What’s the financial health of your private practice?
Are you making money or losing it?
What expenses can you cut?
Is there any wiggle room in your budget to make new purchases?
If you’re not immediately ready with the answer to the above questions, you’ve come to the right post.
Right up there with offering incredible service and building loyalty with clients is knowing how much money you’re making or losing at any given time.
It’s not enough to know what your private practice made last year. You must know what it made last month, too. Armed with updated information about your finances, you can make changes that will positively affect your operating expense ratio.
Performing a financial checkup on your private practice may not be the most exciting thing you’ll do this week, but it will be one of the most essential. Right now, you probably dread the idea of taking a magnifying glass to your finances because you’re not sure where to start. Today, let’s change that. We’ll start at the beginning, detailing what you need to do immediately to ensure solvency.
Excited? Let’s do this!
How much money is coming in?
To answer that question, let’s take a look at how many clients you have and how they pay for your services. Either you do private pay exclusively or you’ve opened your private practice to insurance companies.
Do you know your average revenue per visit, per payer?
For example, how much are you paid on average per encounter from Blue Cross Blue Shield? To calculate your average, divide the total payments you’ve received from this specific payer by the number of encounters within a time period. This will give you an accurate assessment of your average revenue per visit from Blue Cross Blue Shield.
Here’s more information about calculating your average reimbursement rate.
Continue calculating for every payer in your system to determine how each contributes to your revenue.
While Blue Cross Blue Shield may bring in 20% of your clients, you’re only making an average of $100 per encounter. On the other hand, Aetna may only contribute 15% of your clients but have an average of $150 per encounter.
It may benefit you to shift your payer mix, and accept more clients from the payer who pays more per encounter.
Or you may decide to get rid of all insurance payers and adopt a private pay strategy instead. If you’re interested in learning more about private pay, check out this post on the topic: Will Your Clients Benefit from a Self-Pay Strategy?
What are your expenses?
The next step in the process is to understand how much money is going out.
For most private practices, the biggest cost is staffing. Not only will you need to pay your own salary, you’ll also need to pay your support staff.
Managing staffing costs can be tricky. On one hand, you should reduce redundancy as much as possible and only hire to fulfill a need. On the other hand, you don’t want your private practice (especially your clients) to suffer from long hold times, unreturned phone calls, or an overworked and unfriendly front desk upon check-in.
Spend a two to four week period evaluating your front office needs. During this time period, ask yourself:
Is it busier in the mornings/afternoons, or is there a steady stream of work throughout the day? If either the mornings or afternoons are busier, you may not need to pay for two full-time front office staff. Instead, keep one staff member full-time but only schedule the second staff member to work on a part-time basis, during your busiest times.
Does your front desk staff spend an inordinate amount of time chatting with each other? Lots of free time indicates that there’s not enough work to justify the extra staff.
Reducing your staff won’t be an easy decision, but it may be the right one.
While staffing is often the biggest expense, you’ll also need to take a serious look at other expenses. Some expenses may be fixed, such as your leasing agreement and malpractice insurance, but other expenses are more flexible.
How much do you pay in supplies each month? This list includes paper, ink, toner, postage, and toiletries.
What do you spend each month on marketing? Do you see a measurable return on your investment? It may be a good idea to rethink your marketing budget and shift your resources to the avenue that brings you the most clients.
For example, are you doing both online and offline marketing? It may be better financially to focus on only one to reduce costs. Go with the one that’s more profitable to your private practice.
Can you reduce work hours by embracing technology? Making a one-time software purchase can reduce how much staff you need to employ.
How much time do you spend per client?
Take a close look at your productivity throughout the day. How much of your day is spent in face-to-face client care? Do you spend three hours with clients but six hours billing, taking notes, coaching staff, tinkering with your website, and strategizing your marketing campaign?
When you’re running a smaller private practice, you must wear multiple hats, but taking time away from client care will negatively affect your revenue.
Financially speaking, the most productive part of your day is during your face to face time with a client. Everything else in your private practice depends on it. Are you maximizing the amount of time you spend in client care?
While you may be saving money by DIYing your website design, for example, it may make more sense financially to hire a company to do it. Think about how many hours you could spend designing and troubleshoot a website (it could be upwards of 10 hours). Now, consider how those hours could be used in direct client care.
You could bring in an extra $1000 or more– less than the amount you’ll spend in hiring a web design firm. By the way, we recommend Brighter Vision if you’re in the market for an affordable website solution.
Tackling your finances can be difficult to do initially, but you’ll be so glad you did. Knowing your financial health can empower you to make smarter decisions for the future. Explore TheraNest’s private practice billing software to learn how to better monitor your finances and ensure profitability.