Managing expenses in your therapy practice can be difficult, especially when your focus is on helping your patients. It’s one of the million things you have on your plate, and sometimes it can be overwhelming and fall behind.
One of the key financial foundations for anyone running their own business is mastering the art of tracking expenses. Learning to manage your business expenses can save you a lot of money and headaches, and will set your therapy practice up for success.
Common business expenses for mental health practices
Business expenses are any reasonable costs for a mental health practice that are incurred to earn income.
There are several benefits to carefully tracking business expenses, but first, let’s review some of the most common ones for mental health practices:
Advertising and marketing
This can include anything used to advertise your practice such as costs for your website, such as domain hosting or website design, paid online ads, print advertisements, or business cards.
Association or membership fees
You may pay dues to your organization, such as the American Psychological Association, as a therapist which are deductible from your income.
You can deduct account fees, interest, or credit card processing fees for your bank accounts.
Meals or coffee with a coworker, client or consultant can be deducted if they are business-related, such as for a business meeting. Personal meals or coffee cannot be.
Business registration and license fees
You can also deduct your initial start-up costs, such as business registration and license fees.
Capital assets, such as office furniture, should be capitalized, which means they are set up as an asset on your balance sheet and then depreciated over time.
Most therapists, counselors, and other mental health professionals must obtain continuing education credits to stay licensed. Any courses, workshops or conferences attended to improve your skills and grow your practice can be deducted from your business income.
Depreciation of assets
When you buy assets for your practice, such as office furniture or computers, you depreciate them over the asset’s life.
Legal and professional fees
This includes any bookkeeping, accounting or tax services as well as lawyers and other professionals you use for your practice.
Mortgage payments, rent and utilities
Whether you work from home or out of an office, you likely have rent or mortgage payments and utilities, such as phone and electricity bills.
If you are working out of your home, only a portion used for business can be deducted. This is typically represented by the percentage of your home office dedicated to business in relation to your entire home.
Office supplies are anything you need in your office to run your business. This can include things like pens, staplers, postage, cleaning supplies or décor.
Software for running your practice, such as practice management or document storage software, can also be deducted.
If you are using your vehicle for business, outside of your commute from home, such as travel to meet with a client or pick up supplies, the cost to drive and maintain your vehicle is deductible.
You must keep track of how many miles you drive that relates to business and how many to personal and should be recorded in a log book.
This can be calculated using the standard mileage rate for the tax year or the actual cost to operate your vehicle, including your registration, fuel and maintenance multiplied by the percentage used for business.
Other common business expenses for mental health practices include payroll if you have other employees and insurance.
How to track business expenses
The first step in accurately tracking your business expenses is to separate your business finances from your personal expenses by establishing a dedicated bank account for your business, if you haven’t already.
One way small business owners track their expenses is using Microsoft Excel. This method works well for business owners starting out, but as your business grows, it can be challenging to maintain. Errors can be made using manual formulas, time is wasted manually entering data and receipts are not easily attached to stay organized.
Cloud-based accounting software allows you to automate many parts of the expense tracking workflow and integrate with other apps you may already use in your practice. Accounting software can be accessed from anywhere, including your cell phone on the go and receipts can also be recorded on the go by uploading a picture. Accounting software allows you to connect with your bank account to update expenses automatically, create rules for common transactions and match your uploaded receipts with those transactions.
If you have created a budget for your practice, tracking your expenses allows you to compare to you budget and see if you are on track or not. This gives you time to adjust before it’s too late.
Benefits of Tracking Expenses Accurately
- Maximize tax deductions – Accurately tracking business expenses allows you to take advantage of tax deductions to reduce your income and, therefore, the taxes you pay.
- Monitor cash flow – 82% of small businesses fail because of cash flow mismanagement so keeping a close eye on your business cash is crucial.
- Discover cost-saving opportunities – Identify which areas are expending more than necessary so you reduce expenses and increase profit.
- Make better business decisions – Accurate numbers provide a clear picture of your finances so you can gain valuable insights and make better decisions for the future.
Let Leichter CPA Help with Expense Management
Managing your business expenses is essential to the financial well-being of your mental health practice and can be leveraged to make good business decisions.
Having your business expenses organized and tracked regularly will give you peace of mind that your finances are in order, especially come tax time when you will be able to maximize tax deductions for your business.
If you’re finding it challenging to manage your expenses or don’t have the time, Leichter Accounting Services is here to help. We specialize in bookkeeping, accounting, and tax service for small businesses with friendly, professional support.