Private Practice Success
By: Lynn Grodzki, LCSW, MCC (Master Certified Coach)
In last month's newsletter, I discussed the 2006 industry-wide survey from Psychotherapy Finances (www.psychotherapyfinances.com), showing that incomes of clinicians are declining and not keeping pace with inflation.
This month, I highlight another finding of the same survey: Despite declining incomes, practice expenses are still high. This validates what I teach, that a therapy business is an expensive business to own and operate.
"If we keep doing what we're doing, we're going to keep getting what we're getting." Stephen R. Covey
Whether you are a sole proprietor or part of a group practice, whether you work from home or out of a separate office, your expenses will be a substantial percentage of your gross income, and that makes this an expensive business to run. It may not seem that way when you have a small practice, because there is relatively little start-up expense, especially with a home office. But when you look at your expenses as a percentage of gross income, you see the true picture.
The 2006 survey reports that expenses of those in solo practices run an average of 30 - 40 % of their total income. Expenses for those in group practices average between 30 - 45%. This is considered a high percentage, in business terms.
To be profitable in private practice you need to keep your income high and your expenses low. Overall, this means you must minimize your reliance on managed care, and sliding scale clients; attract and retain self-pay clients; and manage your expenses carefully so that you can keep as much of your income as possible.
"Beware of little expenses; a small leak will sink a great ship." Ben Franklin
Let's look at two basic strategies that help to keep clinical expenses low:
1) Get organized.
You need to continually track your income, payments, outstanding debt, and expenses. Have a system that allows you to see this data at all times. If you are not using a computer to do this, you are in business the hard way. The survey shows that therapists are technophobic, and only 55% of those in solo practice use a computer for billing. This is one area where getting comfortable with technology can make a difference to a therapist's bottom line.
One therapist I coached found that just getting her files in order, made it possible to eliminate $10,000 in debt she carried - unpaid bills from existing clients. Before getting organized, she knew she had some outstanding receivables, but didn't know how much or who really owed her for what. After compiling her records, she was able to present clients with a statement and work out a payment plan.
2) Adopt a consumer model of payment - such as taking credit cards.
The survey shows that accepting credit cards is a growing trend for clinicians. Over half of all group practices accept plastic, but only 23% of solo practices take them. Although you lose a little of your fee due to a percentage you pay to the card company (usually 1.75-3%), you gain flexibility, eliminate outstanding receivables, and have a way to encourage immediate payment.
One therapist gets credit card information from each new client as part of the intake packet. His contract explains that the card will be used for missed session payments. This way, the therapist and client can be assured that the billing can continue in a regular way, even when the flow of sessions gets disrupted.
"I don't look to jump over 7-foot bars: I look around for 1-foot bars that I can step over." Warren Buffett
Want other ideas to increase profit and reduce expenses? Check the statements that are true for you in the area of "Profit Drains" or "Profit Gains".
Profit Drains:
I have no business plan or a weak business plan.
I don't have enough liquidity or cash on hand so I am always borrowing money.
I offer the wrong services to the right people.
I offer the right services to the wrong people.
I am in a location not conducive to getting or retaining clients.
I don't have a good accounting system for accurate tracking of finances.
I have too much credit card debt.
My income can't support my lifestyle.
I have poor communication with my clients regarding fees.
I spend too much time doing menial work and too little time earning money.
I have poor self care resulting in feeling burnt-out.
Profit Gains:
Every dollar I spend on my business contributes to furthering my profitability.
I have less paperwork come across my desk since I automated my systems.
I only work with serious clients.
I reduced my debt and high interest payments.
I pay attention to details of finances.
I collect fees as soon as possible to eliminate accounts receivables.
I put profitability ahead of comfort or appearance.
I have a good accounting system in place to be able to see my finances and budget to date at a glance.
I am a skilled manager of my practice.
I made a list of my expenses and cut them by 50%.
I leverage my time and efforts to get the most money for the least time.
I surround myself with bright people dedicated to my success.
I have multiple profit centers.
I think expansively and build a practice to last well into the future.
I spend 90% of my time delivering service and generating referrals, 10% of my time doing all else.
Fieldwork: Look at ways you can plug your most serious "Profit Drains". Then find several items on "Profit Gains" you can adopt to increase your profitability.
More next time,
Email: lynn@privatepracticesuccess.com
See the website for additional articles, and information about individual coaching, and upcoming classes.
www.privatepracticesuccess.com
(c) Copyright 2005 by Lynn Grodzki, all rights reserved. 910 La Grande Rd. Silver Spring, MD. 20903.