4 lessons I've learned about (accounting) in private practice
In my years working in accounting for private practice, there are 4 big lessons I’ve learned. Read on to avoid some of the common mistakes I have seen practice owners make again and again.
Ready? Let’s dive in.
Lesson #1: Friends are friends–not business consultants.
I often ask private practice owners how they made a specific business decision. You’d be surprised how often the answer is “I asked a friend in private practice” or “I asked someone I went to grad school with” or something similar.
People take their friends advice all the time–without ever knowing if what the friend is doing actually profitable! Some advice makes sense and seems to be going well for someone else, but that DOESN’T mean that it is making a profit. I’m not saying you should ask your friends for their profit and loss statement, but it does mean you should run the numbers in your own practice before making an important financial decision.
One of the most important decisions?
How much to pay your new clinicians! Your overhead may be very different than someone else’s, so before just agreeing to an arbitrary percentage - look at the options (link to the compensation article) and run the numbers.
Lesson #2: If the ship is sinking, opening another location will not fix the problem.
When a practice is drowning, many practice owners want a redo. They want to start fresh and open in a new location. The reality? This never fixes the problem. The best approach is to face the current problems head on, solve them from the ground up, and then (if it aligns with your goals) open a new location. Then you can confidently grow, knowing you’ll be able to sustain the growth.
Opening a second location can be a great way to expand your client base, serve an entirely new population, and grow your business. Even when systems are in place and you have a successful location, adding another location can be expensive for a few months before it becomes profitable (think buildout, recruiting, furniture, advertising).
If your existing location is limping and an opportunity for a great space comes along, it usually makes sense to pass even if it’s really tempting. Adding more costs will lead to more stress - not more profit.
Lesson #3: Lots of employees working a little is less profitable than a few employees working a lot.
I have found that employees who see 15+ clients per month contribute to a successful practice. If you have lots of employees who work just a little bit (under 5 hours/week), the practice will suffer. Carefully hire clinicians who will fill their schedules. Be picky. It’s your practice!
It’s not a scientific observation, but I have seen this trend over and over again. It might feel less stressful to hire someone who is just looking for a few hours each week. After all, their entire livelihood isn’t based on your practice’s ability to get them clients.
But when folks work just a few hours each week, it can be really difficult to schedule for them (especially if their schedule changes) and it’s also hard for them to be really committed to you. Recruiting can get expensive. It also takes a lot more mental energy for you to manage 20 part-timers vs. 4 full timers.
Also–I’ve said it once and I’ll say it again–avoid paying your new hires more than you can sustain through the future growth of the practice.
Lesson #4: It’s all about your mindset. (Don’t be afraid to make money.)
I’ve learned that our mindset matters more than people realize. Understanding why your practice is sinking into the abyss is better than keeping your head above water–unaware of what is happening with your $$.
In a helping profession (hello, therapy!) there is often guilt associated with trying to make a living helping people.
Scarcity mindset can apply to many different things: your rates, (will I have clients if I increase my rates by $20/hour?) hiring clinicians, (what if there aren’t enough clients for everyone?) or hiring an admin. (Will they cost me too much?). If you’re wondering, that admin will SAVE you money by allowing you to focus on higher revenue tasks.
The reality? This is your talent that you are sharing with the world. Running a profitable practice is the best way to help more people! If you have to close your doors, your reach will shrink considerably. You owe it to yourself and to the population you serve to make a good living in your practice.
I hope you’ll take these lessons to heart! What financial issues come up for you regularly? Are any of these ringing a bell? Trust yourself and don’t hesitate to reach out if you have any questions or need help knowing where to start.
This article is designed to provide information only and should not be considered legal or tax advice. Because of the complexity of the law and the variables in your own personal tax situation, you can’t rely on our advice specifically related to your unique circumstances. In order to get the best tax savings and legal advice available to you, you should consult with your own accountant, attorney or advisor regarding your particular facts and circumstances.
GreenOak Accounting is an accounting firm that specializes in working with counselors and therapists in private practice. We provide monthly accounting & bookkeeping services, 1-time services and online courses. For more information on our specialized services for therapists please visit https://www.greenoakaccounting.com/our-specialized-services-for-therap