The KY Psychological Association recently published an article I wrote for it’s members. The following appeared in the KPA’s April 2014 statewide membership communication. While it’s targeted for healthcare practitioners, the article is relevant to all small business owners. Here’s a copy for your review and consideration:
Business of Practice: Managing Your Profit
For many mental heath care providers, there’s a chasm between helping your patients to cope with significant psychological challenges and effectively managing the business of your practices. Most of you have invested years of study and training in the effort to develop successful, therapeutic practices. Many, however haven’t had the time to seriously study the fundamentals of accounting, marketing, and the other disciplines associated with actually running a business. As a practitioner (and business owner) you’re confronted with challenges on both ends of this spectrum. At times, the business of your practice may present greater challenges than your patients. Sound familiar?
You may remember me from a presentation I gave at the 2012 Business of Practice conference. We discussed topics such as personal branding, marketing on the Internet and tips to attract new patients. My hope is to provide an on-going series of articles for you about ways to run your practice more profitably.
I’d like to start with a simple observation, and then a definition. Observation: Patients will heal and move on. The key to any successful practice is managing the intake of new patients. However, it’s critical that you understand practices can go out of business, profitably.
Businesses of all types are subject to financial constraints. While the desire to treat patients is a driving force, doing so profitably is paramount. You have a finite capacity to treat individuals. There are only 24-hours in a day and we must assume that family and sleep will demand at least a small portion of those hours.
Your ability to think and effectively treat patients is highly dependent upon your personal stress and energy levels. Over the years, I’ve seen numerous professionals burn out because they thought they simply needed to work harder. However, when you do this for an extended period of time, you run the risk of making poor decisions which might not only impact you, but your practice and possibly your marriage.
That point brings me to a definition. “Profit” is what is left over after you subtract your business expenses (including taxes and wages/salaries) from the billable revenue you generated. As a pure business fundamental, you need to focus on your net profit, much more than on your overall revenue for the practice. This is where many practitioners struggle. You may have significant income from private pay patients, provider reimbursements, or government programs. However, if you’re not actively managing the types new patients you’re taking, you may be in for a crash. More on that point in a minute.
For now, let’s consider two ways to manage your profit. The first is to limit or cut your expenses. While that can be effective in the short run, there’s only so much that you can cut. For most, there is a necessary level of expense, which must be incurred to run your practice. Your ability to “cut costs” by its very nature, therefore, is limited.
However, you can also manage (and increase) your profit by increasing your overall revenue. But beware; this also requires a healthy balance between taking on new clients, and accepting the right clients.
When you consider the changes in our health care system, it’s fairly certain that government supported reimbursements (e.g. Medicare) are going to be reduced over time. Many of you have already seen this. As the focus on mental health grows, practitioners are going to be faced with an ever-increasing pool of potential patients, but whose ability to pay (or at least pay what you actually deserve) will be reduced. This is going to put immense pressure on you to ensure that you’re being properly compensated for the services you provide.
Let’s come back to my earlier point about actively managing your types of new patients. In most businesses, there are a core group of services that yield the best results for the business. For you, this might be testing and evaluations, short-term counseling, group therapy, or possibly intense one on one psychotherapy. Whatever it is, this is your best possible type of patient. However, some practitioners struggle to maintain an active influx of these “ideal patients.”
Overtime, the practitioner may take on other types of cases simply to pay the bills. They run the risk of deviating too far from their core patient load, which typically either requires more time, yields less income, or both. While the cash seems to be coming in, the actual profit margin is less and less. Eventually, your days are spent dealing with the wrong types of patients for your particular practice. This is what I meant when I said practices can go out of business profitably. Reaching the point at which zero income is generated isn’t at all typical. Like a puddle on a hot day, the evaporation of your profits may occur rather slowly. Add to that the on-going pressures of daily life, family and work and you can see the implosion coming. You may have a colleague who has already experienced something similar.
By putting into place strategies and tools to assist you in broadening your exposure to a larger pool of potential patients, you’ll eventually have a larger group of individuals from which to choose. This will help you, as the practitioner/business owner, to effectively select enough of the right kinds of patients to allow you to take on other non-core cases – all while growing the overall profitability of your practice.
In the next several articles, I’ll detail various ways you can do this. I’ll provide you with tips and suggestions intended to help you develop your practice to the point at which you might begin working less, but actually earning more. Sound interesting? You’ll have to look for my next article to find out. Until then, feel free to check out my blog at www.JimRayConsultingServices.com.