Common Mistakes to Avoid When Starting a Private Practice
Finally, you’re in business for yourself. Congratulations! Starting a private practice can be one of the best decisions you’ll ever make. There’s something so satisfying about being your own boss and providing a much-needed service for your community. You have the freedom to work with whomever you choose, whenever you choose.
But before you can start celebrating, there are a few things you must consider when opening your private practice. Let’s look at the most common mistakes that private practitioners make, especially within the first year of starting up. We’ll also share some tips on how to avoid making these mistakes in the future.
Not Investing Money Into Your Startup
Think you can build your private practice for $100? Think again. While there’s a popular notion that you can bootstrap your business for an impossibly low financial investment, it’s best not to start your private practice under the premise of “going as cheap as possible.” For example, you need a quality office space for your practice. You definitely don’t want to set up your practice in a dimly lit back office in the seedy side of town. Choosing a cheaper office space may save you money, but it won’t do much for inspiring trust with your clients.
Instead of investing the least possible amount into your practice, remember that what you put into your practice now will pay off in the future.
Let’s take a look at some of the costs you’ll likely encounter during the first year of opening your private practice:
- Business Entity Formation (i.e. LLC)
- Lease/ Rent Office Space
- Office Utilities
- Office Supplies
- Office Equipment & Furnishings
- Practice Management System
- Marketing Costs
- Accounting Costs
- Liability Insurance
- Health Insurance
- Renter’s Insurance
- Business Taxes
Starting Out Full Time
Some of you will be ready to start your private practice on a full-time basis. However, for the majority of therapists, it’s better to ease into private practice. As discussed in the above section, you’ll need to assume a huge amount of financial responsibilities. In fact, you’ll need to pay for most of these before you even meet with your first client. How will you be able to afford it?
Consider starting on a part-time basis. For example, you can cut a considerable amount of costs when you sublease your office from another therapist on a part-time basis. Plus, it will eliminate the need for purchasing office equipment and furnishings.
Working on a part-time basis also allows you to supplement your income by working full time elsewhere. Also, a soft start gives you the chance to learn how to run a private practice. The biggest drawback is that you won’t have a lot of free time when you’re working two jobs simultaneously.
Not Having Enough in Savings
In addition to your startup expenses, think about how you’ll make ends meet while you’re getting your business off the ground. You still need to eat, live, and finance your personal life while starting up your private practice. Far too many new private practitioners rely on credit cards to supplement their income until they can make money from their business. But who wants to go into credit card debt?
The best way to avoid credit card debt is to start saving as soon as possible before you open your private practice. Ideally, you need enough savings to cover a year’s worth of personal expenses. Calculate how much you pay in food, housing, and other personal needs in a month’s time and multiply by 12 to arrive at a rough estimate of how much you should have in your savings. You’ll rely on these savings to keep yourself financially comfortable while building your practice.
However, if you’re unable to save this month, consider the previous section and go part-time until you can afford it.
Choosing the Wrong Fee
Continuing on the money train, let’s discuss how you’ll make your income.
Up until this point, we’ve discussed how you can invest in your business and keep yourself afloat while waiting for your practice to become solvent. Now, let’s discuss the biggest financial mistake you can make when starting your private practice: Choosing the wrong fees.
On one hand, you don’t want to alienate prospective clients by imposing impossibly high fees. On the other hand, you don’t want to sabotage your own financial freedom by offering an unsustainably low fee.
Here’s some advice on how to choose the right fee for your private practice:
Take a look at what other therapists in your area charge for similar fees. This will help you understand the community standard of what those in your area are willing to pay for therapy services.
Don’t choose the lowest fee. Competing on price is a race to the bottom, yet no one wins. Instead of marketing based on how inexpensive your services are, remember that clients are willing to pay a premium for other factors, such as reputation, convenience, and superior customer service. You can charge more if you focus your marketing on other aspects of your client care.
Do the math. In order to meet your financial obligations, how many clients will you need to see and at what fee? Think about it realistically and not ideally. How many clients are you realistically able to see in a week? In other words: How many people will book you (and show up)? Also, how many clients can you squeeze into your day without compromising the quality of your care?
In the beginning, when you’re new, you’ll probably work with whoever shows up to their session. But after you’ve built up your client roster, then you can be more selective over how many people you want to see on a daily or weekly basis.
Once you have a realistic number of clients to see every week, choose a fee that will ensure you meet your bottom line.
Consider paneling carefully. While getting paneled with insurance providers can provide built-in marketing services for your private practice, remember that you will be bound to charge what the payer agrees to pay. This will affect how much you can charge your other self-pay clients, too. In other words, your contract may stipulate that you can’t charge the third-party payer one higher fee and then charge other payers (such as self-pay clients) a lesser fee for the same services.
Another important consideration point is that the third-party payer will likely demand a lower fee than the community standard. The benefit is that you’ll likely get more clients. The drawback is that you’ll work more for less. Weigh your options carefully before deciding to get paneled.
To help you decide on whether or not to accept insurance, check out these posts:
- Private Pay or Insurance: Which One Should You Choose for Your Private Therapy Practice?
- What are Insurance Panels and How to Get One
Understand that your fees are not stagnant. Healthy practices raise their fees every year by a small percentage. You can’t afford to charge the same fee when it’s certain that your liability insurance, utilities, and other costs will incrementally increase over time. Here’s how to effectively raise your rates.
Be consistent with your fees. Charge the same fees for all of your clients. It’s a lot less confusing for your clients and you.
Final Thoughts and Additional Resources
Starting up your private practice is an exciting moment in your career as a mental health professional. However, to enjoy your practice for many years to come, be sure to avoid the above mistakes. If you’d like to learn more about setting up your practice, be sure to check out these related resources: