Accounting for Mental Health Professionals

Accounting for Mental Health Professionals

Making the Jump from Solo-Practitioner to Forming a Group Practice

How do you know when it’s time to make the jump to forming a group practice? Many practitioners are impeded by not knowing where to start or wondering if the administrative time and the payroll cost might outweigh the profit. We’ve seen many MHPs (mental health professionals) make that switch successfully by identifying and utilizing apps that are designed to get you there. Before we explain the combination of knowledge and technology required to make this plunge, let’s take a look at some of the factors that you might be weighing as you consider expanding from solo counseling to a group practice. 

Why would you do it?  

  1. You’re overbooked! Clients love you and even though you may not have actually fully branded yourself, whatever you are doing is working. Instead of feeling overworked and stressed, spend some time figuring out what that secret sauce is that clients love about the way you do therapy. Hire like-minded professionals you can work with who can provide the bandwidth to add more clients to your practice without you bearing the brunt of those added hours.
  2. You acquire the opportunity to spread out your overhead costs. There are many therapists who would love to support an existing client base and be relieved of their own need to market, brand, and the accounting and admin that comes with a solo-practice. Make sure you hire the right people because you, as the business owner, are telling your clients that you’ve personally vetted this new therapist.
  3. You offer or specialize in one kind of counseling. Perhaps you only treat individuals but you keep getting asked by your clients if you can do couples counseling or counseling for kids. Rather than turning them away because you know it’s not your niche, you can add a therapist with those strengths and specialties to your practice without having to refer potential patients out. 

To start a group practice the first order of business is to make sure you’ve identified WHY. Is it because you have a good brand that people like and you’re overbooked? Or do you intentionally want to expand? Do you want to diversify your offerings? Do you thrive in a collaborative environment? Knowing your motivation is important and will point you in the right direction for expansion, branding, communications, and networking. 

Form the Correct Type of Entity

If you have a solo-practice, hopefully you’ve already taken advantage of the tax benefit of forming an LLC (in some states a PLLC), obtaining an EIN, placing yourself on payroll, and have considered filing as an S-Corp with the IRS. A stellar small-business focused CPA can walk you through the steps and explain to you the tax benefits of filing as an S-Corp. 

If you’ve found another therapist who you are going into business with, form a new multi-member LLC (again, this is a great time to consult with a knowledgeable CPA so both owners can make sure they’re minimizing personal taxes) with a new EIN. Don’t let these details overwhelm you! There are plenty of CPA’s who can help you take these steps (we as accountants know quite a few).

Tracking Everything – The Apps

As a business owner, be sure to track everything! There are many practical tools that you can use to keep your finger on the details of your practice. Do your research and choose one piece of software that will handle almost everything an MHP will need to do with clients (scheduling, insurance billing, remote sessions, electronic paperwork, accepting payments, etc). A few that we’ve worked with are ChARM (https://www.charmhealth.com/) and Simple Practice (www.simplepractice.com). 

Many of these can connect with an accounting software (Quickbooks Online is our go-to) for income recording. Most also have excel reports that can be exported to do a deep dive into reviewing margins and average billing numbers. Whatever it is you pick, you do need to ensure it can provide that all-important income reporting so that an accountant can take that info and integrate it into the accounting software where all expenses live. 

A great accountant can help you build out basic margins tracking based upon billable sessions and pay rates for employees. Whatever you build should be scalable so that what works for 3 people can work for 10. No need to go fancy on margins reporting, Google Sheets is usually sufficient and it can be connected to QBO as well for automatic updating of your numbers. We often rely upon our own internal data specialist to build automatic reports like this for our clients; and though it requires expertise outside of the realm of normal spreadsheeting to build, once it is built, it can be easily run and refreshed as needed. The same holds true for calculating what you can afford for overhead and owner pay once you understand your margins and standard expenses.

Hiring Employees – It’s the Group part of “Group Practice”!

The Taxes

Even if you already have an EIN and have been paying yourself via payroll, odds are you didn’t open up a state unemployment insurance account as business owners are exempt from these taxes (you can’t really fire yourself and legitimately claim unemployment). Most states have online applications that can be completed in 15 minutes and an unemployment account number obtained same-day or within 2 weeks. Make sure you’re also covered with workers compensation insurance (some states have state-sponsored programs, other states you will be required to purchase via private agencies). Once applied for and received, whatever your current payroll system is should be well prepared for you to add new hires into.

If you don’t already have payroll up and running, we would recommend Gusto as a great small-business friendly system that allows 100% online hiring and onboarding of employees. Gusto also has some great articles that can help to give direction on the various state payroll tax accounts you’ll need to apply for depending upon what state you are located in.

The People

To hire good people you need to have a good employment proposition. A large portion of that is going to depend upon how you communicate what you’ll be offering in terms of compensation. There are two fairly common approaches but both are based around fees per session and how much gross profit you need to be left with to pay overhead and to pay yourself (and potentially any other owner).

  • Pay a percentage of each session – In this scenario, you hire therapists and tell them their pay will be x amount of the fees they bring in during the month (say a 60/40 split or a 70/30 split). This is a guaranteed way to make sure you can always cover that employee’s salary as they’re only being paid for what they bring in. However, you want to be sure that the balance covers your own overhead such as rent, utilities and other professional fees (like accounting!).
  • Pay a base wage and then create a variable compensation structure for fees brought in over that base wage – Guaranteeing you’ll cover everyone’s base salary with this method is a little more risky, but it is a more attractive employment proposition as employees see a direct correlation between more client sessions brings exponentially more pay. In this scenario and as an example you’d offer a base salary at the state minimum for professional positions at $24k. If a billable session is $100, you know they’ll need to have at minimum 20 sessions a month to cover just their salary. Any sessions in excess of those needed to cover payroll go toward paying overhead expenses. Since 20 sessions is considered to be a very low caseload, you can make the minimum 35 or 40 sessions a month and pay a portion of those revenue earnings out as additional compensation (i.e. you get 80% of the session fee for any session booked in excess of your established minimum, or even up to 90% if you book over 60 a month).

While it might seem small, additional perks are a great way to make an employment offer more desirable. Healthcare is always an option to add for full-time employees. As a small group employer you can usually pick a percentage of the monthly premium to cover and then have the rest deducted pre-tax from employee paychecks. An annual continuing education stipend is also attractive ($300 a year) along with additional pay for any time spent team-building or aligning everyone with your brand. Free supervision for those working towards full licensure is also a great addition that doesn’t take up much of your time as an owner, and also gives you an opportunity to train that person on the brand you’re building to pull more clients into the practice.

In Conclusion

At the end of the day your practice won’t grow steadily unless you hire the right people who will support your goals and work well with your clients. Take time to interview thoroughly and have a great employment proposition that provides for increased pay and growth opportunities in the future. Above all, make sure you’re hiring people who concur with your mission, vision and values. And finally, when you research, locate, and utilize the tools that will help you minimize time spent on administrative and accounting tasks, you and your team can focus on that which is the most important element of your successful practice; your patients. 

Tips for an Effective Leadership Meeting

Tips for an Effective Leadership Meeting

So often, meetings can seem like nothing more than necessary evils or giant rocks weighing you down, stopping you from actually getting work done.  This can be especially true if you are a team leader in your organization.  It can often feel like you do nothing but jump from meeting to meeting and if the scheduled ones aren’t bad enough, there are always impromptu or last minute ones that pop up as well.  How in the world can you possibly find time to accomplish anything?  For the past 18 months, we here at System Six have been using a meeting cadence that has alleviated most of these pitfalls – and we want to share it with you! 

Agendas Matter

We created a team meeting agenda that we stick to which allows us to work through company updates and issues together as a leadership team while not detracting from the other things we are working on.  It helps us keep one another accountable, and also leads to far fewer rabbit trails as we go through the meeting agenda which in turn buys us more time.  This meeting agenda,pictured below, is mostly based on EOS (Entrepreneurial Operating System) and a book called Traction. We added a personal check-in sales scoreboard, client headlines, and team headlines but we give all the credit to the book and EOS model for helping us design this google sheet.  (Click to see the spreadsheet up close – if you want a FREE COPY of this Leadership Meeting Agenda, just click here!) 


A Look into Our Meeting Structure

Meeting Management

We use this agenda for our Monday leadership call and the attendees represent each department of the company (Sales, Operations, Finance, Culture, Customer Service). One person is designated as the  “call leader” and is responsible for running the meeting and keeping everyone on track. If we don’t designate a manager for the meeting we can easily get lost in the weeds. The overarching goal is to bring everyone in the organization into the loop on what’s happening, where our progress stands, and what needs to happen next.

Maintain Relationship

For this meeting we always start with relational connection.  For us it’s ten minutes, allowing us to connect on the highs and lows of life outside of work.  With this knowledge we can support one another during busy seasons and it also reminds us all that we are people, not just performers.  

Review your Key Performance Indicators

From there we move into our scorecard section which is five minutes of sales updates, landed contracts, goal statuses, leading and lagging indicators and operational hiccups that lead to lost revenue. This gives us space each week to get on the same page about how the business is functioning in its quantitative elements. The scorecard section usually stirs some good conversation topics that we add to our IDS section below.

Know Your Big “Rocks”

After that we go into one of the main parts of the meeting which we call Rock Review.  Here we check on our large quarterly goals which we call our “big rocks” (see, rocks don’t have to weigh you down!).  Each team leader is responsible for 1-3 “rocks” per quarter, and this meeting is a weekly opportunity to check in, encourage and help one another with our big picture projects.  These “big rocks” require our primary focus and attention so we allow ample time for this section. For each item we do a full review, check off completed tasks and tackle possible hiccups.

Headlines & Accountability 

After the Rock Review we go on to further agenda items.  We spend a short and sweet five minutes on client “headlines” where we update one another on how clients are doing and then do the same with team “headlines.”  We move from there to our To-Do List from the previous week which is not only an accountability check, but also a chance to address any roadblocks team members may be facing with their To-Do’s. 

Rather than spending time throughout the week notifying each other of headlines with either clients or team members, we all know that we have this standing weekly meeting where all of those topics will be discussed. This keeps the overall weekly “noise” level down and we can trust that there is time and space to discuss these things every five business days.

Identify, Discuss, Solve

What follows next is the main section of the meeting, IDS (Identify, Discuss, and Solve—credit Traction).  For this portion of our time together—45 minutes—we bring up company issues and rank them by importance.  To do this each team leader gets five votes and chooses which topics are highest priority for them. The items with the most votes go to the top of the list, those with the least are bumped down to the bottom.  This way we are working on issues that are critical to the company as a whole, not to just one person’s portions. We get through as many elements on the list as possible knowing that the rest will carry over to the next meeting. Out of this IDS time comes our to-do list for the following week. Our team knows they will be checked on for these items in the next meeting so it is a good reminder of exactly what is on each of our plates going forward.

Always Improving

To finish we end with rating the meeting.  Each team leader rates the meeting on a scale of 1-10 and if there is a 7 or lower, the call leader asks that person why they gave that particular rating.  That team leader then has an opportunity to explain their rating and it is a chance for us all to hear that and improve the meeting for next time.

Once the meeting is done the call leader copies the agenda, pastes below and then clears the solved issues, clears off completed to-dos, moves to-dos from this week to last week and makes sure the agenda is prepared and “fresh” for the next week.  A clean slate!  Something we can all—and especially the next week’s call leader—be grateful for.  Throughout the week leaders can add topics directly to the IDS section of this newly created agenda. So instead of blasting an email that says “Guys, we have an issue we need to discuss,” that person can put the issue on the agenda and know it will be covered during the next meeting. 

Know Your Meeting “Why”

The main goal for this meeting and for sticking to the agenda so closely is communication and connection.  We are able to stay in the loop with each other, with team members, with clients and with whether or not goals are being met.  This meeting allows us to avoid having to do daily calls and makes a huge difference in being able to better keep everyone’s respective time budget.  Having a predictable meeting template has been critical to our success. Not having clear guidelines for how a meeting will run or what should be included just leads to confusion, frustration, and miscommunication. 

Don’t be afraid to get critical about how and why you meet! Hopefully with some strategy, your business can find a cadence for your own leadership meetings that will motivate your team to reach its full potential.

If you’d like a free copy of our Leadership Meeting Template, just click HERE

Basics of Outsourced Church Bookkeeping: Part 2

Basics of Outsourced Church Bookkeeping: Part 2

Welcome to part two of our three part series on bookkeeping and finance specific to churches.  This second part of the series covers program spending, restricted funds, and taxes.  If you haven’t read part one it covers SAAS tools and services, I recommend reading that first since this part of the series builds on what was covered in part one, and you can look forward to the final part about budgeting.

Here in part two we will cover the aspects of church bookkeeping that often get overlooked as churches grow and operations and activities become more complex.

Program Spending

As a church grows, various ministries and programs start to take shape that require expenses, and sometimes income, to be tracked separately.  Good examples of this are kids ministry, worship, building/operations — things that would often be considered “departments,” or “business segments” in the for-profit world.  One option is to simply create new accounts for them, which works most of the time.  However, what happens when the church wants to see supplies used by the kids ministry and the worship band separately?  What if there are other accounts (food supplies, small equipment, etc.) that need to be tracked separately as well?

As this complexity grows we recommend creating “Classes” (a Quickbooks term) for each of the ministries.  Terms for this vary across the accounting world but it’s essentially a way to show each ministry or program as a distinct column on the income statement.  That way, it’s easier to see the goldfish crackers consumed (and sometimes inhaled) by the kids ministry separately from the muffins and croissants bought for the worship band’s Sunday breakfast.

The word of caution here is to only create “classes” for ministries where this type of separation is needed.  It’s okay for other programs to exist as only an account since it’s easier to read an income statement containing three columns versus ten columns.  As outsourced bookkeepers and solutions providers, this is a great opportunity for us to advise on what works best for each church’s specific needs and goals.

Restricted Funds

Most bookkeepers cringe when they hear the term “restricted funds,” and for good reason.  In accounting this prompts potentially bitter memories of releasing expenses, changes to net assets, and tracking restricted income.  This is usually a fair reaction because it can quite literally cause a headache with the multitude of accounting rules that dictate these funds.

Fortunately, all these requirements are only needed if the church is regularly audited according to U.S. GAAP standards.  Since most churches do not fall under these standards, the process can be simplified more than you might realize!

What are “restricted funds” exactly?  As with every non-profit in the country, each donation is given with an intent on how that donation will be used and organizations are bound by that donor intent.  However, if churches are clear on how donations will be spent, and create a “general fund” with clear language that it will be used for general church operations and ministries it can safely be assumed that donors understand and are providing donations for that purpose.  For this reason it is important that these expectations are clearly displayed or stated.  

Problems arise when a donor states they would like their donation to be spent on a more specific purpose (i.e. choir robes, kids ministry, sprinkler repair, etc.).  If the donation is accepted, then the donation is legally restricted to be used for that purpose.  In most cases a quick conversation with the donor can convince them to change their designation to the general fund, but if not, that donation is now restricted and has to be tracked that way in the books.

It’s also perfectly normal for churches to intentionally set up a restricted fund especially if they need to raise funds for a special purpose.  The most common example is a building fund set up to pay for a new roof or replace a furnace.  This is most often associated with a special giving drive.

Whatever the case, the church needs to easily demonstrate two things in the books:
  • How much money was collected for this purpose?
  • How much money has been spent for this purpose?

Going back to the first section in this article the most effective way to answer these two questions is to set up a Class for the fund, especially if the expenses need to go to multiple accounts on the income statement.  For almost all churches, using Classes will ensure that the expenses and income for the specific purpose are not mixed in with other general church giving and expenses and those two questions can be easily answered.

Taxes

I often hear the phrase “churches don’t pay taxes,” and while this is generally true there are some exceptions.  These exceptions appear when churches start to engage in activities more commonly associated with for-profit companies.  Here is a quick list of the more common exceptions:

  • Selling books or merchandise
  • Hosting a concert with paid public admission
  • Collecting royalties for published content
  • Receiving rent for parking lot spaces
  • Fee income for a church-operated daycare

The term for these activities is “unrelated business income,” meaning they are unrelated to the normal operations of a church.  All churches are required to fill out a 990 form to the IRS every year, but if they collect business-type income they are required to fill out a 990T form.

It’s important to note that just like with for-profit business some expenses related to these activities can be deducted against the income received, so it may be worth tracking the associated income and expenses using Classes, as mentioned above.  Also, these types of income may be taxable to state government agencies.  As outsourced bookkeepers it is important to be aware of all the income our church clients are receiving, and be able to advise them on if they are liable to pay taxes on some of their activities even if we are not the ones actually preparing the tax filings.

Final Thoughts

Currently, churches are coming under more and more scrutiny as we diversify our traditional institutions and as they change the scope and variety of ministries and services they offer. Because of this, it is important that churches stay under compliance with all tax and business laws.  Keeping a clean set of books where it is easy to demonstrate how money is spent is crucial to building a healthy church.

It may seem complex to answer the many questions about how money is spent, but this process can be simplified immensely by working within the structure of a well thought out and organized budget. With clear, well formatted intentions, categories, and processes for delegating funds the process for reporting them only gets easier! Stop by next week for the final part of the series on church bookkeeping — budgeting!

Basics of Outsourced Church Bookkeeping: Part 1

Basics of Outsourced Church Bookkeeping: Part 1

Oftentimes church bookkeeping can be a lot more difficult than for-profit bookkeeping due to the extra regulatory requirements placed on churches by the IRS and state government. We understand that these nuances can be incredibly difficult to navigate. As outsourced bookkeepers, it is our job to be experts on how to address the unique challenges of churches, and advise them on how to address those challenges in the most streamlined and efficient way possible.

We want to help relieve the sense of complexity with a three part series on bookkeeping and finance specific to churches.  The three topics you can look forward to learning more about are: 

Part 1 – SAAS Tools and Services
Part 2 – Program Spending, Restricted Funds, and Taxes
Part 3 – Budgeting

Let’s begin the first part of this series by taking a close look at the tools required for accurate and efficient church bookkeeping.

SAAS (software-as-a-service) Tools and Services

System Six believes that “outsourced” and “cloud bookkeeping” are dependent on each other. Even more than before, it is crucial that records and accounting be accessible no matter where people are working. Choosing cloud-based programs is not only convenient, but wise for security, availability, and quality of service for a much affordable price. Every recommendation is based on this premise. 

Quickbooks Online

The first decision is to select a good bookkeeping/accounting tool.  In almost all situations, I recommend Quickbooks Online (QBO) for its integration potential with other SAAS (software-as-a-service) tools, and the ability to directly connect to the activity feed for most banks and credit card companies.  If the books are currently stored on a complicated collection of Excel spreadsheets, it’s probable that there is only one person who can help troubleshoot the system if there is a problem.   QBO allows for multiple user access, and in turn allows for separation of duties between different bookkeeping roles spread across in-house church staff and you as the outsourced bookkeeping solution. It supports a team approach to bookkeeping that allows openness, checks and balances, and transparency across accounts. At just $20-40 per month, the benefits of choosing a “one stop shop” tool are well worth the investment. 

Donor Management System (or DMS)

Each year churches and non-profit organizations scramble to provide year end statements to their donors. While the IRS does not require end-of-year statements to be sent by non-profit organizations, what they do require is that any donor claiming a charitable deduction on their taxes must provide proof of their donation, and a “written acknowledgement” by the organization fulfills this requirement. Since many church/non-profit donors will likely ask for this “acknowledgement” early in the year when they are working through their taxes, it is smart for all churches to be proactive.  It is more efficient to prepare and send all the statements at once, rather than generate a single statement in response to every email or phone call from a donor.

Most churches start out small, so it is tempting to track donor information as well as donations within QBO.  However it is most beneficial to be able to provide a donor statement upon request at any given moment.  While there are some workarounds in QBO, most DMS’ are equipped to easily generate such a statement. 

Here are some additional features common to most donor management systems:

  • Providing a login to every donor so that they can view their donation record online.
  • Batch reports providing a breakout of amounts contributed to each church fund.
  • Ability to upload a letter template (for example, a year-end letter from the pastor), and insert a total amount given to every fund, where specified, and then email from the system along with the donor statement.
  • Built-in merchant account or integration with one where donors can pay using ACH/credit card, and those donations are automatically posted to their donor account.

Each of these features by themselves offer significant savings in both time and capacity for everyone involved!  Here is a good starting list of systems that we most commonly work with:

If you are interested in additional merchant accounts that integrate with some of these systems:

At this point, you likely have a burning question running through your mind, and that is “if I am tracking donations in a separate system, how do I get that information into QBO?”  Oftentimes churches will try to double up their records in QBO and DMS, but generally this is unnecessary. 

 All you really need from QBO is financial reports because the DMS is tracking donor data.  In QBO, all you need to track is the amount deposited and the breakout of the income.

It’s worth noting that NeonCRM (listed above) actually has an integration with QBO that will batch the donations and create a deposit entry in QBO that matches both the credit card and bank deposits.  If the church you are working with receives a lot of ongoing donations, this is a huge time saver!

Final Thoughts

It’s important to note the unique relationship between a church and it’s donors.  Primarily, that almost all donors regularly attend that church, and can visibly see how the money is spent and the results of their contribution.  At any time, it is smart for a church to be ready to answer financial questions from their regular attendees, and they need to have the tools in place to quickly and easily answer those questions.  As outsourced bookkeepers, we are in a great position to advise and manage the tools and solutions that remove financial pain points for the churches we serve.

We understand that there are similar frustrations in regards to budgeting, taxes, and spending, so look forward to the next two parts of this series. Church bookkeeping can be complicated, but with help from dedicated experts, it doesn’t have to be. 

System Six Bookkeeping engages in Gusto council to better advise your payroll and employment practices

Earlier this year, one of our favorite payroll providers, Gusto, decided that one of the best ways to continue to innovate its product was to build an advisory council composed of the experts who use it every day: their accounting partners. After invites and interviews, Gusto created its first Gusto People’s Advisory Council (GPAC) with an exclusive set of members to act as their panel of experts for product and service feedback. GPAC is meant to be heavily relied on as Gusto works on releasing platform updates for payroll, benefits, and HR.

Forty firms are represented after the selection process and I am super excited to represent System Six alongside the various companies that are part of GPAC. There’s a wide variety of small and large firms from all areas of accounting, tax and finance.  The Gusto team heading the program are super innovative, pose great questions and ideas, and desire to integrate our feedback on the Gusto product.

Representing People Well

The most recent update to Gusto was the release of their People Advisory Certification. Over the past year and with the advent of COVID, it’s become more and more apparent that payroll cannot be separated from other employment practices (What kind of benefits do you offer? What kind of benefits can you offer? What are the state-mandated sick leave laws? Are you required to offer PTO?). The People Advisory Certification is designed to train accountant-users how to utilize the HR features built into the Gusto software to better advise our clients through these and similar questions. 

As always, we at System Six strive to represent and advocate for you at every turn. With ever-changing products and procedures, we aim to be on the edge of new developments. It’s our hope to be the first to bring you services that can support your business goals and systems. This partnership with Gusto will allow your concerns and input to be directly channeled to those who have the ability to make improvements. I can’t wait to see what changes will be made that will directly improve your user experience and am proud to represent System Six and our clients on this panel. 

The Newest Intuit Accountants Council Member

The team at System Six is celebrating with our founding partner, Jeremy Allen, who has recently been selected to serve a two year term on the Intuit Accountant Council!

“The Accountant Council features forward-thinking, tech-savvy accounting professionals from across the United States,” says Mindy King of Intuit Quickbooks.

Several hundred applications pour in each year for a spot on the committee whose members bring expert insight, innovation, and strategy to product development and services for the company. Their wisdom and experience directly impacts the success of small businesses around the globe. Jeremy will be serving a two year term on the sixteen member council which meets both virtually and in-person at their Silicon Valley headquarters. 

We are so proud to have Jeremy representing System Six in such a prestigious capacity. We know that he will bring the same client-centered, service-oriented approach to the Council that he brings to his clients and team every day. Congrats, Jeremy! 

For the full article from Intuit, click here.

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