Podcast Summary: Private Practice Startup Podcast

Episode 136 – "10 Mistakes Private Practice Owners Make and How To Avoid Them When it Comes to Taxes"

Host: Katie Lemieux (Solo)
Guest: Jenny Shadlmiller, LMFT & former CPA
Date: May 18, 2019

Episode Overview

This episode of the Private Practice Startup Podcast dives into the ten most common tax and financial missteps private practice owners make—and, crucially, how to avoid or fix them. Guest Jenny Shadlmiller, uniquely positioned as both a licensed therapist and former CPA, discusses the essentials of financial management, key systems for practice owners, the importance of working with a knowledgeable accountant, and practical, empowering ways to ensure your business prospers while staying compliant.

Key Discussion Points & Insights

Jenny’s Unique Journey: Therapist AND CPA

• Dual Expertise: Jenny shares her switch from being a CPA to a therapist, emphasizing similarities between understanding business systems and family/therapy systems.
  • "Accounting is a system and that's all it is. When you're a therapist, you know what a family system is… there are a ton of similarities between an accounting system and… a family system." (Jenny, 03:23)
• Private Practice Finances are Manageable: Most therapists’ businesses are among the easiest forms for tax and accounting purposes.

Entity Selection: Sole Proprietor, LLC, S-Corp

(05:28 – 09:01)

• State Nuances: Entity choice depends on state law. E.g., CA prohibits LLCs for clinicians (sole proprietor or S/C-corp only).
• Liability Protections: LLCs and S-corps provide some protection, especially if you have employees, but always seek legal/accounting advice.
  • "If you ever think you want to be a group…it's nice to have that structure… they get sued and the business gets sued, and hopefully you don't." (Jenny, 07:50)
• Bank Requirements: Banks typically require personal guarantees, sometimes limiting the practical benefit of LLC liability.

Building a Support Team

(09:01 – 10:22)

• Get an Accountant You Trust: Not all accountants are equal; find one specializing in small business or your particular needs.
  • "Interview your accountant… Accountants also niche." (Katie, 10:22)

The Ten Most Common Financial Mistakes (and How to Avoid Them)

[1] Not Using a Separate Business Bank Account

(13:11 – 14:44)

• Audit & Headache Prevention: Commingling personal and business funds makes tracking and auditing a nightmare.
  • "Ideally, you would have a business checking, maybe a business credit card... But at a bare minimum, you need to have a separate business account." (Jenny, 13:13)
• Missed Deductions: Risk of missing tax deductions if using personal accounts.

[2] Not Having an Accounting System

(15:16 – 15:56)

• Doesn’t Have to Be QuickBooks! A simple spreadsheet is okay for solo practitioners.
  • "You need some way to track your income and expenses so that you know what's what." (Jenny, 15:25)
• Tracking & Measuring for Growth: Accounting is not just for IRS compliance but for assessing business health, referrals, marketing effectiveness.

[3] Not Keeping Detailed Receipts

(15:56 – 18:43)

• Be Audit-Ready: Keep receipts organized, electronic or paper, with enough detail for any auditor to verify expenses.
  • "If I have a credit card statement and it says Amazon, that does not tell an auditor what I bought…" (Jenny, 18:12)
• Meals: Track who, where, business purpose for deduction compliance.

[4] Spending Cash Rather than Depositing It

(20:36 – 22:13)

• Cash is NOT Tax-Free: All income must be deposited for proper tracking and tax reporting.
  • "Deposit your cash so you really know how much are you making, are you growing? And also so that you pay your taxes because it's just not worth it to not pay all of your taxes." (Jenny, 20:39)

[5] Failing to Pay Estimated Quarterly Taxes

(22:13 – 22:43)

• Avoid Large, Stressful Tax Bills: Planning and paying quarterly makes year-end less scary and prevents penalties.
  • "It's just a big headache at year end if you have to pay a big tax bill…" (Jenny, 22:02)

[6] Not Issuing 1099s Appropriately

(22:43 – 24:40)

• Issuing to Landlords & Vendors: Not just for contractors; landlords and others may require them if paid $600+ by cash or check.
  • "If you write a check to your landlord and your landlord is not a C corporation, then you are expected at year end to give your landlord a 1099." (Jenny, 22:50)
• Use W9s to confirm status. Credit card payments are exempt.

[7] Taking On Too Much Debt

(25:14 – 27:42)

• Start Lean: Many overspend on office setup before confirming income.
  • "There's no right way to start your private practice, but there is a way to go slow and build slow." (Jenny, 25:19)
  • "A lot of times therapists…buy all the new furniture, get a lease for seven years and now they're stuck…" (Katie, 26:35)

[8] Not Saving For Emergencies

(27:43 – 30:03)

• Build an Emergency Fund: Have at least two months’ expenses on hand for unplanned absences, illness, or crisis.
  • "It's even more important for your private practice because that's your income and you don't want your business to dry up." (Jenny, 27:54)
• Real-World Example: Katie’s emergency fund mitigated losses during Hurricane Irma.

[9] Not Setting Financial Goals or Using a Budget

(30:07 – 32:16)

• Think of it as a "Financial Plan": Don’t fear the word 'budget'; it's about setting intentions and tracking progress.
  • "All a budget is, is just a financial plan. That's it." (Jenny, 30:59)
  • "Budget is something what someone else puts you on and then you try to rebel against. That's not how you're going to use it. You're the owner." (Jenny, 31:07)

[10] Not Reviewing Financial Results Regularly

(32:23 – 33:58)

• Stay Engaged: Look at your numbers at least once a month. Information leads to better business decisions.
  • "At least once a month you should be going through these things, making sure that you've tracked everything, compare it to your budget and see how you did…" (Jenny, 32:33)
  • Katie jokes: "I feel like that's a mom sign off. Know what you did and make good choices." (Katie, 33:31)

Notable Quotes & Memorable Moments

• On rules vs. flexibility:

  • "There's no right way, but there are rules. Follow the rules and then figure out what's going to really work for you. And the goal here is for you to be an empowered business owner, not a scared business owner."
    (Jenny, 34:08)

• Empowerment theme:

  • "You can do it. This isn't rocket science. You're capable, you are smart enough, and you can do it."
    (Jenny, 34:36)

• On finding your own system:

  • "We do this all the time as clinicians, but sometimes we don't think to do this for ourselves as business owners. What's going to work for you?"
    (Jenny, 19:13)

Action Steps & Takeaways

• Interview and partner with an accountant who understands your needs and keeps up with changing laws.
• Separate your business and personal finances from the start.
• Set up simple accounting systems—whatever works best for you.
• Track, plan, save, and review: These aren’t just accounting chores but keys to long-term success and reduced stress.
• Follow the rules and adapt for your own personality and workflow.
• Even if you address just one mistake per month, you'll significantly increase the health and wealth of your practice.

Resources Mentioned

• Jenny's Free Tax Checklist for Clinicians:
  Download at mysimpleprofit.com
• Jenny’s Facebook Group:
  "Simple Profit"—a group for clinicians to ask business/tax questions.
• Relevant Past Episodes:
  • Profit First System with Mike Michalowicz

Final Thoughts

Even if numbers make you nervous, you can put structures in place to turn tax time from a panic into empowerment—and ultimately, more profit and peace of mind.

For more details and links, visit the show notes at privatepracticestartup.com.