If you are new to running a self-employed business bookkeeping in private practice may feel a little daunting to you. Now whilst I would always recommend speaking to a trained professional in accounting for advice it doesn’t have to be super scary.
Bookkeeping in private practice is no different to any other self-employed business. In this blog I am going to talk you through what you need to know to start recording your accounts. This blog is aimed at sole traders rather than Limited companies as the rules are slightly different for them.
Keep Things Separate
One of the first things I would recommend when you want to start a Private Practice is to open a dedicated business account. When you are a sole trader you are not legally required to have a business bank account. What you do need is a different account from your personal one purely for your business incoming and outgoing. This will make the whole bookkeeping process a whole lot easier!
You could open a new bank account with your current bank for ease or you could try an online bank account. I personally use Starling and I really like the features it has. It also has zero banking fees. I like that I get notifications when a payment has gone out and when any funds come into the account. It’s also super easy to manage via your phone. You can check out and compare the top Sole Trader accounts HERE.
What You Need to Keep
There are records you need to keep in case you ever get audited. You will need a record of all your invoices. I would really recommend however you choose to invoice that you send an actual invoice to your clients so you have a record of it. You can find out more about ways to invoice in private practice with my free download.
You will need to keep a record of all your business expenses. This is why having all your expenses paid out of one account will really help you. Firstly you don’t want to miss anything and overpay on your tax. Secondly if you are ever audited you do not want to be scrambling about with different accounts trying to sort which is business related and which isn’t.
You should also keep any receipts you do get or have. You do not need to keep physical receipts. You can scan them and upload them into a folder so they are altogether.
What Can You Claim as Expenses?
There are lots of things you can claim as an allowable business expense. Some expenses you can claim in private practice are;
- Room Rental
- Telephone Costs
- Office Equipment
- Business Insurance
- Website Costs
- Advertising & Marketing
- Banking Costs
- Outsourcing (such as a VA or accountant)
- Professional Membership
- Training & Supervision
- Travel Costs (for conferences / training)
I would suggest you checking out the gov.uk website about this for further information. If you are working from home you can also claim a working from home allowance. The easiest way to do this is to use simplified expenses. You would work out how many hours you work from home in a month and then you can deduct the related flat rate from your bank account and record it as you would your other expenses.
Cash Based Accounting
The easiest way to complete your accounts is to do cash-based accounting. This is regardless of whether you choose to keep your records in a spreadsheet or by using an accounting platform.
As long as you earn under £150’000 you can do this. With cash-based accounting you only record income or expenses when you receive money or pay a bill. So when it physically enters or leaves your bank account.
How to Record
Once you have your bank account and know what your allowable business expenses are, you will need some way to report it. How will you know what you earned and what the total expenses are if you don’t create a report?
The cheapest way to do this is to create a spreadsheet of what has come into the bank and what has come out. The top will be your income. Underneath will be your expenses. Then take away your expenses from your income and you will get your monthly net profit. You would then complete this for each month in the financial year to get your annual totals.
I am creating a bookkeeping spreadsheet just for you in private practice. If you are interested in getting this once it’s released please contact me to let me know and I’ll let you know as soon as it’s ready!
If you bank with Starling they have a new product called the business toolkit which I LOVE the look of. It’s £7 per month and you can create invoices directly within the app. You can also automatically categorise your transactions with useful spending categories and tax allocations.
You can also integrate your bank account with Xero or QuickBooks which will all have similar features. If you don’t feel confident enough to record everything yourself these could be an option for you. There will be a cost attached and some work setting them up but it may save you time in the long run.
That was an overview of bookkeeping in private practice. I talked about ensuring that you have a separate bank account from everything else. Doing some research on what is an allowable expense. Keeping all your receipts and choosing a way to record and report. If you’re looking for a bookkeeping template for Private Practice let me know and I’ll be in touch as soon as it’s ready for you!