Taxes. Budgets. Profit and Loss Statements.
I imagine that these words bring a bit of discomfort to those in my field. But for me, those words are very comfortable and bring excitement, as 2018 will the year that I will become a sole proprietor in my own business. I sent in my application for MFT (Marriage and Family Therapist) licensure and examination at the end of 2017, and if I am approved and pass the exam, I will have my MFT license in a few months.
The main reason that I am comfortable with these words is that I worked as an accountant for over twenty-five years. I graduated with a bachelors degree in accounting in 1988, I got my CPA license shortly afterwards and spent over 25 years in public accounting, corporate accounting, financial planning and analysis, SEC reporting and non-profit accounting. One area I am not experienced in is with tax accounting, so I will be staying away from certain topics, such as the pros and cons of an S corporation, and leave that for you to consult a tax professional.
I’m fortunate to have been in a private practice internship the last two years, which makes the transition from an employee to a sole proprietor a little bit easier. For those of you that will also be sole proprietors in 2018, I wanted to list out the things that are important to me as I set up my business. I also include some reminders that may be helpful for those of you who were sole proprietors in 2017.
I personally have used Quicken for years to organize and track my income and expense. As an employee it may not be necessary to purchase a bookkeeping system, but as a sole proprietor I believe it will be an important step. Quicken allows me to import my bank and credit cards activity, reducing the amount on data input necessary if you were using a spreadsheet to keep track of your finances. Once the data is in quicken, I make sure to categorize data to an income or expense account. This will be helpful in the budgeting and tax reporting process. Here is a link I found that may be helpful in setting up some of these categories: http://smallbusiness.chron.com/tax-deductible-business-expenses-mental-health-counselor-67922.html, but this is another area where you may want to talk to a tax professional to help define these categories for you. There is a bit of flexibility in Quicken to make changes to the categories, so if you don’t know yet what to use, you can always make edits after speaking with a tax professional.
Why is a budget important? Because it helps to answer the questions “What do I need to do to make a living in private practice?”. Other important questions are “how many clients will I need to break even?”, “how much should I charge?”, “what are the costs of being in private practice”. I use Excel spreadsheets to set up my budget as I find it has the flexibility, simplicity and functionality to build my assumptions into a Profit and Loss Statement. I created this budget as a private practice intern even though I was an employee and not yet a sole proprietor. It allowed me to make estimates on getting new clients, retaining current clients, the fees I would charge, and an assumption on monthly attendance.
I usually end up updating Quicken every two to three months. Whatever your frequency works for you, it is important to get the entire year in your system of records shortly after the end of the year. Here are some other steps I do to close out the previous year:
- Obtain bank statements and reconcile to your records;
- Obtain credit card statements and any other loan documentation. Reconcile each statement to your records
- In Quicken, I then run the Category Summary, which shows if I made or lost money. This is basically my Profit and Loss statement, which I review to help me make decisions for 2018, such as how much I need to increase my fees, how much I can afford for office space, how much money I have available for training, etc…
- If you have a budget for 2017, compare how you did and adjust any assumptions to use in your 2018 budget. For example, I used assumptions for the number of new clients, attendance factor and estimated fees.
- Even though I am not a sole proprietor yet, I found this checklist online that I though would be helpful for those who were in 2017:
I think everyone knows that the deadline to file State and Federal income tax forms is April 15th, but if you are a sole proprietor then there will be other forms you may have to fill out. As mentioned in the link to the checklist, filing a form 1099 by January 31st and a Form 1096 by February 28th are required if in the course of conducting business in 2017 you paid a person in excess of $600 for things like rent, services you received by someone who is not your employee, legal fees, etc… Since the deadline is right around the corner, here is a link explaining the penalty for being late or not filing at all: https://www.irs.gov/government-entities/federal-state-local-governments/increase-in-information-return-penalties-2
So once my system of recordkeeping has been updated and reconciled for the year, I can update my assumptions and take a stab at what my 2018 financial picture will be. The great thing about excel is that I can do multiple “What if” scenarios, and adjust assumptions to see what my annual profit and loss looks like. An example would be one “What if” spreadsheet that assumes I will get my license in April and another that assumes I get my license in May. Another “What if” scenario can be based on increasing my fees by $10 vs. $20 per session. Once I play around with all of these “What if” scenarios, I can settle on the one that seems a realistic stretch goal to accomplish for the year.
Being a sole proprietor means that we are not just the therapist to our clients. It means we are also the Human Resource department, the Sales and Marketing department, the Facilities department, and the Accounting department. Notice your level of discomfort and lean into it. Know that it’s suppose to be uncomfortable, especially for those of you who don’t have an undergraduate degree in accounting.
Remember that it’s an important function of owning your own business and should not be ignored or forgotten, especially at this time of the year.
Ben Yokoyama, MA ~ 415.527.5514.
Associate Marriage & Family Therapist Intern (IMF 94415)
Supervised By Rajani Venkatraman Levis (MFT 51494)
I believe in the power of therapy as a collaborative co-created healing encounter. As a somatic psychotherapist, I honor your body’s natural healing ability and will help you build bridges to access this healing, both in and out of session. I also use EMDR Therapy as a comprehensive approach to addressing the psychological, emotional and physical impact of distressing events. EMDR therapy helps you to metabolize the painful residue from the past so that present day triggers are no longer inappropriately distressing and so that you can make meaningful and powerful choices to manifest a different way of being in the world.
My work is informed and enlivened by my own personal and professional experiences of diversity. As a person of color and the first generation in my family to be born in the U.S.A., I draw on personal and professional experience in exploring the impact of social and environmental stressors faced by minorities on an ongoing basis. I would be honored to have a conversation with you about how I may help you access your unique healing process.