Setting Financial Goals for Your Private Practice: A Guide for Therapists
Introduction
As a therapist, your primary focus is on helping your clients achieve mental and emotional well-being. However, running a successful private practice also means taking charge of your financial health. While this is often the part many people would rather ignore, it’s one of the most essential parts of keeping your practice running smoothly. Setting financial goals for therapists is crucial for ensuring your practice not only survives but thrives. In this post, we’ll give you an easily digestible guide to help you set and achieve financial goals for your private practice.
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1. Understand Your Financial Baseline
Before setting goals, it’s essential to know where you currently stand financially. Start by reviewing your financial statements, including your profit and loss statement, balance sheet, and cash flow statement. If you have not gotten to the point where you have financial statements prepared, a simple spreadsheet with income and expenses will suffice. Understanding your current financial situation will provide a solid foundation for setting realistic and achievable goals. If this seems overwhelming or something you don’t have time for, lean into the experience of a trusted financial professional, such as your accountant, for this part. These professionals can de-mystify and clarify financial data and develop an action plan.
Check out our previous post about key financial metrics to arm you with more information about your financial baseline.
2. Define Your Private Practice Financial Goals
Set specific, measurable, achievable, relevant, and time-bound (SMART) goals for your practice. Here are a few examples:
Increase Monthly Revenue: Aim to increase your monthly revenue by 15% over the next six to twelve months by adding new services or increasing client intake. Implement new processes that simplify your non-client workflows and save substantial amounts of time that can be redirected to new or existing clients.
Reduce Overhead Costs: Cut down overhead costs by 10% within the next quarter by renegotiating service contracts and optimizing office expenses. Mindfully consider your list of expenses to ensure that all of them are necessary or serving your goals.
Build an Emergency Fund: Save at least three months’ worth of operating expenses within the next year to cushion your practice against unforeseen circumstances. It’s often helpful to set up automatic transfers to a specific savings account for this purpose.
Important: This is different than a personal emergency fund. This emergency fund is to cover unexpected problems that your practice may encounter. A personal emergency fund is also a good plan but should be separate from this fund.
Improve Cash Flow in Your Therapy Practice: Implement strategies to ensure that 90% of client invoices are paid within 30 days over the next six months.
Pro Tip: If you are a cash practice, require that clients pay ahead of their sessions or consider implementing monthly recurring charges for your clients which can make payments simpler for both you and them.
3. Break Down Your Goals into Actionable Steps
Once you’ve defined your goals, break them down into smaller, actionable steps. This makes it easier to track progress and stay motivated. For example, here are some of our previously discussed goals broken down into some action steps:
Increase Monthly Revenue:
Offer additional services such as workshops or group therapy sessions.
Implement marketing strategies to attract new clients.
Review and adjust pricing strategies.
Reduce Overhead Costs:
Conduct a detailed review of current expenses.
Identify non-essential costs and eliminate them. Consider carefully the purpose of all expenses that are on this list.
Negotiate better terms with vendors and service providers.
Build an Emergency Fund:
Determine the total amount needed for three months of expenses.
Set aside a fixed percentage of monthly revenue towards the fund.
Monitor progress and adjust contributions as necessary.
Improve Cash Flow in Your Therapy Practice:
Streamline the invoicing process using automated tools.
Implement clear payment terms and follow up promptly on overdue invoices.
Offer incentives for early payments.
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4. Monitor and Adjust Your Financial Goals
Regularly reviewing your progress towards your financial goals is essential for maintaining the financial health of your practice. Use financial software like QuickBooks Online (QBO) to track your income, expenses, and cash flow in real-time. This software helps you stay organized and provides a clear picture of your financial status.
Schedule Regular Reviews
Set up monthly or quarterly reviews to assess your progress and make adjustments as needed. During these reviews:
Analyze Financial Reports:
Review income statements, balance sheets, and cash flow statements to understand your financial position. If you have not reached this stage yet, a simple spreadsheet containing your income and expenses will suffice for now, but it is strongly recommended to ensure you have the most accurate financial reports possible.
Identify Obstacles:
If you are not meeting your targets, pinpoint the obstacles and challenges that are hindering your progress. Be mindful and honest about this step. Also, sometimes it requires an outside perspective to see the most significant obstacles.
Adjust Strategies:
Modify your financial strategies based on your findings. This could involve cutting unnecessary expenses, increasing revenue streams, or adjusting your budget. Record your plans and strategies in a form that is easy for you to regularly review. Review these notes again during your next financial review session to assess for completion and possible areas where you need to pivot to reach that goal.
Seek Professional Advice:
An accountant or other trusted financial professional can provide valuable insights. They can help identify areas for improvement and offer tailored advice to optimize your financial management. Again, a seasoned, outside perspective can be especially valuable and save you very significant amounts of time that you would spend trying to figure everything out on your own. The most successful people lean into the expertise of others.
By consistently reviewing your financial progress and making informed adjustments, you can ensure that your practice remains financially healthy and on track to meet its goals. Regular financial reviews not only help you stay organized but also empower you to make proactive decisions for the growth and stability of your practice.
Wrapping Up
While for most people that are not well-versed in their finances, getting there can seem painful and just plainly not fun. The importance of this part of running your practice can not be overstated, however. While, of course, your primary goals when starting your practice likely mostly featured positive outcomes for your clients, it’s important not to overlook the financial success you can achieve. With goal-setting and intentional focus on your practice’s financial health, those dream vacations and more time spent with your loved ones can quickly become reality.
Setting financial goals for therapists is essential for the success and sustainability of your private practice. By understanding your financial baseline, defining SMART goals, breaking them down into actionable steps, monitoring your progress, and seeking professional advice, you can ensure that your practice thrives financially. Start setting your private practice financial goals today and take control of your practice’s future.
