[JOE] This is the Practice of the Practice podcast with Joe Sanok, session number 728. I’m Joe Sanok, your host, and welcome to the Practice of the Practice podcast. I’ve told this story before, but it just makes sense to tell it again. My first couple years of having a private practice I had a business account. I had my LLC, all that was separated like I should, and I had my business debit card and I had the receipts that I saved and I would just put the receipts in the drawer of my desk. I didn’t itemize them, I didn’t use QuickBooks, I didn’t do anything. I just put them in a drawer and every January I would dump these hundreds of receipts out and separate them by marketing, eating, all sorts of things. I had no idea how my finances were. I just was guessing. I’d pay myself 50% or so of the net, always guessed at taxes and then would square up at the end of the year. Then one year I used TurboTax and then they screwed a bunch of stuff up. Then one year I used an accountant and he was $30,000 off and I owed 30K more than I expected. It was just, I had no idea what I was doing. Honestly, that’s all of us. We went through grad school, we learned these clinical skills, sometimes we even have doctorates in this area, but in regards to business and money knowledge, we just know nothing. [JOE] That’s why I’m so excited that we have Andrew Riesen. Andrew is a mission driven entrepreneur, financial accountant, and CEO of Heard, the financial back office for therapists in private practice. I’m just so excited to have Andrew here on the Practice of the Practice podcast. Andrew, welcome to the show. I’m so glad you’re here with us to talk money and all that sort of stuff. [ANDREW RIESEN] Grateful to be here. Thank you for having me. I’m excited to chat. [JOE] Well, at the time of this recording it’s just after-tax season so I imagine you could take a little breath now. [ANDREW] Yes, more work to be done and always opportunities for growth in the year ahead, but yes, certainly starting to slow down a little bit, so yes, taking a moment to breathe for sure. [JOE] That’s awesome. Well, I want to just start with, we have so many private practitioners that are listening to this show and you work, I mean, that’s really your expertise, helping therapists with their finances. What are things that you see that most therapists just totally get wrong? [ANDREW] That’s a good question. So I think broadly there is a number of different elements, I would say in setting up a new business, in managing and organizing the finances and then in actually preparing and filing the taxes. So I’ll parse that into three separate pieces. I think a lot of the dialogue in Facebook groups and list serves and different areas where clinicians are talking around setting up a new business is often around you need to set up an S-Corporation. Yes, there are benefits of setting up an S-Corporation and yes, there may come a certain time in your journey where it makes sense to set up an S-Corporation, but oftentimes in your first year of practice, that’s probably not the right place to set up your S-Corporation for the first time. There is an administrative burden associated with setting up an S-Corporation. There’s an additional cost associated with setting up an S-Corporation and there’s already a lot to learn, a lot to take on from a clinical perspective in your first year of practice. Taking on an additional load administratively and paying a lot of money is often a, I won’t call it a mistake because in certain cases it does make sense depending on where you land at the end of the year financially but I think it often ends up being more cumbersome and challenging then providers do anticipate. So typically, a recommendation for us is seeing how the first year shakes out, ensuring that we’re setting enough money aside for taxes and then making a determination once we have a clearer picture as to what the practice will look like moving forward and also just making sure there’s a level of education around what making that transition really means as it relates to, oh, go ahead. [JOE] No, now is there any liability impact? I always hear you make sure you have your business filings done first and, like whether it’s LLC or S-Corp. Is there any sort of worry in that first year if you don’t jump right into say an S-Corp? [ANDREW] That’s a great question. So as it relates to entity formation, not a lawyer, so take that with a level of knowledge and education that I am bringing here through experience. There’s a huge benefit of course, of separating your business entity from your personal self. So whether it’s setting up a simple LLC or if you’re in California setting up a professional corporation or in New York going through every single nook and cran loop and hole to get to build a set up a LLC, there’s a benefit of separating your business from your personal self to be sure. But legally when you make that separation, then there is the onus of the liability to ensure that business and personal is separated. But you can also do that as a sole proprietor by setting up a separate tax ID, separating your business bank account and having your business associated with a separate tax ID. As a clinician, oftentimes the liability that you hold or are subjected to is more related to malpractice or your interactions with your clients. So professional liability insurance and malpractice insurance oftentimes is what covers that element that a traditional LLC might not cover for a professional. [JOE] Okay, cool. [ANDREW] Awesome. Then as it relates to that second piece of just getting organized, as you alluded to at the beginning, really just ensuring there’s a separation of church and state, so to say, and making sure that your business and personal is separated. Oftentimes providers will move into practice and will forgo separating their business and personal thinking that it’s all good, I’m in the first year and it’s okay if there’s a little bit of crossover between both, but that’s just going to become a big challenge for you come tax season and tax filing; when you are digging through every one of your PDF bank statements, trying to figure out what’s a write-off what isn’t a write-off. Having that separation from the beginning is a really effective way to get going even if you aren’t setting up a separate business entity. That doesn’t need to be a business bank account for sole proprietors. That can just be a separate personal checking account and a separate personal savings account. Of course, would recommend setting up a tax ID and a separate business bank account, but it doesn’t need to be, and it’s important to get into that practice of separating each of those items. [JOE] Are there elements within that separation that you would say are like the main pillars, like here’s the bullet points, make sure you don’t forget these things? [ANDREW] Yes, absolutely. So I would say broadly any sort of software subscription, so your Psychology Today, your Simple Practice or Therapy Notes, any sort of G-Suite or advertising and marketing services that you’re using as well. So things like Squarespace or Brighter Vision, things like the insurance that you have for your practice, whether you have general business insurance, but also your professional liability insurance. Any sort of professional development expenses that might be coming up throughout the year, so any sort of trainings that you’re doing, continuing education that you’re paying for. I think one thing that people often miss might be your own personal therapy or your own clinical supervision that you’re paying for throughout the year because that’s oftentimes a big write-off that you can take advantage of. [JOE] Awesome. Then you said the third category, what would you put in that category? [ANDREW] I would say as it relates to getting prepared for taxes one of the things that we’ve learned with folks is there’s often a narrative or dialogue that exists out there of like, should I set aside money for taxes? Should I not set aside money for taxes? I heard that, one tax accountant told me that I don’t need to set aside money for taxes or pay quarterly estimates. I mean, our stance specifically at Heard is quite clear on the IRS guidance or codification around it is quite clear that if you have a tax liability over a certain dollar amount, which is a pretty low threshold, you should be setting aside money and paying taxes in that first year. So you shared a similar personal experience at the beginning of the call of having a difference between the amount that you thought you owed and the amount that you ended up owing at the end of the year. I think for somebody that’s not working with a professional, that might not be working with Heard or one of the other industry specialists in this space as well, like just setting aside at least 30% or 35% and being gainfully surprised at the end of the year, if you have a little bit of extra money to pay into taxes and doing your best to pay into those taxes on a quarterly basis. One thing that I always, one thing that I typically say to folks that we work with is it’s better to be gainfully surprised that you’re getting a little bit of money back than finding out that you have to owe $15,000 or $20,000. I think for self-employed individuals broadly speaking, it’s always a bit more surprising to understand that you have 15.3% and then you have another federal amount that you’re paying in and a state amount if you’re in New York city, also at a city amount as well, so making sure that you’re preparing for those quarterly estimates and also just setting aside enough for those annual filings. [JOE] I know for myself I’ve liked using aspects of Profit First to just have separate bank accounts that automatically add money in for profit or for taxes or operations that it just I don’t have to even think about it. I know that at least my quarterly estimates, it’s just automatically going in that tax account, that money goes out, we’re good to go. [ANDREW] Yes. The Profit First methodology, it’s broadly something that’s quite common across many of the providers that we work with. It’s a great way to get in the habit of transferring that money and building a system that enables you to set it and forget it. To the point that you were alluding to just setting aside that money so it doesn’t feel like you have that money in your checking account and that that is money that is yours and that you can actually spend or pay yourself with. That’s a great point. [JOE] We brought together all of our checklists, videos and other free things in one spot so you don’t have to opt-in all over the place just to get another checklist. We’ve put it all together over at pillarsofpractice.com. Whether you’re just getting started or have an established group therapy practice, we have a free e-course for you. As well we have eight minute experts, which are short eight-minute videos around specific topics completely free. So if you want to take your practice to the next level, head on over to pillarsofpractice.com to get access to our free e-courses. Again, that’s pillarsofpractice.com to get all of those free e-courses. Well, tell us a little bit about, I want to hear about Heard, but I want to hear about how you got to the point of making Heard, because you guys do some really cool automations and algorithms. What led you to want to work with therapists and to help create a system that automates money for therapists? [ANDREW] That’s a great question. So me and my co-founder of Victoria obviously have both worked together to get to this point, but I’m happy to share my personal story and journey here as well. So professionally I started my career at PricewaterhouseCooper. Prior to that, I worked for an independent wealth manager in Portland, Oregon that worked with a lot of independent physicians and independent mental health professionals, ironically. Through that time at PWC, I ended up finding the opportunity to help them build their own software products for small to medium size businesses and growing businesses and as a result of that had the opportunity to build a tax software startup. That was what I was up to before we ended up building Heard but ever since I’ve been, ever since I was younger, I’ve dealt with anxiety and depression. I had an acute suicidal moment in my adolescence when I was 16 and then I happened to meet to a gal when I was 16 that not ironically probably ended up becoming a clinician as well. I think I’ve spent the last two plus decades in and out of the therapy setting and having a clear understanding of what it looks like and empathy for what it looks like to be on one side of the room while also having a partner that’s gone through a Ph.D. program and gone through the process of building a private practice and gone through those challenges and many friends who have also gone through those challenges and just seeing how challenging and scary and painful it is; setting up managing and growing up private practice, specifically as it relates to setting up the accounting back office and the DIY accounting software, the hard coded spreadsheets, performing reconciliations from your EHR and spending a lot of money on what are times predatory lawyers, CPAs and misfit bookkeeping solutions. So with the experiences that I had building tax software and also my own personal experiences and this fire and ethos, that’s driving within me at all times of figuring out the right way to blend those two passions. I ended up meeting Victoria, my co-founder who’s our CTO. She has also had similar experiences from a mental health perspective and family members who are clinicians. It’s a passion for us. It was an opportunity to blend a skill set and work in a space where we felt like we could really make an impact and also help empower the providers that have helped us transparently still be here today. [JOE] That’s so awesome. When you have an idea like Heard how did you even know how to get into the software side? Was that just bringing in people that knew more than you, or was that, did you have some background in that area also? [ANDREW] So when I was at, I had the lucky opportunity when I was at PWC to help them build their own internal software incubator, so really a way for them to build their own software solutions. PricewaterhouseCoopers is traditionally a services-based firm. They applied accounting and advisory tax services, and they saw the writing on the wall that like, oh, there’s a lot of software that’s being built that can do a lot of the things that we’re doing from a service perspective. So when I was there, I had the opportunity to work with an organization that was helping us build this software incubator. I found a lot of mentorship in really understanding how to take an idea to the place where it’s an MVP or a minimum viable product. There’s really, I would say a process that takes place and forms there in spending time having open ended conversations with customers and putting something or an idea in front of customers, even if it’s like a rough sketch or outline of an idea of what you think it’s going to be and an iterative process of getting that feedback and making sure that the customer’s heavily involved in that process the whole time. Then of course my skillset is not in building software. It’s in communicating and also supporting the customer side of things, but bringing in somebody like Victoria and bringing in other folks that have product background as well, and have a clear understanding of how to take what is just an idea from inception to actually formalizing that building specifications and requirements, and actually building software around that. So hopefully that’s not too nerdy there, but there’s a bit of a process that does exist there. [JOE] I love getting nerdy around it because I think that oftentimes we see problems in the world and we think, well, because I’m not a software designer I can’t do something like that. But then it’s like, you have an idea of how do we automate some of this. I think that’s what for me really attracted me to Heard is that you guys are able to scale differently than just some CPA that’s going to say, we’re going to manually do all this. Take us through some of the automations that save, whether it’s your team or you, or the clinician time because I mean, when I was talking to you guys about potentially being sponsors, I was blown away by just how many cool algorithms and automations and just when you talked about it’s like, this is like the next generation of accounting. [ANDREW] I thin, largely there’s been I think a lot or a lack of innovation in the accounting space, in the tax base specifically. I think it’s broadly because it’s like a fairly unsexy place to like dig in and solve problems, but there’s so many manual processes and so many repeatable processes that are just ripe for innovation and change. I think there’s always going to be an element of human involved. One of the benefits of working with us is that you have an accountant on the backend that’s there to support you, that’s meeting with you throughout the year, that’s there to answer any sort of questions that are coming up, but we’re able to drive a lot of efficiency through the products that we’ve been able to build. That also allows us to drive the cost down against a traditional CPA, which is a big challenge for providers that are running a small practice that are still wanting that support. As far as automations go there’s several different things. So on the back end, it’s the ability to, or on the back end, on the administrative side of the platform where the transactions exist. So the bank accounts of the providers are connected to the platform, the transactions come into the platform; the description, the date, the memo, or the description and the amount of the transaction. One of the things that we’re able to do is set global rules. What that means is that there are specific descriptions or memos that come through our platform, let’s say Psychology today as an example. We can set a global rule, which means anytime a transaction is Psychology Today that comes into our platform, it’ll automatically be coded as advertising and marketing. So you can do that at the global level or that every one of the customers that we have on our platform level. So given that there are consistencies across many of the practices that we work with and the types of vendors that they use, we’re able to drive some efficiency there. Then you’re also able to create rules at the individual level as well. There’s of course, nuance to all the providers that we work with and in that nuance there’s an ability to set up individual rules and whether that’s a anytime a check comes up, let’s clarify that transaction and have the provider help us understand what that transaction is or anytime an Amazon transaction comes through and we know that X provider might use it for equipment, but also might be buying books and reference material and maybe office supplies. So we need to get an understanding of what that purchase was for. Being able to automatically flag those transactions and push those back to the provider allows for some or efficiencies as well. Then we’ve built our own proprietary algorithm on the back end based on a new provider coming in within that first month being able to set up new rules as well. But none of that stuff is perfect. There’s a lot of opportunity and training and using all of that data to get better over time. So there’s always a human on the back end checking that, but that’s just one of the examples. [JOE] Well, and I love that you can set rules across the entire platform where it’s, I mean if you’re on QuickBooks for everything you’re starting from scratch whereas it sounds like what you’re talking about is you can say, okay, all these therapists are using Psychology Today. Let’s just make this rule for everybody that that’s just marketing. That just as a user seems like it would just be so much less of a hassle than having to go in and just start from scratch. Like even, I just opened a new Airbnb that I purchased and so I have a QuickBooks set up for that business and just going in there and starting from scratch and saying, why doesn’t this thing know that these are clearly marketing? This is marketing. This is a marketing expense. Like this is this type of expenses. I bought this stuff from Wayfair. You should know this is probably furniture. So yes, that’s awesome. If we’re thinking about people that maybe don’t use Heard, they’re just doing their money, what are things that no matter who you’re working with from a bookkeeping or accounting standpoint, maybe like five questions or things that you would say, this is what the dashboard that your bookkeeper or your accountant should be offering you? What are those things that are just essential conversations people need to have with the people that are helping them with their money? [ANDREW] Essential conversations, I would say on the front end, as you’re getting to know an individual, I think you need to understand what, so the questions that somebody should be asking you, and then I’ll talk through the dashboard and what that should probably look like as well as what are your sources of income? So what are the different types of income that you’re receiving? What is your business entity and tax structure? If they don’t ask you that that would be a rather large red flag because there’s different accounting treatment for S-Corporations and C-Corps versus just your sole proprietorship. What does your full tax picture look like? So who are you as a full tax individual? That could mean you’re head of household and you have children independence that could be in your married filing jointly or otherwise. In that first interaction as well, just getting a sense of the nature of the business and the nature of the transactions as well. There’s a number of questions that we typically go deeper into, but you just want to make sure that somebody is really taking the time to get to know your practice. As it relates to a dashboard. What information should be included I think the biggest thing is obviously a profit and loss. So having a breakdown of what your income and expenses look like on an annual, a quarterly and a month over month basis, I think a breakdown of your top five expenses is typically really helpful. I think for self-employed individuals broadly speaking, one of the biggest challenges that they face is I’ve moved into practice or I’ve moved into business, any business owner for that matter and I have no freaking clue how to pay myself. I’ve made all this money. Where does this go? How much do I set aside for taxes? So I think gaining an understanding of how much to set aside for taxes, how much to leave for operating expenses to cover that overhead, how much to set aside for retirement, if you want to set up a retirement account, like set IRA or a traditional IRA, so understanding how to bunch to pay yourself. Then I think also just having a sense of what quarterly tax estimates look like. So if you’re working with a bookkeeper or more specifically an accountant would be the one to help with this on, the tax side of things is having a clear understanding of what your estimates look like and the different states that you’re actually operating in or performing or conducting business in. I think this is a big one to pinpoint for private practice owners is every state has different rules and laws as to who owes taxes and who doesn’t owe taxes in those states, if you’re operating from out of state in a given state as a non-resident. So ensuring that you’re having those conversations in the world of telehealth and cross state licensure, where you’re working across state lines as to, hey, do I need to be setting aside money and paying taxes in another state as well say I’m working in Pennsylvania and also New York. So I would say that’s probably another piece to take into consideration as well. Then any sort of, monthly overviews or reports as well, like, hey, what are the trends? Is my business looking different this month, over next month or over last month? What’s changing. What are things that I need to be thinking about? If payroll is a factor that would be a consideration as well, but I would say that’s five broad things that I would think about talking through with somebody. [JOE] I mean, even just that idea of doing, going across state lines and all of that, to make sure that you’re following all those rules. I’m thinking also with virtual assistants. If you have W2’s across state lines, making sure that you’re having those conversations as well. Or if you’re doing 1099s there’s certain states that that’s take a much different approach than other states in regards to 1099s. The last question Andrew, that I always ask is if every private practitioner in the world were listening right now, what would you want them to know? [ANDREW] If every private practitioner were listening in the world right now, what would I want them to know? I will orient this around folks that are typically moving into practice or haven’t done this before and then also folks who are working on getting their systems in place and getting everything set up is take it one step at a time. Many of the folks that we work with come in and they need to get the, or they want to get the business entity formed. They want to file all of their state registrations. They want to do the local registrations. They want to form a new S-Corporation. They want to set up business bank accounts. They want to get payroll set up. It is okay to take time and take it one step at a time as well and recognize that there’s nothing or no action that you could specifically do that cannot be undone. So most of these actions are two-way doors, meaning that if you take one step and it might be a misstep, there’s always a way back through that door. So acknowledging and giving your self the space with everything else that you have going on to take the time to get the system set up and be willing to have a conversation with somebody, whether that’s somebody in your network, that’s done it before, or whether that’s an accountant or a company like her to help you get set up, be willing to have a conversation and just be okay with things, taking a little bit more time and give yourself the grace to take that time, to get things set up. Because there’s no reason to overburden yourself or create an extra sense of urgency or anxiety around these tasks that you’ll get done or accomplished in due time. [JOE] That’s awesome. Well, Andrew, if people want to connect with Heard, if they want to connect with your work what’s the best way for them to connect with you? [ANDREW] Awesome. Well, thank you so much for having me, Joe, by the way, I wanted to acknowledge that. If you do want to connect with Heard, you can head to joinheard.com, J-O-I-N-H-E-A-R-D.com. If you’re ready to sign up and get started, we have a self-serve pathway. So you can click get started and just get going and set up an onboarding meeting with a lead accountant. If you’re hoping to have a consultation call and just figure out is Heard right for me, right for where my practice is right now, or you have questions to get answered our team loves to support you there as well. So feel free to schedule a consultation and you can do that all through our website. [JOE] So awesome. Well, thank you so much for being on the show. [ANDREW] Awesome. Thank you so much, Joe. I really appreciate it. [JOE] I always love having shows where we just dive into the nitty gritty because I mean, that’s the beauty of podcasting. It’s by far one of the longest form of media right now. Most people don’t watch a YouTube video that’s more than six or seven minutes long. I mean our attention span on most social media is second whereas in podcasting, we can go as deep and as long as we want. It’s really great to be able to ask these deeper questions and even just for my own consulting to learn from so many people and to say, wow, yes, if you’re across state lines, you should probably have those conversations with your accountant. Just little moss that we pick up along the way. Today’s show we couldn’t do it without our sponsors. It is sponsored by Pillars of Practice. Pillars of Practice is the free premier training for you if you’re starting a practice, or if you’re growing a group of practice. You can get downloads, you can get all sorts of checklists and there’s eight-minute expert videos around all sorts of different specialty areas to help you with starting and growing your practice. Head on over to pillarsofpractice.com and click on whether you’re starting a practice or growing a practice. Thank you so much for letting us into your ears and your brain. Have a great day. I’ll talk to you soon. Bye. Special thanks to the band Silence is Sexy for that intro music. This podcast is designed to provide accurate and authoritative information in regard to the subject matter covered. It is given with the understanding that neither the host, the producers, the publishers or guests are rendering legal, accounting, clinical, or other professional information. If you want a professional, you should find one.