When you began in private practice, it’s very possible you started due to one of two scenarios: You either wanted to move to private practice or were forced into it because of layoffs or other life reasons.

Either way, you likely view the practice very similarly to how you viewed it when you worked within a larger group setting–as a way to serve clients.

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But as a practice owner, viewing it as a business will lead you down a path for sustainable growth. Without this perspective, you leave yourself open to burnout, which can impact your finances as well as the care you provide.

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Building an income vs. building a business

To see what I mean, think about when you began in private practice, whether it was forced upon you or not. You probably had a lot of energy in the practice at the time, and your sole focus was building up a clientele large enough to cover your income needs. 

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It might have even felt like a mad dash at the time. That’s the reality of the first year in practice.

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In the second or third year, you not only reach your income marks, but often you experience a jump in income. It’s possible that this is your first experience reaching six figures or having disposable income. And it’s also possible it’s the first time you also have a large tax bill.

Then, in the fourth, fifth, or corresponding year, you eventually hit a wall. You cannot seem to escape the hourly business, which leaves you unwilling to take time off or a significant number of hours away from the practice, for fear of income reductions. What has happened?

It’s not that you’ve lost the love of therapy, or that it isn’t possible to make a living as a private practice owner. Instead, the practice has been used to build an income–not a business. 

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That lack of business dynamics results in the hamster-wheel syndrome, where you’re working an hour for an hourly rate and must grow clientele and fees to see further increases in income.

Essentially, you’ve tapped yourself out. To reverse this issue, you must take steps to transition the practice into a business–one that can function whether you’re in the therapy chair or not.

Here’s what to consider as you make this transition.

Understand your vision for your business

Having a practice that runs like a business does not necessarily require a group practice. For many, the idea of managing others has little to no appeal.

Instead, it’s important to think about what you want from your career, business, and in life. Why? So, you can shape your practice around the goals that you have and the expertise you can provide.

To achieve this, think about where you want the practice to be in five years.

How do you imagine your life five years from now? What about 10 years? 20? Have a clear picture so you can grow according to those goals.

• Do you want to manage others?
• Do you want to sell the practice one day?
• Do you want your therapy approach to pass down to others?
• Do you want to teach?
• Do you want to work as little as possible?

The answers to these questions will help you shape your plans, and there’s no right or wrong choice. They will instead give insight into what you will do in the future even if this changes down the line. But you must have a sense of where you want to go to create a path to make that possible.

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Professionalize the business

As you make a transition from thinking about your practice as an income source to one of a business, it will require guidance that goes beyond most practice owner’s skills. It’s not because these are particularly impossible skills to learn, but because you’re a trained therapist, not a trained financial professional.

The good news? By hiring these professionals or seeking out tools, you can gain experience in managing and guiding others. Since they’re here to help you, they will lean on you for how you want to handle certain matters or provide insight into how your practice works.

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This will be important information to have at hand, which you can then pass along to a new hire one day.

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Bookkeeping or Bookkeeper

You can do your own bookkeeping through a spreadsheet or software like QuickBooks, you can hire a bookkeeper, or you can partner with a full-service bookkeeping solution like Heard. 

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Regardless of how you manage your bookkeeping, you need to have a clear understanding of what’s coming in, where it’s going out, and account for every financial movement in the practice.

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Certified Public Accountant (CPA) or Enrolled Agent (EA)

Whenever I meet a new therapist who recently had a great year, but experienced the impact of taxes, I say “welcome to the club.” That’s because it’s a rite of passage as a business owner to experience an unexpected tax bill the first year of operating at a high level. 

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The next year, with the lesson learned, it’s about getting a CPA or EA that can help reduce the amount you’ll owe overall, or properly prepare you for what you will owe in April.

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Payroll

It’s difficult to manage taxes and pay yourself in a business, especially when revenues aren’t steady (like in private practice). 

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Having a payroll system like Heard Payroll eases this process, since it will take out Social Security and Medicare payments, which makes up a significant portion of the taxes you’ll owe.

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Income or P&L Statements

If you need one statement in your business, it’s the profit & loss (P&L), also known as the income statement. This provides you with a clear look at what your profits are each month, quarter or year. 

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It not only accounts for where your money goes, but also how much you’re receiving as the business owner. Know how to read this. 

Expand the business

To grow your practice, it requires recognizing the tactics and value of growth. For instance, you can hire a new practitioner, but how do you know whether it’s worthwhile?

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Or under what circumstances is it worthwhile? That’s where other professionals can play a role, not only guiding on best practices, but also protecting you from missteps.

These are common expertise that people seek out, as they look beyond the hourly framework.

Financial Planner or Financial Advisor

In the hiring scenario above, a financial advisor, like myself, can put numbers to the new therapist and determine at what hourly rates or number of sessions per week will lead to profitability for you. 

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But it can go further than that, whether it’s evaluating a retirement strategy, an employee perk, expanding into a new practice, buying real estate, and anything and everything in between. Just look for a fee-only financial planner, as they will only be paid by you (not an insurance or brokerage firm) in guiding your decisions.

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Fractional Chief Financial Officer (CFO)

When you get to a certain size, one of the weaker parts of the organization will be the financial office of the business. In such a case, it’s important to fire your current CFO (you) and hire a part-time manager. 

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Fractional CFOs can work with your business to build financial systems, determine ways to invest, and grow the business under a professional design. And it will give you someone that can aid you in business decisions.

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Legal Representation

For private practice owners, it’s vital to have representation at some point. If you’re hiring, you will need them to create a contract that protects the business. If you’re expanding into different markets or offerings, you can lean on the lawyer to ensure you remain compliant to national and state laws. 

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These protections will keep your business on the right side of the law, protecting you from unexpected fines.

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Go beyond your time

The big difference between building an income source versus building a business has to do with how you’re paid. An income source provides you for the time that you work. An hour session leads to an hourly fee. In a business, you eventually get to the point where you’re paid if you work 40 hours a week or not.

To do this requires services, systems, and processes to encourage payments that go beyond your time. For many in the therapy space, they jump to online coaching as a strategy for this. While that’s a solution, it’s one that takes significant time and marketing to work. 

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Here are a few other ways that you can invest in your business, or other businesses, to turn the practice into a thriving company.

Building a Group Practice

While this may seem obvious, it’s one that many hesitate to do for fear of the work involved. But traditionally, it’s not only the most effective way to build, it’s often the most successful. 

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Why? Because you’re building something that can live beyond you, which means you can one day sell it. Of course, that doesn’t mean it’s easy, or that there isn’t a high rate of failure either.

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Real Estate

When building secondary income streams, renting your practice space shouldn’t be viewed as a passive process. Instead, it will take significant time, since you will manage the space, deal with renters, and serve as a landlord. 

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You can outsource much of this, but it does fall on you, either directly or indirectly through higher expenses. Still, with real estate valuations rising, it can also be highly lucrative.

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Secondary Income Streams

This includes coaching, but also expands into online courses, supervising, teaching and other tactics. Some of these will still require your time, but eventually that time will lessen, or your per-hour rate will rise enough, making it more than worthwhile. 

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For more ideas, check out this complete list of income streams for therapists. 

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Investing in Other Business

While you’re a therapist, and that’s your main source of income, as a practitioner you have expertise that entities outside of your clients can utilize and benefit from. Selling these in a consulting or other model, can increase your hourly rate, allow you to build a consulting arm and shift the mental muscles you use daily. 

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It’s just one of many types of other businesses you can invest in, as a business owner.

Understand the true costs of business growth

Often the danger of expansion of the practice comes from a lack of analysis. Owners can sometimes have a very optimistic perspective of the business–a trait that serves them well in many ways. 

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But when expanding, it’s important to take a very clear picture of the potential results, using a range of outcomes.

When working with clients that want to hire new employees or invest in new businesses, we try to see a wide range of angles. First, we will imagine what happens if, say, they hire someone new and the rate they receive for the therapeutic work is on the low-end of expectations. What does that look like?

Then, we do the same analysis for the high end of expectations. What does that look like?

Finally, we do an analysis for the build-up of revenues. When new therapists come on, for instance, they will not have a full workload right away. In fact, it very well could take months for them to work at full capacity. 

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What happens to expenses during that time? What happens if the employee leaves the moment they build up a full workload? We can evaluate that and determine the impact as well.

Through this process, including incorporating your costs for their Medicare, Social Security, and unemployment insurance (as well as additional operating costs), you can understand the range of potential profits and predict if things work a little slower than expected. It’s this analysis, whether you’re hiring or investing in other products or other business lines, giving you a clear perspective.

Expand within the practice 

Growing wealth requires increasing assets and reducing risks. You can do both through the practice with employee perks and benefits. 

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Through retirement plans, like a 401k or other tools, you can build investments for yourself. With group health insurance, you can share the costs of coverage. And other benefits, like life insurance or disability insurance, protects you from the worst scenarios in life.  

But as you expand, it requires recognizing the right way to grow. As a business owner, if you have employees, for instance, and you have a SEP IRA to invest in retirement, that can change the amount you’re paying employees. 

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Since you must provide employees the same rate that you give yourself, it adds requirements to your ownership increasing the cost of hires.

This doesn’t mean it has no value. Instead, like most tactics within the practice, it’s recognizing the full impact as you grow.

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This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult their own attorney, business advisor, or tax advisor with respect to matters referenced in this post.

Ryan Derousseau, CFP®, is a fee-only financial advisor at United Financial Planning Group, where he specializes in working with therapists, private and group practitioners, and the self-employed, enabling them to thrive financially so they can focus on clients. You can join the Private Practice Owners Skool community, where he provides courses and financial guidance, or contact him directly via his website www.ThinkingCapFinancial.com.

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