Profit & Loss – Do You Know How Much You’re Really Making?

October 21, 2014 in Managing Your Practice

P&L Statement for private practice

You see Mr. Jones for his weekly session and he swipes his credit card to pay your fee. Ms. Smith writes you a check when she comes in. XYZ Insurance company pays you through EFT directly into your bank account. You pay your rent, buy office supplies, pay your liability insurance and write a check to the phone company, and your internet provider auto-drafts your monthly payment. Money comes in and money goes out. But how is your practice really doing financially? It can be hard to keep track as you juggle patients and the responsibilities of running your practice, but it’s critical that you know where you stand.

Many therapists assume that if there is money left in the checking account at the end of the month and the bills are paid, they are on solid financial footing and will remain that way. The most successful therapists monitor the financial health of their practices on a regular basis. They know that market changes, economic pressures, and rising expenses can quietly chip away at the profitability of their practice while they go about the business of providing care to their patients.

The Power of the P & L

Other than balancing your checkbook and preparing your taxes, how do you stay on top of how your practice is faring? One of the best tools for determining how solid your practice finances actually are is a Profit and Loss Statement. A Profit and Loss Statement, or P & L, provides a quick snapshot of the money you are taking in and the expenses you are incurring.

It boils down to:
Revenue less Expenses = Net Income

“P & L” can sound a little daunting, but it’s not just a tool for CPAs and MBAs, and it’s really not that complicated. It’s a simple way to take the guesswork out of monitoring the health of your practice. Here are three key reasons a P & L is a great way to monitor how your practice is doing financially:

1. It gives you a clearer picture of your true earnings and expenditures
In the rush of a busy practice, taking payments and paying bills, it can be difficult to grasp the big picture. A Profit and Loss Statement clearly distills your finances into exactly what you are earning and spending.

2. It helps you spot financial trends in your practice
Things change over time. Reimbursement changes, patient headcounts change, and expenses often increase. All of these things cause subtle shifts in your bottom line that may not be easy to spot on a day-to-day basis. These changes will be reflected in the P & L.

3. It helps you make financial adjustments
Because it helps you spot patterns and trends, the P & L allows you to make adjustments as things change, allowing you to keep your practice nimble and viable.

The Nuts and Bolts of the P & L

There are slight variations in formatting, but a basic P & L for a private practice might look something like this:

profit and loss statement for private practice

As you can see, the P & L not only accounts for what money is coming into your practice, but where that money is being spent. The format of this particular report includes a column with percentages on the right- these indicate how much of a chunk particular areas of spending are eating up your profits.

One of the great things you can do with the P & L over time is watch for trends in revenue and spending. When your bills are auto-drafted from your bank account or you’re hastily writing checks, it’s easy not to notice subtle rate increases from your Internet service provider or cell phone carrier, for instance. As some of the expenses start to creep up on the P & L it will be more obvious to you.

This let’s you take action- switch cell carriers, renegotiate your rate plan with your Internet provider, reconsider membership in organizations that demand dues but don’t benefit your practice all that much, talk with a tax professional about lowering your tax burden, etc. As for revenue, evaluating your fees, insurance participation and other aspects of your practice may be in order if you start to see a decline in the revenue portion of the P & L report.

profit and loss statement for private practice

A Profit and Loss Statement for Your Practice

If you’re ready to stop guessing about where you stand financially, there are a number of easy ways to prepare a P & L for your private practice. If you use Microsoft Excel, you can track your income and expenses using an Excel spreadsheet (although this is the most labor-intensive method). Most small business accounting software packages provide built-in P & L reports for convenience (as you enter income and expenses over time, the report will reflect those numbers). If you work with an accountant, ask to see your P & L and discuss the report with your CPA.

However you build your report, monitor it at least quarterly. Knowing what’s really going on with your revenue and expenses can help you keep control of your practice and make smart financial moves that keep your practice going strong.

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Why Referring Patients Away Can Be Good For Your Practice

January 14, 2014 in Managing Your Practice

Referring patients can be good for your practice

In today’s competitive marketplace, the idea of referring away a potential patient and sending him or her to another therapist may seem like a bad idea. After spending countless hours and hard earned money to market your practice and attract potential patients, the idea of referring a patient seems counterintuitive, but there are situations in which referring a patient is much better than taking the patient on yourself.

In today’s post I’ll explore some of these situations and how you can evaluate patient flow in your practice to benefit both you and potential clients.

Come One, Come All

Most therapists begin their private practice by taking on any and all patients that they can. Whatever referrals they receive, whoever happens to call for an appointment, any and all patients will be welcomed. This approach certainly makes sense when trying to build your caseload and bring in much needed cash flow. It does have some draw backs, however: a scatter-shot approach to accepting patients makes it extremely difficult to focus your marketing efforts and can sometimes lead therapists to accept cases well outside of their comfort zone. This in turn leads to increased stress for the clinician and less desirable outcomes for patients.

Perhaps this has happened to you. You receive a call from a potential patient and there are a few “red flags” over the course of your conversation. Something tells you that the patient is not a great fit for your practice (maybe a little outside the scope of your training, not the typical age of patient you see, the call is for couples therapy and you’re not a couples therapist, you suspect there may be payment or scheduling issues, etc.) and you have that nagging feeling that it’s going to be a struggle. But, your patient count isn’t where you’d like it to be, so you press on and accept the patient, set up an intake appointment, and brush aside your doubts.

While it’s not necessarily going to be a disaster every time you accept a questionable intake, here’s what the fallout of accepting an inappropriate patient can be:

  • Your stress levels may go WAY up. If it turns out the patient is truly a bad fit for your practice, it can affect how you deliver therapy services to your other patients and spill over into other areas of your practice and personal life. Time and time again, I’ve seen therapists spending hours and hours focused on one or two patients they “knew” they shouldn’t haven’t taken on as patients- hours that detracted significantly from running their practice and serving their other patients. Sometimes these situations can be an opportunity for professional growth through peer consultation, but, sometimes, they are just frustrating for patient and practitioner alike.
  • Your reputation as a competent practitioner may be damaged. Let’s say you’ve agreed to see a patient whose treatment needs might be pushing the limits of your training. Perhaps you had a class in grad school that was marginally “related,” or maybe you took a continuing ed course that covered something similar, but when the call came in, you knew the patient was going to stretch you to your limits and then some. Sure enough, sitting with her in the intake, you find that you’re in over your head. A few sessions in you feel stuck, unsure of how to proceed, and your patient is frustrated with the therapy. After all, you told her you could handle her case. Word-of-mouth is a powerful referral force, both positive and negative, and you can imagine what your patient’s take is going to be on her experience with you.

    NOTE: Most states expressly prohibit practicing outside the scope of your competency (there are sometimes exceptions for emergencies or in cases where other providers are not readily available in underserved communities).

  • You may damage your brand. Let’s say you’ve invested in a website, a lovely office and furnishings to match, and targeted a very upscale clientele. Then you agreed to see a few patients at less than half your rate in order to fill space on your calendar. One has tried to smoke in your waiting room, another left her two kids in the waiting room eating fast food meals on your suede couches, another has peppered other patients with personal questions each time she’s sat down to wait for her appointment. While these are perfectly nice people and you enjoy working with them, the executives you targeted with your marketing are uncomfortable sharing the waiting room with them. They expected discretion and professionalism as you had advertised. You’re spending a lot of therapy time with your reduced-fee patients discussing all these boundary issues– which may be a good thing, but it can feel pretty frustrating. Now you may face the prospect of losing some of your core patient base because you deviated from your plan.
  • You may create a collection headache for yourself or a financial burden for your patient. What you charge is what you charge. While your ethical code likely prohibits you from discriminating against anyone based upon their socioeconomic status, it probably also says that you are to advise patients of your fees and their payment responsibilities as part of the informed consent process. I would argue that informed consent should start during the patient screening process. This is the time to begin communicating your fees and payment expectations. If there are “red flags” during the screening process indicating that a potential patient’s ability to pay will place a limitation on your ability to provide him services, this should be discussed. Better to make a referral rather than initiate therapy, take on the inherent risk of a new client, as well as the likelihood that you will not be paid in full for your services. The client will be better served by seeing a clinician with whom he can establish a long-term relationship that will not strain his budget or encourage him to take on credit card or other debt in order to obtain services. Often, patients are unaware that services are available at different price points through different providers, that therapy may not be covered under a small copay under their health insurance plan as are other services, or that therapy may not be a brief process. Helping consumers make the best use of their mental health dollars is an important responsibility- and that may mean making an ethical choice to refer an individual elsewhere.

  • You may create a legal entanglement for yourself. Patients embroiled in complicated legal situations who are seeking “therapy” sometimes confuse the role of a treating therapist with the role of an expert witness. If, in screening a patient, you discover she has an expectation that you will be called to testify on her behalf or on behalf of another party in a legal proceeding, your role as a therapist should be clarified. If the patient needs a clinician to provide expert witness testimony they should be referred to a clinician who provides such services.
  • You may be creating a scheduling problem for yourself. Potential patients who make unusual or extravagant demands about intake scheduling or your availability for follow-on scheduling during the screening process may be telegraphing information about what kind of scheduling issues you may have with them once they become actual patients. While careers, kids, and other factors do make it difficult for some individuals to find times that work with their calendars, if you find yourself doing back-flips to accommodate a new patient, you may be setting yourself up to do a lot more accommodating in the future. Likewise, a patient who cancels an intake appointment might be given the benefit of the doubt once, but you may be borrowing trouble if you let it happen again. If your hours clearly don’t sync with what the patient needs it makes much more sense to refer to a provider with whom she can keep consistent appointments.
  • The Upsides of Referring

    Now that we’ve talked about some of the downsides of keeping a patient that isn’t a good fit for your practice, let’s talk about some of the rewards that can be found in referring patients to other clinicians in your community. Here are some of the pluses of referring:

  • Knowing when to refer shows that therapist has confidence and competence. Seasoned clinicians respect therapists who know their limits and know when to refer a case rather than try to tough it out on their own. When you are working to build your reputation, this can be a very important factor. (Much better to refer than show up on other therapists’ intake paperwork over and over again as the therapist patients saw for three sessions and then quit.)
  • Referring is an excellent way to network. You may have found that it’s difficult to connect with other therapists in your community. Often, therapists are busy running their practices and each practice operates in its own little bubble. Being Robinson Crusoe on your own little practice island can be difficult when you’re starting out. A very effective way to reach out to other therapists is through patient referrals. As I mentioned above, it inherently displays your commitment to practice competently and offers you the opportunity to communicate with other professionals and begin building a network of therapists in your area.
  • Referring displays competence to patients. As you begin to learn about and build your referral network, you’ll be able to more deftly handle calls from patients with “tricky” presenting problems or needs that are outside of the scope of your practice. Consumers appreciate referrals and providers who have the professionalism to provide them. While you may not be able to help a particular caller, they may have a sister or a coworker who needs the kind of therapy you provide. Going the extra mile and having the knowledge about where to refer can make a difference in whether or not you get the follow-on patient.
  • Screening

    A lot of headaches can be avoided by conducting a thorough telephone interview with a potential patient before committing to working with them. (Insist on talking with the patient himself/herself if it is an adult and a family member is booking the appointment.) I can’t stress enough how important it is to put the brakes on if you see any red flags in the course of that interview. A presenting problem that’s outside of your scope of practice, scheduling, payment, or other expectations that you can’t meet are all reasons to refer. Patients deserve to see a therapist who can meet their needs therapeutically, financially, and in terms of scheduling availability. You absolutely cannot be all things to all patients.

    The more of these screening interviews you conduct, the easier it will be to spot trouble headed your way. You’ll also start to get a feel for which patients will be a good fit to refer to Dr. Smith or Dr. Jones. Time spent screening is an excellent investment in your practice. It builds rapport with those patients you do accept into your practice and it builds good will with the community for those patients you refer to other providers.

    Copyright © 2014 Real Psych Practice LLC

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    Should I Go Into Private Practice?

    December 4, 2013 in Starting Your Practice

    should i go into private practice

    One of the questions I’m frequently asked is “Should I go into private practice?” I get asked this question by a wide variety of folks. Everyone from grad students to seasoned therapists wants to know if I think they will “make it.” Perhaps you’re at a point in your career at which you’re asking yourself this very question.

    First, let me tell you that there is no secret formula for having a successful private practice– anyone that tells you they’ve found THE tried-and-true formula is probably selling something. There are however, some core attributes I see time and time again in those therapists that do “make it.”

    Over the years, I’ve found that the practices of therapists who “make it” don’t all look the same. They don’t all have the same degrees or specialize in the same area of practice, but they do share some common traits.

    When a practitioner is considering going into private practice I like to talk with them about these characteristics and I’ll share them here with you. Since it’s hard to know what to expect from private practice before you’ve actually experienced it for yourself, this list will hopefully give you some insights. You may already see yourself having a number of of these characteristics right now, and the list may also give you an idea of some areas you might want to work on before starting your own practice. It can make a big difference in whether or not your private practice experience will be a positive one.

    1. The therapist has a willingness to fly without a net.

    Unlike an agency or institutional environment, private practice doesn’t provide a support structure or a financial safety net. Therapists who can operate day-to-day without a formalized structure to support them do well in private practice. They find ways to work things out when there’s no maintenance department to fix things if something is broken, no secretary to handle paperwork, no department director to turn to for answers to tricky questions, no one to tell them what to do with unscheduled time, and no payroll department providing a regular paycheck. They find their own answers to the questions that come up each day and find creative ways to solve problems that arise.

    Questions to ask yourself:

  • Do you require a lot of structure to perform at your best?
  • Do you need the security of a steady paycheck?
  • Do you sometimes have difficulty managing unstructured time?
  • 2. The therapist is willing to ask for help and advocate for himself or herself.

    Being a shrinking violet is not generally compatible with having a successful private practice. Successful therapists are ready and willing to pick up the phone and ask questions or to ask for other assistance if they need it. They will fight tooth and nail against an insurance company that has denied their claims. They will market themselves and their practices without apology. They will develop a network of resources they can call upon for themselves and their patients. In short, they will find a way to get what they need because they know that no one else is going to do it for them.

    Questions to ask yourself:

  • Are you sometimes afraid or embarrassed to ask for help?
  • Are you an effective networker?
  • Can you advocate for yourself if your time, money, or other resources are on the line?
  • 3. The therapist can work in solitude.

    Private practice can be lonely and stressful. When you’ve had a particularly rough session or aren’t sure how to proceed with a tricky paperwork problem, there is no one to turn to when you run a solo practice. Practitioners who are successful find healthy ways of dealing with this isolation. They may find or form a peer consultation group or even enter into their own therapy.Solo private practice isn't easy

    Questions to ask yourself:

  • Do you do your best work as part of a group?
  • Do you find that in order to do your best work you have to bounce ideas and concerns about cases off peers or superiors frequently?
  • Does working by yourself significantly increase your stress level?

    4. The therapist can make tough decisions about patients, finances, and other practice-related matters.

    While they may make appropriate consultations with peers, successful therapists in private practice know that ultimately, “the buck stops here” and they must make the final decision about many tricky issues that arise in the course of their practice. They will gather appropriate information and make informed, professional, decisions and then move forward, confident in their decisions.

    Questions to ask yourself:

  • Do you prefer to let others deliver “bad news” rather than doing it yourself?
  • Do you prefer to allow the structure of your current agency, clinic, or other organization to handle most of your decision-making for you?
  • Are you uncomfortable saying “no?”
  • 5. The therapist has at least a moderate comfort level in talking with patients about fees and other money issues.

    This is one of the most difficult things for many therapists new to private practice. Without an intermediary to handle the exchange of money for services it is often the first time that a therapist ever confronts the issue of money, and truly valuing the services they provide head-on. Charging for missed appointments, collecting on unpaid balances and other tricky issues often trip up therapists who are uncomfortable in this area. Successful therapists recognize the value of their work and expect to be paid fairly for their services.

    Questions to ask yourself:

  • Do you have difficulty with, or significantly dislike budgeting or handling money in your personal life?
  • Do you feel confident in the value of your services and thinking about the fees that you plan to charge?
  • 6. The therapist is realistic in their expectations and financially prepared to start private practice.

    Starting private practice is much more than hanging out a sign and sitting down with patients. Therapists who are successful plan a realistic start-up budget for their new practices, recognizing that they will have initial start-up costs as well as ongoing overhead costs. They know that it will take time to build their caseload and therefore their income. They are realistic about initial income expectations. They are also realistic about how hard they will have to work (especially in the first 3 years of their practice) to get their practice established.

    Private practice budgetingQuestions to ask yourself:

  • Do you have a plan to cover expenses if your income from patients isn’t sufficient to meet your rent obligation or other items in your budget?
  • Do you know how many hours a day you are prepared to invest in your practice?
  • Are your friends and family prepared to support the time and financial investment you will make in your practice?
  • 7. The therapist is willing to evolve.

    The mental health field is constantly changing. There are always new laws, new technologies, new therapeutic techniques, new demands from insurance companies and consumers; they all mean that in order to survive and thrive, practitioners must always be learning. This often places a huge time burden on the therapist in addition to the time spent actually providing therapy services. The therapist must always be learning and applying that new knowledge to his or her practice.private practice ceu

    Questions to ask yourself:

  • Do you generally prefer for things to stay the same?
  • Can you be open to new ideas and concepts even if they may require rethinking previously held ideas and ways of doing things?
  • 7. The therapist is a successful multi-tasker.

    Running a private practice requires the ability to switch gears frequently. One minute you may be in your primary role as a therapist, and the next you may be called upon to fulfill your role as a businessman (or woman) and make important decisions about marketing your practice or about how you will handle a tax situation that impacts your practice. Successful therapists are able to make these shifts from task to task fairly seamlessly. They find ways to organize their practices so that they are able to serve their patients well and maintain a successful business at the same time.

    Questions to ask yourself:

  • Do you have difficulty shifting focus from one project to the next?
  • Can you juggle multiple priorities in a rapidly changing environment?
  • 8. The therapist practices good self-care.

    Private practice and especially solo practice can be very stressful, and, as I mentioned above, isolating. The therapists that truly succeed develop healthy ways to cope with this stress. Whether it is through exercise, a cooking class, photography, a peer consultation group, or some other healthy outlet, successful therapists find ways to deal with their stress and recharge their batteries on a regular basis. Most therapists that have been practicing for any length of time will tell you that they do not seek out a great deal of social interaction after working with patients all day, but they do pursue healthy hobbies and a smaller number of supportive, close relationships. These healthy habits and relationships allow them to return to therapy refreshed and recharged.

    private practice self careQuestions to ask yourself:

  • Do you have supportive relationships that can help you cope with stress?
  • Do you have healthy interests outside of your work that allow you to recharge?

    9. The therapist is willing to face his or her own fears.

    Opening a private practice is scary. Yes, it’s exciting, but, ultimately, you are putting your name and reputation on the line when you print up those business cards and declare to the world that “this is my practice.” All of your years of education and whatever time you have spent honing your craft, as well as the time and money you invest in your practice, will be on the line. It’s a daunting thought. Successful therapists will recognize that this apprehension is a normal reaction to taking this big step. Rather than being cowed by their fears, they will identify the specific issues that are troubling them and take appropriate steps to work through them.private practice fears

  • Do you feel prepared to address the possibility that your practice may not go exactly as planned?
  • Do you tend to over-personalize criticism?
  • Do you tend to see setbacks as obstacles or do you view them as opportunities to learn?

    So, are you asking the question, “Should I go into private practice?”

    I’d love to hear your thoughts and concerns about taking the big leap based upon this post or your own concerns. Post a comment below or ask a question privately by writing to me via the “Ask a Question” page.

    Copyright © 2013 Real Psych Practice LLC

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