Let’s be honest: when you opened your therapy practice, it probably wasn’t because you were excited about reading financial statements.
You were focused on helping clients, not decoding balance sheets.
But unfortunately, understanding your financial statements is part of being a private practice owner. And understanding a balance sheet for therapy practice, even just a little, can give you major insight into your practice’s financial position.
So, what is a balance sheet?
And what should you look for?
Let’s break it down from the beginning.
So, what is a balance sheet?
A balance sheet is basically a snapshot of your therapy practice’s net financial position at a single moment in time.
Think of it like your practice’s “financial selfie.” It shows what you own, what you owe, and what’s left over for you.
There are three main parts:
- Assets = What your practice owns
- Liabilities = What your practice owes
- Equity = What’s left for you (the owner), after subtracting what you owe from what you own
There’s a super simple formula that ties it all together:
Assets = Liabilities + Equity
This always has to balance—hence the name, balance sheet.
Let’s talk about each part (with real-world therapist examples)
1. Assets: The stuff your practice owns
Assets are everything of value your practice has. This could include:
- The cash sitting in your business checking account
- Money clients owe you (called “Accounts Receivable”)
- Your office furniture or laptop
- Prepaid expenses (like paying rent or software in advance)
Basically: anything that helps your practice operate or make money.
2. Liabilities: What your practice owes
These are your debts or financial obligations. Common liabilities might be:
- Credit card balances
- Unpaid bills (like rent or software)
- Any business loans or start-up costs you’re still paying off
These are the things that still need to be paid for.
3. Equity: What’s left for you
Equity is the part that stumps a lot of people, so let’s break it down in simple terms.
Equity is the part of the practice that’s truly yours. After you subtract everything your business owes (your liabilities) from everything it owns (your assets), equity is what’s left over.
It’s kind of like your practice’s net worth.
Here’s a simple example:
Let’s say your therapy practice has $50,000 in assets—that might include your bank account, furniture, money clients still owe you, and anything else of value. But you also have $20,000 in liabilities, like a business loan or credit card balance.
If we subtract what you owe from what you own, that leaves you with $30,000. That’s your equity. That’s the value of your practice after everything’s been paid off.
Another way to think about it: If you closed your practice tomorrow, sold everything off, and paid all your bills, equity is what would be left in your pocket.
Why This Actually Matters
So why bother looking at your balance sheet in the first place?
Because it gives you a quick read on how financially healthy your practice is.
If your balance sheet shows more liabilities than assets, that’s a sign you might be overextended. If your equity is growing month after month, it means your business is building value over time.
If your cash balance is getting low, it might be time to adjust your spending or tighten up your billing and collections.
You don’t have to study it like it’s a psychology textbook. But checking in with your balance sheet once a month can help you catch red flags early, make better decisions, and feel more in control of your practice’s financial future.
How to Actually Use It (Without Getting Overwhelmed)
Start by looking at your cash. Is there enough to cover the next couple of months of expenses without stress?
If not, it might be time to rethink your pricing, cut some overhead, or revisit your session volume.
Then look at your liabilities. Are you carrying any balances that make you uncomfortable? A little short-term debt might be manageable, but it shouldn’t become the norm.
And over time, keep an eye on equity. If it’s growing, great. If not, don’t panic. But do use that as a cue to dig deeper.
Remember, a balance sheet doesn’t give you all the answers, but it gives you really important clues.
Use Our Free Balance Sheet Template
We know…most therapists didn’t go to school to learn how to read financial statements, and that’s totally okay.
What matters is that you’re starting to pay attention. You care about building a sustainable, healthy practice. And that’s where this kind of knowledge becomes a real game-changer.
If you’re still unsure how to read your own balance sheet—or if you don’t even know where to find it—don’t stress. That’s exactly what we’re here for.
At Traktion, we specialize in working with private practice owners just like you, helping you get clear on your numbers so you can focus on your clients.
Whether you need help setting up your books, reviewing your reports, or just want someone to walk through your balance sheet with you line by line, we’re here to help.
Get in touch with us by using the calendar down below if you want a second set of eyes on your numbers.
You don’t have to figure this out alone!
Until next time.