Managing your finances is a crucial part of private practice, not only only is it essential as a small business owner to carefully monitor cash flow, budgeting, and expenses to ensure you can cover operational costs but it is also a legal requirement for tax reporting purposes.
In this blog post we shall explore bank accounts, financial records and accounting software. At the end of the article there are links to resources and recommended products.
Business Bank Accounts
Keep your business and personal money separate. This ensures that you are able to easily evidence your incomings and outgoings for your business. When you open a separate bank account for your business, it can also set you up for potential borrowing options later on.
Open a bank account distinct from your personal finances. This separate account streamlines accounting and tax preparation, allowing you to easily monitor income, expenses, and deductions associated with your practice.
As a sole trader, you can use a regular personal bank account since the account will be in your legal name rather than the business name. However, a business bank account adds a level of professionalism to your practice, assuring clients and referrers that you are a credible and serious business entity. Some business banks offer accounts made just for new businesses or sole traders, so it's worth shopping around for the best deal.
As a Limited Company, you are required to have a business bank account because you cannot use a personal bank account. The bank account must be registered under the business name, not your personal name.
Considerations:
Fees: Compare the fees associated with different business accounts. Some banks offer free business banking for a limited period, which can be beneficial for new businesses.
Services: Compare the types of services they provide, such as international payments (if relevant to you), whether they have a branch or online banking, or an app.
Extras: Some banks such as Mettle, will offer you free accounting software (Freeagent) when you open a bank account with them.
Savings Accounts: It is also a good idea to set up a separate savings account to save a proportion of your earnings for your tax bill.
FCA Protection: The Financial Services Compensation Scheme (FSCS) protects business bank accounts from losses if the bank fails. You can check if they are on the scheme here.
Accounting and Tax Returns
TOP TIP: When choosing a business bank account you may want to check the monthly fees for the account, whether the bank has a branch or is just online (and whether this matters to you), transaction fees for payments in and out, international payments and any fees associated, whether you can pay in cash to the account (if necessary for your business). You may also wish to consider the type of customer service provided and what the security systems are in place to prevent fraud. I personally prefer to use a longstanding bank such as Barclays but many other business owners rate online banks such as Starling Bank.
Example Online Business Bank accounts:
Mettle (usually comes with with free Freeagent accounting software)
Tide
How To Keep Track of Private Practice Finances
You must maintain clear and accurate records of all financial transactions, including sales, purchases, expenses, and wages. This includes invoices, receipts, bank statements, and any other relevant documents. You are responsible for keeping your business records for at least 5 years after the 31 January submission deadline of the relevant tax year, e.g. If you sent your 2021 to 2022 tax return online by 31 January 2023, you must keep your records until at least the end of January 2028. HMRC can ask to see evidence of your accounting and if they suspect that they are not in full order then they may request a full audit. HMRC conduct random audits of businesses so you could be selected for this at any time.
The Government 'Making Tax Digital' Initiative
HMRC plans to digitise the tax system which means moving away from paper based records, using accounting software, and submitting accounts quarterly. If you have a VAT registered business, you are now required to keep digital records and file your tax returns using compatible software. HMRC will sign up all remaining businesses to Making Tax Digital for VAT automatically unless they are exempt or have applied for exemption.
Provision of therapy is VAT exempt so many private practice businesses are not VAT registered (but you should consult a tax professional on this for your own personal circumstances). For more information from HMRC click here. For businesses that are not VAT registered HMRC has phases to bring the digitisation of the tax system in:
6 April 2026 - For those with an annual business or property income of over £50,000
April 2027 - For those with an annual business or property income of over £30,000
Therefore, for now you may have the choice to utilise digital or paper records, below is a review of areas to consider.
Using Paper or Digital Spreadsheets
You can use a simple spreadsheet (paper or electronic) which shows your overall incomings and outgoings for your business at a glance. This will need to be updated manually by you or an administrator / bookkeeper. You will also need to save invoices for services provided and services or products received and ensure they tally with your spreadsheet.
TOP TIP: Create a process to do this regularly to keep on top of your business finances. Examples may be to save all emails with invoices in to a finance folder for expenses and a finance folder for income. You may wish to dedicate some time each week or month to filing these documents appropriately and ensuring your spreadsheet is up to date. It is a little more admin work than paying for accounting software.
You must also ensure that your spreadsheet is backed up so that if your computer becomes corrupt or the file is deleted, that there is a way to retrieve the information stored. One way to do this could be to use cloud based storage such as One Drive or Google Drive for example. If using paper files then you need to ensure that they are protected from theft, malicious destruction or accidental destruction (e.g. fire or flood).
TOP TIP: Use cloud based storage such as Microsoft OneDrive or Google Workspace Google Drive to ensure that you can access your information where ever you go and to ensure that if your devices become damaged, you can access the information in other ways. Each of these options also has handy PDF scanning tools within their phone apps to capture receipts on the go.
Using Accounting Software
Using accounting software can streamline your business accounting process, making it easier to track your finances, generate reports, and even assist with tax returns. Such software will automate this process for you as it can sync with your bank account and allows you to tally up what is coming in and out of your bank account, and allows you to forward / upload invoices and receipts to it. Many packages will also learn which invoices and receipts go with which transaction and make auto suggestions so you can check them and approve the suggestion.
You can easily maintain your accounting software yourself as part of your business administration, or you can hire a bookkeeper to do this reconciliation for you. Most Virtual Assistants are able to maintain such software as part of their role and often an Accountant can access the software remotely to help with its maintenance.
TOP TIP: If you also use Practice Management Software to manage your private practice, such as sending client invoices for appointments, managing expenses, then ensure that you choose accounting software that integrates with your Practice Management Software so this process is automated. For example, Writeupp, Powerdiary and Cliniko all integrate with the popular accounting software package Xero. You may need to add on additional apps to allow integration with other accounting software packages, so be sure to check this out.
If you like to be a little bit geeky and enjoy seeing your business finance data like I do, then most accounting software will have options to run a variety of different accounting reports such as to show you how much you have earned that year, month by month and compare to previous years. It can also show you earnings vs outgoings and allow you to examine your spending in different categories of your finances e.g. marketing, staff training, software etc.
Examples of good accounting software are:
Do I Need an Accountant?
Whilst accounting and the annual tax return is more straight forward for Sole Traders than it is for a Limited Company, many businesses opt for an accountant to handle their business accounting and tax return. An accountant is a trained professional who can prepare, check and analyse the financial situation of your business. They remain up to date with Continued Professional Development in their field and bring this expertise to check that you are operating within the law and adhering to any relevant guidelines. They can also advise on any schemes or benefits that a company may be missing out on as well as offering advice on the best way to overcome financial difficulties. They also take the stress out of having to hold such matters in mind and free you up with time and energy to do the work that you do best!
If you are thinking of doing your own accounting to save money then consider what the cost is of saving the accountant's fee:
Time Investment: Consider the number of hours it would take you to learn, manage and complete the accounting tasks in your business. Would you do this in your spare time and then lose the limited free time you have to save the accountant fee? Or free up business time each year which means a slightly reduced capacity to offer clinical work.
Loss of Time: Consider when you will do this extra role? Is it taking up business admin time that could have been used to further develop your business and earnings? Is it during clinical time that you therefore do not offer to clients and lose earnings? Is it during your free time which most of us don't tend to have in abundance and is therefore hugely precious to us to ensure a good work life balance!
Stress: Consider the energy and headspace it would take up for you to hold this role on top of the dual role you already have in being the clinician in your business and the business owner.
Expertise: Consider the lack of expertise you are likely to have compared to someone who does this as their day job and will know the pitfalls to avoid and common mistakes. Often the 'I don't know what I don't know' costs us more to the business than the fees we may save by a DIY approach.
TOP TIP: Small business accountants will often do your annual reporting for around £300 - £600 per year (Sole Trader) or £600 - £1200 per year (Limited Company). Consider how many hours work you would need to do to earn their fee, doing the work that you do best. For this amount you have the peace of mind that an expert is handling your business finances, and you can invest this time and energy on working in your business to pay for it, working on your business to grow it, or having some well deserved time off.
How to Find a Good Accountant
When looking for an accountant you may wish to consider the following:
Qualifications: Are they a member of an appropriate professional body e.g. Chartered Accountants (England & Wales): Members of the ICAEW (Institute of Chartered Accountants in England and Wales), use the letters ACA or FCA after their names. ACA stands for Associate Chartered Accountant, FCA is Fellow Chartered Accountant.
GDPR: An accountant will be processing two types of data in your business; 1) they will have access to some of the sensitive data of your clients (e.g. names, address and bank details of clients) and 2) they will be processing your business financial data. Therefore, they are deemed to be a data processor in your business. The ICO deem Accountants as Joint Controllers of the data in your business too as they have their own reporting requirements. Therefore, check they are registered with the Information Commissioners Office. Ensure you have a Data Processing Agreement with you or a contract which addresses data protection requirements related to the data processing undertaken for your business. You can do your due diligence on their Data Privacy by checking their Privacy Notice (which should be made available to you on their website if they have one, or via email / physical copy if they don't have a website. See my blog on GDPR for more information.
Experience: Have they worked with a business that is similar to yours, have they familiarity with the types of issues relevant to your industry. For example therapy work is exempt from VAT and certain types of expenses may be claimed for different types of businesses depending on the nature of the business, so it is helpful for your accountant to have familiarity with this. Do they have references for their past work with other clients or can you look for word of mouth recommendations from colleagues or friends.
Fees: What are their fees and do they charge an annual fee or is there scope for a monthly payment to spread the cost across the year. Check what services are included in your annual / monthly fee and which services may be on an hourly rate. As a small business owner you may not need the full range of accounting services that larger business may require.
Contact: What is the amount of contact you would expect within your contract. Some accounting firms will have a monthly business review where the accountant will ensure the accounting is updated each month and a report is produce to explore business growth or cashflow. Small private practices often don't require this level of input and may favour more of an ad hoc arrangement in which you can raise questions and book time when needed, or discuss via email. You should also enquire as to whether they will remind you when you need to submit accounts for example. This clarifies what you are both expected to do and can help to limit disputes further down the line.
Accounting Software: Do they use any particular accounting software? Do they require you to use their affiliated accounting software or are you free to use software you prefer. Do have any referral codes for software they use?
Further Resources
A Chartered Accountant that understands private practice businesses is a good person to consult to find out more about how to ensure you are managing your business finances most effectively.
An Independent Financial Advisor is great for guidance on types of financial products you may wish to access within your business.
If you would like some help in getting your private practice finances in order then you may be interested in the resources below.
The Private Practice Suite Business Consultations
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*CONTENT DISCLAIMER
The information contained above is provided for information purposes only. The contents of this article are not intended to amount to financial advice and you should not rely on the contents of this article to make decisions for your business. Professional advice should be obtained to explore your personal circumstances before taking or refraining from taking any action as a result of the contents of this article. Dr Sarah Simmonds, Trading as The Private Practice Suite disclaims all liability and responsibility arising from any reliance placed on any of the contents of this article.
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