When you’re running a private practice, you’re a mental health professional and a business owner. And while you’re trained to track moods and progress notes, tracking your business finances might feel like a completely different beast.

Unfortunately, a few simple bookkeeping mistakes can cause cash flow issues, inaccurate financial statements, and painful tax time surprises.

The good news? Most of these costly errors are easy to avoid once you know what to look for.

Here are the top 3 bookkeeping mistakes therapists make, how they mess with your financial health, and what you can do to fix them.

1. Booking Personal Draws as Business Expenses

Let’s say you transfer money from your business checking to your personal bank account.

That’s a draw — not a salary, not a business expense. It’s definitely not something that should show up on your profit and loss statement.

One of our financial professionals once worked with a therapist who insisted his practice wasn’t profitable. Turns out, he was booking every owner draw under “Salaries,” which distorted his financial records. Once corrected, his accurate books showed a six-figure profit.

Why this matters:

• It misrepresents your taxable income and financial position
• It can inflate your business costs and skew your financial reports
• It confuses your tax preparer and risks regulatory compliance issues

How to fix it:

• Categorize draws properly in your chart of accounts
• Avoid booking personal expense items as business transactions
• Use a separate business bank account and business credit cards

Pro Tip: If you pay yourself regularly, work with a tax advisor to decide whether you should be on payroll or simply taking owner’s draws.

2. Making Entries to a Closed Prior Year

You might find a batch of paper receipts in February for something you bought the previous December.

It’s tempting to just enter them as if they happened last year. But if your books are closed, that can seriously mess things up.

Why this matters:

• It changes retained earnings and throws off your balance sheet
• It creates discrepancies your tax preparer will have to untangle
• It risks triggering a business audit if the IRS notices inconsistencies

How to fix it:

• Never make manual bookkeeping changes to closed periods
• Record late transactions in the current period with a note or memo
• Use accounting software that flags or locks closed months automatically

If you’re not sure if your books are officially closed, ask your bookkeeper or accountant before making any adjustments.

3. Misapplying Client Payments to Income

If you use invoicing or accept online payments, this one’s big: when a client pays an invoice, you must apply that payment to the invoice — not record it as new income.

Why? Because your accounting software (like QuickBooks Online or another therapy-focused platform) already tracked the income when the invoice was created. Logging the payment as a separate sale results in double-booking.

Why this matters:

• It overstates your income and increases your taxable income
• It leads to inaccurate financial tracking and makes your books look strange
• It leaves invoices hanging open, which affects your Accounts Receivable

How to fix it:

• Match payments to invoices inside your accounting tools
• Regularly reconcile client payments with bank statements
• If you’re unsure how to do this, ask a bookkeeping consultant or check for accounting software options with built-in help

Pro Tip: Payment processing errors are one of the biggest bookkeeping struggles for private practice owners. Better to check now than deal with a snowballing issue later.

How to Catch These Mistakes Early

Here are a few habits that can help you maintain accurate bookkeeping and avoid financial mismanagement:

1. Do regular reconciliation of your bank accounts and credit card statements
2. Track income and expenses weekly, not just at tax time
3. Set aside time monthly to review financial reports like your balance sheet and statement of cash flow
4. Use accounting software instead of relying on manual bookkeeping or a bunch of paper files

Accurate record keeping now prevents financial errors later and gives you real-time insight into your business goals.

What to Do If You’re Already Behind

If your books are a bit of a mess, you’re not alone. Many mental health professionals start out handling finances solo, only to find DIY bookkeeping solutions get overwhelming fast.

Here’s how to catch up:

• Consider professional bookkeeping services to get your accounts current
• Ask your business advisor or tax services provider about a catch-up bookkeeping plan
• Use automation tools or apps within banking platforms to simplify future tracking

Still unsure? A quick call with an accounting professional can help you understand your financial position and clean up any lingering bookkeeping mistakes.

Final Thoughts

You didn’t get into private practice to be an accountant. But as a professional business owner, clean books are key to your long-term financial health.

Here’s a quick recap:

• Booking draws as business expenses distorts your financial reports
• Making entries to closed years can lead to compliance risks
• Double-booking income from client payments results in inflated taxes

Avoid these common mistakes, and you’ll be in a stronger place for tax preparation, financial planning, and business growth planning.

Need help with accuracy in bookkeeping? Want a deeper dive into your chart of accounts or bookkeeping systems?

Talk to a real human who knows this stuff. Schedule a free call with our team — we’ll help you track expenses, clean up your financial transactions, and get back to focusing on what you do best.