Budgeting Tips For The Self-Employed Therapist

How do you budget when you never know what your income is going to be? It's an area many therapists struggle with. Experience has taught me that discipline is the key. A few healthy financial habits can positively change the outlook of your business.

Most therapists I know receive checks or cash from their clients. The first thing you need to do is set up a separate business checking account. I'm a credit union fan. They offer competitive banking services without the steep fees. It is not necessary to get a TIN, (tax identification number) when operating as a sole proprietor. You can use your social security number to set up a business account, however; you should have a DBA, (Doing Business As).  Regulations state that checks made to a business must go into a business account. It should look something like this:

• Jane Doe
• DBA: Your Business Name
• Address
• City, State and zip code

Twenty to thirty percent of every deposit should get set aside in a separate savings account for the sole purpose of income tax collection. Your entire deposit is not yours. State and federal taxes are not being withheld when a client pays you. It is your responsibility to set money aside for collection at tax time. This habit will lessen the shock of being told you have to pay the government several thousand dollars. Heart palpitations can be avoided when you already have the money to write that check.

You can choose to pay quarterly. I don't do that. My income is not so great that I no longer have that option, however, there is a minimal penalty for not paying quarterly. I prefer to save it myself and if I need to borrow on that money during the year, I have it. I restrict borrowing to emergency use only as not to create a bad habit, and it must be paid back my the end of the year.

The next thing I do is transfer any gift certificate money I have to yet another savings account. I deduct the amount that I have already withheld for taxes and transfer the balance.

Example: If I sold one gift certificate for fifty dollars, ten dollars has already been set aside for taxes, which means that forty dollars will get transferred into the gift certificate savings account.

I do that because it is money that I have not technically earned yet. If I get five gift certificate redemptions in one week, it will make a noticeable difference in my deposit. It's nice to pull that money out of savings when needed. I have also been able to leave it alone and use it for continuing education expenses, which is immensely helpful.

Now I can decide how much to transfer into my personal checking account. I use very little. I only take exactly what I need and keep the rest in my business account. When the end of the month rolls around I have the money I need to pay my bills for the upcoming month. Paying bills in advance helps take the stress out of no shows, cancellations, and illness, which can dramatically alter your expected income for the week. It's not always possible to stay ahead, but if you can get in the habit of saving, it will minimize the anxiety associated with a slow client week.

A little bookkeeping is next. Keeping track of expenses on a weekly basis will lessen the stress of sifting through receipts and other saved papers at the end of the year. Here is a list of expenses I keep track of for tax deductions:

• Supplies: This includes everything from massage oil, Kleenex, office paper, pens, etc...
• Laundry: Cost of doing laundry, detergents, and fabric softener
• Advertising: website and blog fees, newspaper, radio ads, etc..
• Rent: Office rental fees
• Phone Bill: If not your entire phone bill, then a percentage used for business
• Internet: If you don't have office Internet, then a percentage of home use can be used for website maintenance, Internet orders, client e-mail, etc...
• Health Insurance: As a small business owner health insurance can be factored in
• Continuing Education: What classes did you take, or books did you buy to advance your career?
• Travel Expenses: Hotel, lodging, plane tickets, etc...
• Liability Insurance: This is usually a one time, yearly fee
• Tax Prep: Did you pay someone to do your taxes the previous year?
• Meals: Did you eat out while taking those continuing ed classes? Have you taken a client out to eat or discussed business with a fellow therapist over a meal? You can deduct that.
• Licensing: What is the yearly licensing fee in your state?
• Donations: Did you give money?
• Postage: Did you mail anything to your clients? Postcards? Invitations?
• Mileage: Include mileage used on continuing education trips too!

It doesn't matter if you have fancy software, or use a pen and paper, just keep track! A few simple habits can keep you in business for years to come!