This podcast is brought to you by PAR.
Conduct a broad-based assessment of personality and psychopathology with the gold standard Personality Assessment Inventory or PAI. The new PAI Spanish revised translation retains semantic equivalents while using clearer and more inclusive language. Learn more at parinc.com\pai.
Welcome back, everybody. Today, I am talking about the choice to expand into a group practice from a financial standpoint.
There are any number of reasons for growing from a solo practice to a group practice. In fact, when I’m consulting [00:01:00] with practice owners, this is one of the top questions that we talk about once we get past the launching phase: Should I hire and grow? And for me, the answer is always, it depends, of course. Right? That’s always the answer.
When folks talk about growing group practice, I always ask about their why. The why could be increasing access, serving more people, flexibility for your schedule, or for a lot of us, hopes for making more money. So today, I’m going to tackle that last question.
Now, if you’re a practice owner and you’d like some support via coaching or consulting, I’d be happy to talk with you. I have three levels of mastermind groups: Beginner, Intermediate, and Advanced, and also have open spots for individual consulting in Q3 of 2023. You can go to thetestingpsychologist.com/consulting to get more [00:02:00] info and sign up for a pre-consulting call.
All right y’all, let’s get into it here. I’m talking about this question of does it make financial sense to expand into a group practice. As I said in the intro, there are many reasons that you might do this and really nailing down the WHY is pretty important. For me personally, it was to increase access because I was so full and just referring people out left and right, providing jobs for some great folks, increasing my own flexibility, and of course money.
Money is important. It’s okay to want to make more money and to talk about making more money. At the same time, [00:03:00] you need to be deliberate and conscientious about the reality of owning a group practice. So this will be a short and sweet episode with a fair amount of math and financial talk that will just cut straight to the point.
If you’re hoping to make more money in group practice, I think you have to ask if the stress is worth it. There’s always a trade-off. Running a practice will immediately add some amount of stress to you as the owner because you have to learn all of the roles and responsibilities of a manager and a business owner.
You may have acquired some of that through your course in solo practice, but when you add people to the equation, it adds another layer immediately where you are managing. And as soon as you start to grow, then you introduce this question of how much are you going to grow and what is that going to look [00:04:00] like, and you are thrust immediately into a visioning role or a planning role. Whether you like it or not, it’s going to happen subconsciously or maybe deliberately for some of you.
Now, there are plenty of ways for it to be “worth it” to run a group practice, but finances are often a part of that equation. So if you’re going to ramp up the stress in your life and add new roles to your job in addition to the clinical work that you’ve been doing, I think it’s important to ask yourself if the money you make is going to be worth it to offset that stress.
Let’s talk about the finances. In my case, I needed the financial incentive from owning a group practice to go significantly above and beyond my potential earning as a solo practice owner to really make it worth it because now looking back, this is probably [00:05:00] 8 years down the road into group practice ownership and over 40 employees at this point.
Well, the stress is real. I will just put it that way. It does not go away. It does not get easier as you own a group practice and grow. It’s like having kids. It’s like what people said when you have kids that it never gets easier. It’s just different. And that certainly holds true in group practice ownership as well. It hasn’t necessarily gotten easier, but it has been different.
So for me, the financial incentive was pretty important. It has to account for that stress and the responsibility that you carry as a group practice owner.
So here’s the reality. The reality is that you will not make more money in group practice for quite a while unless you continue to see your own caseload.[00:06:00] And some of you might say, okay, that’s great. I’ll just keep seeing my own caseload.
Well, the downside to that is that you then end up with basically two full-time jobs. You are being a clinician and you’re running a practice. What I run into with folks I consult with pretty often is that they expand into a group practice and then end up working more and making less than they were in solo practice because they are trying to run the business and they are also still doing clinical work. So when you break it down to the actual hourly rate for the amount of time that you’re working, it ends up being less than if you were just a solo practitioner who wasn’t having to do all the extra stuff on the side that’s required to run a practice.
So unless you want those two full-time jobs of being a clinician and running your practice, then you have the alternative, which is [00:07:00] giving up most of your clinical work to dedicate your time to running the practice, or of course, hiring folks to help you run it.
So for the sake of simplicity, I’m going to operate on the assumption that you would like to fully replace your own income with income from the practice and earn a little more for the trouble of running the practice. If that’s the case, here’s your simple equation. You would need to grow a group practice to about 7 times your income as a solo practitioner for it to be “worth it.” And here’s why. We’re going to dig into the numbers a little bit.
A typical small to medium size group practice will have about, let’s say a 20% profit margin to be conservative. So if you’re making $100,000 a year as a solo practitioner, you would need to gross about $500,000 in group practice to reach that [00:08:00] 20% profit margin and equal the $100,000 of your solo practice. Are you with me? 20% of $500,000 is $100,000. Profit margin is the amount that you take away from the practice and 20% profit, $100,000, that equals your solo practice income.
But if you want to make a little bit more than you would in solo practice, which was the case for me, then you need to gross more in your group practice.
So let’s say you want to make $150,000 a year as a practice owner. Well, $150,000 is 20%- remember that 20% profit margin. So if you’re pulling $150,000 in profit, you would need to gross about $750,000 in your group practice. Now, some of you I’m sure are saying, wait, wait, wait. I’m going to be paying myself a salary and not just taking profit [00:09:00] draws. That’s totally fine. And that is probably the reality. And in that case, you could gross a little bit less, but for the sake of this discussion, let’s just ballpark it. You’re going to need to have a group practice that grosses about $700,000 to $750,000 to equal your income and give you a little bit more than a solo practice situation.
Let’s take a break to hear from our featured partner.
Conduct a broad-based assessment of personality and psychopathology with the gold standard Personality Assessment Inventory or PAI. 22 non-overlapping scales cover a full range of clinical constructs. So you’ll get the information you need to make a diagnosis and formulate a treatment plan. Plus for your clients who speak Spanish, the new PAI Spanish, revised translation, retains semantic equivalence while updating language to be clearer and more inclusive. Learn more at parinc.com\pai.[00:10:00] All right, let’s get back to the podcast.
So $750,000 does not happen overnight. Let’s break that down a little bit more. To gross $750,000 a year at $200 an hour- this would be a private pay practice. I don’t know many insurance panels that pay $200 an hour. That equals 3,750 hours over the course of the year. I’m calculating that at 50 weeks out of the year. I’m assuming across the practice, people are going to take about two weeks off.
So if you have to bill 3,750 hours at $200 an hour to equal that $750,000, that equals 75 collected hours a week. That’s not too bad. That’s 2 people working pretty hard; 2 people billing almost 40 [00:11:00] hours a week, which is doable in a testing practice, or 3 people working moderately hard, getting two weeks off. So, like I said, if you’re private pay, this might be pretty easy. Depending on your area, that could be doable.
Now let’s dip down into more of the reality for many practices who are taking insurance or in an area where you cannot bill $200 an hour for private pay. If you dip down to an average of $100 reimbursed per hour, that equals 150 billed hours a week to reach that $750,000 number. So that’s 4 to 5 people working pretty hard or 6 people working moderately hard.
I’m sure you’re starting to see what I mean. The major concern here is, well, collecting on the money that [00:12:00] you are billing, if you’re private pay, that can be easier. You certainly have an easier time getting that money, but either way, that still means you have to find anywhere between 2 to 6 quality folks to hire to reach that number. And right now hiring even a single testing psychologist can be challenging if you’re outside a major city where there are some other circumstance that makes it a little bit easier.
Do you see what I mean? It’s going to take a little while to completely replace your income that you would be making as a solo practitioner and pay yourself a little bit more.
So if you’re private pay, if you can find the folks to hire, it’s going to be easier from a financial standpoint, otherwise, I think it makes sense to take a realistic look, buckle up and expect at [00:13:00] least a year or two of potentially decreased income unless you’re seeing your own clients and running the practice.
Of course, wanting to make more money as the practice owner would increase the revenue needed to do so, which increases the need to hire. So I just ballpark this at trying to replace your income and make a little bit more for the sake of running the practice. If you want to make more money, then of course you have to increase your gross revenue and hire more.
So like I said, short and sweet. Just to get you thinking about what can be the financial reality of a group practice. A lot of folks will hire and assume that they are going to make more money right off the bat. And that is typically not true. You do have to put in some time and build the revenue of your group practice before it can replace your solo practice income.
All right, y’all. [00:14:00] Thank you so much for tuning into this episode. Always grateful to have you here. I hope that you take away some information that you can implement in your practice and in your life. Any resources that we mentioned during the episode will be listed in the show notes, so make sure to check those out.
If you like what you hear on the podcast, I would be so grateful if you left a review on iTunes or Spotify or wherever you listen to your podcasts.
And if you’re a practice owner or aspiring practice owner, I’d invite you to check out The Testing Psychologist Mastermind Groups. I have mastermind groups at every stage of practice development: Beginner, Intermediate, and Advanced. We have homework, we have accountability, we have support, we have resources. These groups are amazing. We do a lot of work and a lot of connecting. If that sounds interesting to you, you can check out the details at thetestingpsychologist.com/consulting. You can sign up for a pre-group phone call and we [00:15:00] will chat and figure out if a group could be a good fit for you.
Thanks so much.
The information contained in this podcast and on The Testing Psychologist website are intended for informational and educational purposes only. Nothing in this podcast or on the website is intended to be a substitute for professional, psychological, psychiatric, or medical advice, diagnosis, or treatment.
Please note that no doctor-patient relationship is formed here, and similarly, no supervisory or consultative relationship is formed between the host or guests of this podcast and listeners of this podcast. If you need the qualified advice [00:16:00] of any mental health practitioner or medical provider, please seek one in your area. Similarly, if you need supervision on clinical matters, please find a supervisor with expertise that fits your needs.