and so you can add them to your files. 

Chase down outstanding bills

If you’re waiting on overdue payments from clients, now is a good time to follow up and make sure you get paid. If you feel awkward giving your clients a nudge, ”I’m catching up on my bookkeeping” is a perfectly good excuse for chasing down bills.

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Once you’ve got your bookkeeping in order—whether it’s for tax season, or simply for the sake of getting your back office organized—it feels good to know you’re starting with a clean slate. Making sure all your clients are in good standing and you’ve been paid for your services is a part of that.

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This is also a good time to review your accounts receivable (AR), if you use the accrual method of accounting. For the record, the bookkeeping professionals at Heard strongly recommend the accrual method for therapy practices.

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It’s possible, depending on your bookkeeping practices, that you have paid bills sitting in AR. That is, you’ve been paid the amount outstanding, but haven’t converted it on the books from AR to cash.

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You’ll do that as part of step 4 (below), when you reconcile your bank accounts. But it’s worth taking a look at now, while you round up outstanding bills.

Separate personal and professional transactions

Particularly if your therapy practice is new, and you don’t yet have a business checking account separate from your personal bank account, it can be easy to let your personal and professional transactions mix.

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That makes your bookkeeping more complicated than it needs to be. It means sorting out all your business transactions from your personal transactions at the end of every bookkeeping cycle (monthly or quarterly). It also means you run the risk of mixing the two—claiming a personal expense as a business expense, for instance. That could eventually lead to trouble with the IRS.

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If you’ve allowed your personal and business transactions to intermingle in the same bank account, now is the time to very carefully untangle them, categorizing all your business transactions according to your chart of accounts.

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Once you’ve done that, book an appointment with your bank to open a business checking account for your therapy practice. Having a separate account will make your bookkeeping much easier in the future, and help you avoid costly errors. 

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Reconcile bank accounts

Once all your business transactions are recorded, it’s time to go through them and reconcile your books with your bank accounts.

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Bank account reconciliation is the practice of making sure everything in your bank account matches up with everything in your general ledger. 

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Why do your books and your bank account sometimes disagree? This typically occurs if you don’t use accounting software that automatically imports transactions from your bank. You may be making note of income and expenses on paper, or on your phone, and then entering them in your DIY bookkeeping solution later.

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One example might be if you recorded an expense of $100, but thanks to sales tax, it’s a $107 debit charge to your bank account. Or, you could record a $120 payment from a client near the end of April, but thanks to delays with your payment processor, you don’t receive the funds until May.

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If your bank accounts and your bookkeeping accounts are not in sync, when you bring your financial records to an accountant to file your taxes, they’ll have to spend extra time going through your transactions and reconciling them for you. That results in a bigger accounting bill.

Generate financial reports

With your general ledger up to date and your bank accounts reconciled, you’re ready to generate financial reports.

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A financial report summarizes information recorded on the books in order to give you a big picture view of how your therapy practice is performing. Typically, it will cover a period of one month or one quarter (three months).

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At the end of the year, in order to prepare for tax season, you (or your accountant) will prepare annual financial reports, covering all the activities of your business during the year.

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Three types of financial report are key to running your therapy practice:

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• Your profit and loss statement (P&L), which reports how much you spent and how much you earned during a particular period 
• Your balance sheet, which tells you how many assets and liabilities, and how much equity, your business has on hand as of a particular date (typically the end of the month, quarter, or year)
• Your cash flow statement, which—if you use accrual accounting—tells you how many of your assets exist in cash form versus, for instance, accounts receivable

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Accounting software will automatically generate these reports for you. One caveat, however: Your bookkeeping needs to be accurate and up to date in order for the financial reports to generate accurate, up-to-date data.

Go paperless (where possible)

This step is less about going back and fixing out-of-date books than it is about preparing for the future. 

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When you use paperless recordkeeping for your therapy practice bookkeeping, you cut down on the likelihood of errors and make it easier to maintain organized records. 

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For instance, using an expense tracking app to take pictures of paper receipts and categorize them means you don’t need to worry about missing out on deductions, or failing to support them with evidence in the event of an audit.

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And, if you haven’t already, opting to receive your phone, internet, and utility bills by email makes it easier to enter those expenses into your DIY bookkeeping solution. Once you have a bookkeeper, you’ll be able to simply forward the receipts to them.

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As you go through the necessary steps to catch up on bookkeeping, look for ways you can replace printed records or handwritten notes with software solutions. You could save yourself a lot of extra legwork in the future.

Consider professional help

If you frequently find yourself playing catch-up with your bookkeeping, or you keep running across errors in your bookkeeping records, or simply whispering the word “bookkeeping” to yourself sends goosebumps crawling up your neck, it may be time to hire help. 

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A professional bookkeeper records and categorizes all your transactions for you—either by using receipts, or by automatically importing transactions from your bank account—and generates financial statements that tell you how your therapy practice is performing. 

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An accountant takes the information your bookkeeper prepares, and uses it to file your tax return, taking advantage of as many tax deductions as possible.

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Heard combines accounting and bookkeeping for your therapy practice. The professionals at Heard take care of all your day-to-day bookkeeping, then help you get your taxes filed accurately and on time.

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For a deeper dive into the types of financial professionals that can help your therapy practice thrive, check out our article on accountants vs. bookkeepers.

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This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult their own attorney, business advisor, or tax advisor with respect to matters referenced in this post.

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Bryce Warnes is a West Coast writer specializing in small business finances.

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