How to Increase Your Income in Private Practice: Three Levers All Practice Owners Can Use
In this podcast episode of Therapy for Your Money, host Julie Herres discusses levers that therapy practice owners can control to increase their income.
- The first lever is the number of sessions provided by the practice, in which an increase should generate higher profits.
- The second lever is the average fee per session, increasing rates should lead to higher income, assuming overheads don't rise.
- The final lever is the allocation of income, more specifically, how much owner's pay they assign themselves.
By skillfully managing these levers and expenses, practice owners can improve their personal income without necessarily needing to increase their gross earnings.
Highlights
00:04 Introduction to the Podcast
00:15 About the Host and Her Mission
00:35 Introduction to the Book 'Profit First for Therapists'
00:51 Increasing Your Private Practice Income
01:08 Three Levers to Increase Your Income
01:44 Lever 1: Increasing the Number of Sessions
03:38 Lever 2: Increasing the Average Fee per Session
05:05 Lever 3: Managing Your Expenses and Allocation
06:40 How to Use These Levers to Your Advantage
07:25 The Importance of a Profitable Practice
08:16 Using the 'Reverse Engineer Your Practice' Tool
09:09 Conclusion and Legal Disclaimer
LINKS & RESOURCES
Podcast Production and Show Notes by Course Creation Studio
Episode 129: Make more money in your practice
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[00:00:00] Julie Herres: You're listening to Therapy for Your Money, a podcast about all things, money and finance for therapy practice owners. If you want to feel confident and in control of your financial life, then you've come to the right spot. I'm your host, Julie Herres. I'm an accountant and the owner of Green Oak Accounting.
[00:00:20] Julie Herres: My firm specializes in working with private practices across the US and my team and I have worked with hundreds of private practice owners. I'm on a mission to share all the best practices I've learned along the way. Because I want you to have a profitable private practice.
[00:00:35] Julie Herres: My new book, profit First for Therapists is available at most online retailers. You can get it in paperback, audiobook, or ebook as well. Go check it out.
[00:00:43] Julie Herres: Hi there. And welcome back to therapy for your money. Today, we're talking about how you can make more money in your private practice. And so for this conversation, you have to remember, I'm an accountant. I'm not a marketer. So of course there are things that you can do with marketing to make more money in your private practice, but that's not really what we're talking about.
[00:01:08] Julie Herres: So today I want to talk about the three levers that you have control over that will affect the dollar amount that you're able to take home. for yourself. So the amount that you're able to pay yourself, either through payroll, if you are the owner of an S corp or through an owner's draw right? So the, the dollar amount that gets to come home with you to support your personal life.
[00:01:31] Julie Herres: Uh, this is the amount that you'll take home and use to pay your mortgage, your rent, your car payment, put gas in the car, pay for your personal expenses, put food on the table, all of those fun things. So those three levers are. The number of sessions in your practice. That's number one. Number two is the average fee per session in your practice.
[00:01:52] Julie Herres: And number three, the third lever is the percentage or the allocation of your income that you're able to take home for yourself. So I'll dive into this one a little bit more in just a minute. So let's go over each of those levers. Lever number one, the number of sessions, this is pretty self explanatory, right?
[00:02:12] Julie Herres: One of the ways that you can increase the dollar amount you take home is just to increase the number of sessions in your practice. This works whether you're in solo practice or in group practice. So as long as your practice is set up in a way that each additional session will create some profit in the business, then for each additional session in the practice, you should be able to take home a little bit more money.
[00:02:34] Julie Herres: And when I say, as long as your practice is set up to make more money with each session, uh, this adding more sessions, if you're in a situation where you are losing money on a specific clinician, uh, or, or multiple clinicians, then that might not have the desired effect, right? So I'm talking about kind of most run of the mill situations where Sure.
[00:02:56] Julie Herres: You may have to pay your clinician for that additional session. There may be overhead costs, but ultimately there is a profit for that session. So it is contributing to the bottom line of the practice. So in this example, that's one of the levers that you can pull. You can say, if we add sessions to the practice, uh, you should reasonably able to expect to take home more money.
[00:03:16] Julie Herres: Uh, it's a lot more of a direct correlation in solo practice, right? Of course, if you see more clients, you can. bring home more money, but it also does really work in group practice where if you go from 400 sessions a month to 500 sessions a month, yeah, it's reasonable that you would be able to take home more money because there's just more money flowing through the practice.
[00:03:38] Julie Herres: The next lever is your average fee per session. Uh, and so when we look at, when we calculate that number, I usually take a look at what is the dollar amount that came into the practice last month. Divided by the number of sessions in that month. You can do that for last month, last quarter, last year. Uh, I noticed that the, the longer period you use, the more accurate it's going to be, but there's typically not a huge amount of variation unless there's something like a billing problem in the business.
[00:04:08] Julie Herres: Typically you're going to see just a little bit of fluctuation up and down as the months go by. So it might go from. 124 to 125 to 124. 75, right? So it's just going to go kind of up and down around the same number. So in that case, if that was your situation, you might use 124. 50 as your average, uh, because that is kind of in the middle of all three of those.
[00:04:33] Julie Herres: So if you are able to increase the average fee per session by either raising your rate, getting a raise from insurance, or even dropping lower paying panels to increase your average rate, that should also increase the amount of money that you can take home. This is especially true if Doing so will not increase your overhead expenses.
[00:04:54] Julie Herres: So again, this works well in solo and in group practice as well. If your average fee per session goes up, realistically, you should be able to take home more money as well. That third lever is the percentage or allocation that you're able to use. For yourself, for your pay as the owner. So this is the item that's just a little bit harder to visualize.
[00:05:18] Julie Herres: I think of this from a profit first perspective where each dollar of income that is coming into the practice has an allocation to a profit first account. You can use this number, whether you're doing profit first or not in your business, but I think of it from that perspective, every dollar coming in has an assignment.
[00:05:36] Julie Herres: Uh, so in profit first, the bank accounts are. Operating expenses, payroll for the team, owner's pay. That's the amount that goes to you. There's tax and profit. So those are the five accounts that you're typically going to have, uh, beyond the income account. So every time you transfer money, there's a percentage that is going to that owner's pay account.
[00:05:58] Julie Herres: That's the dollar amount that's intended to support your day to day living expenses. So even if your number of sessions And your average fee per session stay exactly the same. If you're able to better manage your expenses, meaning that you might be able to reduce your operating expenses allocation and increase your owner's pay allocation, all else staying the same, you might make.
[00:06:23] Julie Herres: More money, even though the gross income coming into the business is exactly the same, you're able to take home more because you're allocating less to things like operating expenses. And so that's one of the additional ways that you're able to pay yourself more. So, I want you to think of these three levers as options that you can play around with to see what's going to work with you.
[00:06:46] Julie Herres: You can pull one lever and see what that does, pull the other lever, push all of them, all three of them at the same time, but all three of these things, you have some degree of control over. Uh, it's possible though that you're thinking, well, you know, I don't really have control over the average fee per session lever because I don't.
[00:07:06] Julie Herres: Think I'm going to be able to get a, an increase from insurance. Then even in that case, you still have the other two levers that you can play around with. So you can increase the number of sessions, or you can still look at how your funds are going to be allocated. in the business to be able to serve you.
[00:07:25] Julie Herres: As you know, I am a big proponent that your practice should serve you and that you deserve to have a profitable practice. This episode is really about you making money. Your practice should be able to support you, uh, beyond after the first initial couple of months, right? Maybe as you're just starting your practice out and you're just, uh, getting things off the ground.
[00:07:48] Julie Herres: It is possible that it's not fully able to support you, but beyond the first couple of weeks or months, your practice really does need to be able to, uh, to support you and your personal life, put food on the table, all of those really, really important things. And I want you to think about designing a practice that can do that.
[00:08:07] Julie Herres: So with the thought of these three levers, just push and pull one or the other. Make your practice take care of you. Uh, what I've talked about today is also included in one of the tools in Profit First for Therapists, my book. Um, and so if you want to grab the Reverse Engineer Your Practice tool, that is something that is available for completely free at ProfitFirstForTherapists.
[00:08:33] Julie Herres: com slash tools. This is a tool that you're able to use to reverse engineer your practice using those three levers. So it's going to look at. What number of sessions do you need in your practice in order to be able to give you the take home pay that you would like? How do things change as your average fee per session changes?
[00:08:51] Julie Herres: You can use that Google Sheet to change test out different average fee per sessions and see how the number of sessions that you need in the practice changes. So you can use that tool to kind of play around with all the different scenarios and think about what This next version of your practice should look like.
[00:09:09] Julie Herres: All right, thanks for listening in today. I'll see you soon.
The information contained in this podcast represents the host and guest general opinions and should not be construed as personalized accounting and tax advice. Listeners should consider all facts and circumstances before applying this information and seek appropriate advice from an accountant, financial planner, lawyer, or other professional.
Any info provided does not constitute accounting, tax, or legal advice.