How To Make Your Practice Financially Secure
The decision to move into private practice as a clinician is both exciting and somewhat scary. For those of us that have made the leap, we did it with for any number of motivations. For the most part, the motivation is about creating the lifestyle we want for ourselves, set our own schedules AND have more financial freedom. Unfortunately, the number one reason private practices fail, or any small business for that matter, is that they did not know how to manage the financial side of things.
Like it or not, owning a private practice means you are also running a business. And for a practice to succeed and stay open, it needs to make a profit and cover its expenses. If it doesn’t it will quickly run into trouble and possibly close. This is not only a hardship for the clinician, but for the clients they serve as well.
But the good news is with the right knowledge and understanding of the financial side of running a business, you can be profitable, cover your expenses and do the most good for your clients.
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How to Design Your Business for Financial Success
Unless you happened to have some coursework as an undergraduate in business or finance, as a clinician, there is little to no training on the business side of being in clinical practice as a counselor or therapist. It is something you have to be intentional about learning. The problem is that for many people, it all sounds so intimidating.
This is where mindset comes in. First, this is stuff that any of us can learn. You don’t have to learn tax codes or get a second degree in accounting. You just need to know some basics around how money flows and some basic accounting principles used in business.
The other thing we have to do is look at our own money mindset and ideas about money in general. For example, maybe feeling a tinge of guilt about collecting from clients or not embracing the value of the services you provide… sound familiar?
The main reason any of us has chosen this career as a therapist or counselor is out of a sincere desire to help people. One mindset we need to overcome is how we feel about charging clients what our time and expertise is worth. For some, charging a fee feels or seems like it negates the help that we give. This is, of course, a great big MYTH! The truth of the matter is that people want and expect to pay for our services. They see and know the value in it.
One other thing on money mindset is to be aware of your own personal ideas about money that you might have picked up along the way. For some, there is some “money shame” around either feeling undeserving about the money you have or feeling some shame about your lack of money. Either way, its one of those internal struggles we need to overcome. You deserve to be paid for the services you provide AND you deserve to live the lifestyle you desire.
Create A Financial Plan
“If you don’t know where you are going, how are you going to get there…”
Creating a financial plan does not need to be overly complicated. The place to begin is to think about the lifestyle you want to create for yourself. This can encompass a lot of variables for each person. For example it could be living in the kind of house you want or traveling more. It could be around making sure you are saving enough for your children’s education or their activities. It might be just being able to be debt free and saving for retirement. Or all of the above!
So, how much money do you need to maintain the lifestyle you want for yourself? This is your financial goal. Of course this figure might seem daunting or overwhelming. But with the right preparation and planning it can be achieved over time.
To begin a plan, it helps to work backwards. In other words take total yearly income you want for yourself and break it down into a monthly figure, then weekly and so forth. With that figure in mind, working backwards will allow you figure out what you need to charge for sessions and how many sessions you need to have each week to reach your financial goals.. In other words, begin with the end in mind. Your “financial plan” is simply the incremental steps you will take to reach that financial goals.
Download a Free Financial Analysis Guide that will walk you through this process here: https://practiceoftherapy.com/moneymatters
Diversified Referral Sources and Income Streams
At the heart of what we do as therapists, is having the volume of clients we need to cover our costs and make a profit. We also need this to be consistent over the long haul. This is where having a good marketing strategy (your website is key here!) and several referral sources for your practice. Not only having other professionals that refer clients to us, but also a web and social media presence where can connect to you directly.
In addition to a diversity of referral sources, it helps to also have multiple income streams for your practice. In other words, having ways to bring in revenue besides just trading your time for the fees that people pay you. Examples of this would be, starting a group practice, creating other products or services that bring in additional income (speaking engagements, consulting, writing a book, podcasts, etc.). These can create what is referred to as “passive income” streams. Again, these ways of bringing in income allows you to not have the pressure of just seeing clients to bring in income.
Consider too maybe starting some therapy groups to get more money for the time spent with clients. Besides passive income, groups are a way to get a “bigger bang for your buck” of your time and increase your income..
Be sure also to charge enough. So many times clinicians will undervalue what their time and services are worth. Charge a fee that is fair but also profitable for you and will cover your operating costs.
Systems and Processes to Track Everything
One of the places a lot of clinicians and therapists fail financially is that they have no understanding of where their money is coming and going. It is so important to have systems and processes in place to track the money. You need to track everything!
Invest in both an EHR system, and also in a good business accounting software like Quickbooks or FreshBooks. These tools will give you the ability to create reports that give you a snapshot of your financial health. Don’t depend solely on looking at your bank account determine all this.
The other thing to do is to educate yourself on the financial side of private practice. Accounting, bookkeeping, profit and loss statements, profit margins, overhead, etc. are all terms that tend to make our eyes glaze over. But it is important as a practice owner to it is so important to have some basic knowledge about all of these things.
One of the ways to learn these things is through the Money Matters in Private Practice Course, which goes into depth around these topics and puts them in some plan and easy to understand terms. The course will help you feel much more confident in your financial knowledge.
Also it is always a good idea to consult with some experts. Since tax laws and situations can vary from person to person and state to state, it is good to have someone with expertise in all of that. Having a professional accounting and tax person that can guide you through particulars that might be unique to your situation and that will help you save money when it comes to tax time.
Have you entered for your chance to win our giveaway for a Free Online Course: Money Matters in Private Practice?
In this course, you will learn:
• How to make your practice profitable & financially sustainable
• The strategies to create a strong financial plan
• How to be more efficient with your money by setting your fees to cover your costs, pay yourself, and make a profit
Create a Financial Buffer and Paying Taxes
This is probably the most important piece to remember in making your practice financially secure… create and build your financial reserves! At the very least, you should have 2 months of your salary, operating expenses and taxes saved and tucked away. More than that is even better!
In the ups and downs of owning a therapy practice, you will have slow times and also need to take time off (you deserve a vacation!). Preparing for these times is crucial for financial success. Devote a percentage each month to this reserve and protect it. This will get you through the slow times and give you the buffer you need to take time away from seeing clients.
The other part that so many clinicians neglect to do, is to have what they owe for taxes in reserve. As a self-employed person, you are required to pay quarterly self-employment taxes. All too often, people will neglect this and end up having a huge tax bill at the end of the year that they were not prepared for. DO NOT FALL INTO THIS TRAP! Be prepared by not only setting aside money for a financial buffer to cover salary and expenses, also set aside money for taxes.
Use the Power of Allocations
The key to having a private practice that is financially viable is all in the planning and using the power of allocations. That is to say, figure out how you can put every dollar that comes into your practice to work for you. That in and of itself is a financial plan.
One book I would highly recommend to learn more about the power of allocations is Profit First by Mike Michalowicz. It was a game changer for me in my own practice.
The concept is really pretty simple. With this concept, you allocate a predetermined amount, based on a percentage, each month into separate accounts. You do this regardless of the amount of money you take in each month. Your percentages to determine how your money is allocated each month. (Ex., 50% to owners salary, 30% to operating costs, 15% for taxes, 5% to profit and reserves).
By doing this consistently over time, you will find that you are getting ahead and making a profit each month. Hence the whole idea behind, “Profit First”. Again, I would highly recommend the book by Mike Michalowicz.
Finally, create a plan to reduce and eliminate your business and personal debt. Credit cards, student loans and other debts can suck you dry. Make getting out of debt a priority. In allocating a percentage each month to your reserves, do the same with your debt. If you think about it, getting yourself out of debt is kind of like “free money”. Imagine giving those monthly payments to yourself rather than the banks!
Making your practice financially secure is absolutely doable. Knowledge about all this will only empower you. Finances and money are personal. And all too often we tend to want to bury our heads in the sand and ignore this side of our practices. The good news it that you can learn all of this which will give you the pathway to making your practice not only financially secure, but also financially sustainable over the long haul.
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