Your practice is not profitable, not cash flowing – now what?
There’s 3 levers (and some “sub-levers” which we won’t get into here) that you can pull to improve your practice profitability & cash flow. It may feel that profitability is unachievable or far off, but these levers will move the needle in the right direction.
The first lever may seem the most obvious and it’s what most “coaches” or consultants will say first.
Lever #1 – Increase revenue.
Simple to say, but how?
In a private practice, this may not be straight forward, especially if you’re insurance based and your rate of reimbursement is not customizable.
So, how to increase revenue?
1) Increase sessions from your therapists
2) Raise rates (if private pay), or, negotiate with insurance (if possible) (shoutout to Jeremy Zug on this side of things, he’s the expert here!)
3) Short term – owner should increase the sessions they’re completing
First, take a deep dive on your therapist’s capacity – who has room for more sessions, who needs coaching to bring on more capacity? Fill in those capacity gaps.
Two, look at your client pipeline. Are you bringing in enough referrals to fill up your therapists? If not, what can you do in the short term to pump this up? (Gifting in your referral network is my favorite right now, but that’s a different post). Read Giftology by John Ruhlin.
Third, in the short term, you as the owner are the most profitable. Bump up your sessions to fix a short-term cash emergency. This is not a long term fix. But, if you need cash, this is the best way to start bringing it in while bumping up team capacity.
Finally, take a look at your team’s retention. If the pipeline is healthy and they have capacity, are they keeping clients? Use a tool like PracticeVital to track this and make sure all those new clients aren’t churning right out.
There’s more, but this is a start to bump that revenue by 10% or more per month. Adding 10% more in revenue can drastically increase your practice profitability, but allowing you to more easily get over the “hump” of therapist compensation and operating expenses.
Lever #2 – Therapist Compensation 👇
The biggest hurdle that holds a group practice from the profitability and the cash flow the owner desires is therapist compensation that is too high. That’s right, it’s possible to be too generous.
Generosity is great and needed in business, but so is profit and cash flow. Without these, there is no business.
The benchmark we try to keep practices below is 60% of revenue going towards therapist compensation. This includes benefits, taxes, wages…total compensation.
So if you’re above that (many practices are), what do you do?
Cutting compensation is rarely a possible move if you want to keep your therapists, but can you restructure your compensation?
💵 Add a performance based bonus and lower base pay?
💵 Subtract out non-essential benefits for flexible stipends?
If your practice has a healthy culture these changes can be doable.
The problem is, you need to know your numbers to make changes.
As a first step, you need a tool to help you track where compensation currently is and to start looking at tweaks and options you can do.
Here it is –https://navigatingyourbooks.com/clinician-profitability-tool/ 😎
That’s a link to our Group Practice Compensation Tools and it may be the single most helpful tool to move you towards practice profitability.
It has:
🔥 The Clinician Profitability Tool – Our most popular tool (we use it every day, all day) so you can see how compensation works across your team and how to tweak it to make it work better
🔥Clinician Compensation Calculator – This is a new add-on, if you want to show clinicians how their compensation works, how much they can make in a particular situation – this is for you. It’s an employee facing tool to help you start transparent conversations with your team, craft offer letters, and more.
Check out those tools, use them, watch the tutorial, then start taking a deep look at your therapist compensation.
It’s the most difficult lever to pull in your practice, but I also can tell you with confidence that if you figure out this part of your practice, you’ll be able to figure out consistent profitability & cash flow and move towards more practice profitability.
Lever #3 – Reduce or Optimize Operating Expenses
Will it move the needle further in your practice to cut a subscription at $20/month, or optimize therapist compensation by 1%? Therapist compensation will always win that battle.
This is not the most powerful of the three levers of practice profitability (this being the third and final lever I’m sharing).
That being said, looking at optimizing your operating expenses (OPEX) is still a helpful exercise.
One simple way to optimize these, is to pull your profit & loss for a period of time (quarter, half year, full year) and export all transactions in your expenses to a spreadsheet.
Then, either print off this report, or start moving through the spreadsheet.
a) Highlight anything that is essential as green
b) Highlight anything that could be downgraded or you could find for cheaper somewhere else as yellow
c) Highlight anything that is not necessary as red
Going through this exercise at least 2x a year will help you be intentional and aware of where your OPEX spend is going each month and confirm that those hard earned revenue dollars are only going towards what is necessary in the practice.
A few tips and areas to look at specifically:
1) Software & subscriptions are the most common area we see “unintentional” spending – this can mean subscriptions that were meant to be cancelled, prices that have gone up unexpectedly, and tools that are not being used
2) Meals & Travel are another common area where spending can quickly skyrocket – make sure you have guidelines in place to keep this in bounds
3) Office supplies can quickly take over your OPEX spending for your practice. If you’re furnishing your own space, consider moving slowly – if someone on your team is furnishing an office, give them clear budgets and expectations.
Finally, a few helpful benchmarks for you to consider your OPEX spending compared to industry averages for mental health practices.
1) Your admin team should cost around 5% of your revenue on average
2) Your advertising should cost around 2-5% of your revenue on average
3) Your rent should cost around 4-7% of your revenue on average (small practices may be higher here)
How do those benchmarks feel for your practice? They do vary between small, medium, and large practices. If you’d like more specific benchmarks, leave a comment or shoot me an email and we can personalize these as needed to your practice.
Pulling these 3 levers in your private practice will help move your practice towards increased cash flow, increased practice profitability, and more confidence in your counseling practice’s finances. None of these are easy to implement, but, putting in some intentional time on optimizing these levers will save you buckets of time and loads of cash in the long term, leading to a more sustainable and more effective practice.