Money Talks
By the time mental health professionals are licensed, they will have worked with varied populations in a myriad of settings. But these positions likely all had one thing in common—billing was always someone else’s headache!
One thing that causes potential private practitioners to hesitate before going solo is the prospect of having to execute, manage — or at least delegate and review— the aspects of business having to do with money. Don’t worry if you’re afraid, transforming your relationship to money is possible and it is necessary. That’s why we devoted an entire chapter of, GetReal, GetGOING: The Definitive Roadmap to Starting the Private Practice of Your Dreams, to dealing with money — from figuring out your net worth to going in-depth with your loan repayments to a discussion of the ins and outs of insurance network payments. All of which is easier if you have some basic accounting vocabulary, so I thought it would be helpful to “review” a few basic accounting terms!
Assets: When you set up your practice, everything of value (that is part of the business) is called an asset. Cash, credit from the bank or on credit cards, furniture, computers, phones, office supplies are all tangible assets. Money that is owed to you, like outstanding invoices or even appointments on your calendar that you will charge for, are intangible assets. Adding the value of everything together will give you your total assets.
Liabilities: Liabilities are any money that you owe to someone else, like rent, utility bills, credit card or loan payments are all liabilities.
Equity: Equity is your total assets minus your liabilities. We are used to hearing this term when talking about homes, where one’s equity is the home’s market worth, minus any outstanding loans or liens owed. It’s the same for a business, although the exact amount can fluctuate more often: Each time you are paid for your services and make money, your equity increases. Each time you take on a liability, your equity decreases.
Owner’s Draw : Taking an “owner’s draw” is how you pay yourself as a business owner. Whatever amount you pay yourself decreases your total assets by that much.
Income and Expenses: Yes, I’m lumping two terms together here, because we so often consider them together! Income and expenses are similar to Assets and Liabilities, but not exactly the same: Income (or “gross income”) is the money that you take in during a set period of time. (Unlike assets, future payments are not income until they are paid.) Expenses are anything you pay for in order to run your practice. Regular expenses, like rent and utilities, before you pay them are also liabilities — since liabilities are obligations and debts owed to other parties — but expenses can also be paid immediately, like if you buy a toner cartridge or a working meal with cash (if you pay with a credit card, it again becomes a liability).
Profit: Profit is when your income is greater than your expenses. “Gross income” and “gross profit” are sometimes used interchangeably to mean the same thing — all the money you bring in during a period of time. “Net income” is your gross profit minus your expenses, otherwise known as… profit!
So there you go, six new words to add to your accounting vocabulary and help boost your financial confidence in preparation for private practice. Becoming more comfortable in your relationship with money seems daunting to some, but fear not, it can be done!
