Now relax, you don’t have to get a second degree in accounting or take MBA courses to figure this out…but you do have to pay attention well enough to be able to answer a few key questions.
1. Referrals and Marketing
Do you have an effective and cost efficient plan for bringing clients into your practice?
To answer that question you need to know three important pieces of information.
-the amount of time and money you are investing on marketing
-the number of new client inquiries
-the number of new clients scheduled
Knowing these three numbers will give you a sense of whether you are getting the best return on investment for the time and money you are putting in to growing the volume in your practice. Once you establish a baseline and start tracking these numbers, you will be able to see patterns emerge. Not only will you know how many new people are learning about you, you will see what percentage of them actually schedule an appointment. You may find that certain referral sources are a better fit for your practice than others.
How much money/time have you invested in marketing your practice?
How many new clients call you each month…even if you are not able to see them?
2. Client Balances
How much money are you losing in your practice?
To answer this question you have to take an honest look at the total amount of outstanding money owed to you for work you have already done. This is a tough one and it requires that you have good systems in place to really track what is happening with client accounts. Whether you are a cash only practice or an insurance based practice, you will need clear policies to ensure you are being paid in a timely fashion by your clients.
Conversations around money can be so challenging for private practice owners. But you owe it to yourself, your practice and your clients to establish clear policies on fees and payment so that you can monitor accounts carefully and hold clients accountable to their balances.
When clients owe balances that you are having to track and collect on…it’s an indication that it is time to improve your upfront payment procedures. Its not just the policies you establish but how you enforce them that matters. Often times, I see mental health professionals struggling to become comfortable with the monetary aspects of their businesses. In truth, Money Mindset for private practice owners can be crippling. Click here to learn more about what I call “Counselor Kryptonite”
3. Practice Management Systems
Speaking of those balances…having a solid practice management system in place is essential to your practice’s financial health. A good practice management system will track not only patient balances but balances for insurance companies if need be. It doesn’t have to be top of the line, but it has to be robust enough to track important metrics in your practice.
You need to be able to see who has a balance and how old those balances are. I have learned the hard way that the longer a balance exists, the less likely you are to collect. My accountant calls that aging. Who knew a youth bias existed in accounting too?
If you want to measure how efficiently your practice is being paid, your system should be able to run reports that allow you to view your total accounts receivable (AR).
Once you are aware of the weak areas in your revenue collection…you can begin to develop a plan to address it. But you can’t fix what you don’t see.
4. Budgets and Breakevens
Do you know what your breakeven is?
In your practice, you will have ongoing expenses. The breakeven is the point where the money you have earned is sufficient to meet all of the needs of your business. It is an important number too! Only after you have meet your expenses will any of your earnings start to qualify as profit.
So let’s do the math… how many clients do you need to see weekly in order to breakeven? To do this, multiply your hourly rate (cash pay or average allowed amount) by the number of clients you see in a week. If the numbers don’t add up to a profit, then it is time to adjust expenses or find alternative streams of income.
Be sure to factor in variables such as the average number of clients who cancel or no show in any given week.
5. Goal setting
Let’s talk about what goes into a budget. When you are setting up your budget, be sure to include your income as a part of your overhead expenses. So many clinicians forget that and approach their businesses by putting themselves last. I have been there. Over time, this approach will land you in trouble.
Start by budgeting what amount of take home income you require in order to take care of your household needs. In the beginning it may be that all of your income is not coming from your practice. It can take a few months or even a year for a practice to gain enough traction to become profitable. Knowing the numbers gives you a real way to measure how well your practice is doing when it comes to taking care of you.
If you are positioning yourself to grow a group practice, set goals for your business that can signal to you that it is time for growth. Once you have a certain number of consistent referrals, will it be time to add another clinician? Once you have achieved a certain amount of profit, will you add additional administrative supports so you can delegate some of the tasks that need to be done but don’t require your expertise to do them?
A final note about selecting accounting software
We have talked a lot about numbers…but I would be remiss if I didn’t mention that you are going to need a place to store all of these numbers. Your business will absolutely need scalable accounting software that will grow with your practice. Accounting software will make it easier to run reports and track results in your practice easily. Accounting software is not the same as the Practice Management Software we discussed earlier. The accounting software is something like Quickbooks, FreshBooks, Peachtree…that is going to connect with your business account and track all incomes and expenses.
Everyone has a favorite system to recommend, but at the end of the day, the best accounting system or practice management system is the one you will actually use. All those bells and whistles are of no good to you if you aren't comfortable using them on a daily basis. There are enough options out there that with a bit of research you can find something that fits your work style, your practice needs and your budget.
One last thing...be willing to be a beginner. Start where you are with what you have and move forward from there. You will learn so many new things on this private practice journey. Try not to get discouraged or overwhelmed. Hang in there. It is so worth it.