Therapists in private practice wear many hats, and that includes managing the business finances. We get the privilege of having more control over our careers. But at the same time, in order to have a viable business we must get acquainted with a crucial business practice—budgeting. And while you may be comfortable with budgeting your personal expenses already, a business budget is different than a personal one.
Whether you’re just starting your private practice or want to make sure the budget you have now will be able to grow with you, there are specific factors you should take into account at different stages in your practice’s growth.
How to Create a Budget Plan for a New Private Practice
When you’re just starting your career in private practice, it’s normal to have visions of a bustling practice that serves clients with ease and comfort. To achieve that dream, you need to make sure you have a solid foundation in place that can grow as you do.
Startup costs for a private practice can vary widely depending on your personal choices and the kind of practice you want to run. To determine what that looks like for you, you first have to list out the essential business needs and non-essential business wants that you might encounter in your first year.
These costs are some of the must-haves for a new business, so you’ll need to make sure you allocate for them accordingly. Non-essential business wants can still have a place in your budget, but if things are tight in the first year, distinguishing between wants and needs can be a good way to set your priorities.
Determining what your first year of private practice will cost you is the first step in creating a solid budget. You’ll need to sit down and do some research to get exact numbers for those essential items, but you’ll feel more prepared knowing you have accurate numbers rather than estimates.
Once you have your first year cost, you know you’ll need to make at least that much just to stay in business—and more than that if you intend to pay yourself anything, which you should. Now you can start to determine how much you want to work and the fees you’ll need to charge to meet those numbers.
Determine Your Workload and Session Fee
You’ll need to determine how many hours in a week you can work while still avoiding burnout. Remember that sessions aren’t the only hours you’ll be working. You’ll have more hours of scheduling, billing, client paperwork, and marketing efforts, which you need to factor into your total hours.
So, let’s say you want to see a maximum of 10 clients each week. Based on your area and expertise, let’s also say you decide to set your rate at $100 per session. But before you can calculate how much you’ll earn, you have to account for taxes. As the owner of your own business, you’re responsible for doing your own withholding. Your tax expenses should absolutely be included in your budget, but it’s important to remember that they’re not a static expense.
Your taxes will vary depending on your state, your income that year, your expenses, and your specific type of filing. Much like budgets themselves, businesses taxes are different from personal taxes, so I recommend working with an accountant to make sure you file correctly the first time, and avoid costly mistakes. (And remember to add CPA fees to your list of expenses!)
Calculate Your Take-Home Pay
To calculate your pay for a week, take the amount you want to work and multiply that by the amount you want to charge per session. Then, multiply your weekly salary by 52 to determine how much you’ll earn in a year before taxes and expenses.
To calculate your income after taxes, multiply your yearly income by your tax rate. (For example, if your tax rate is 30 percent, multiply your yearly income by .30). Subtract that number from your yearly income to see your income after taxes. Finally, subtract your yearly expenses, which you calculated by listing your essential expenses, and that is your actual take-home income.
Plan for Savings
When you’re determining your essential needs, you should allocate part of your budget for savings as well. You’ll need to decide a number that makes sense for you and your business, but you should plan on putting aside some portion of your monthly income into a business savings account for emergencies. You should also save for your taxes throughout the year, so if you’re surprised with a larger tax bill after filing, you’re able to recover.
How to Maintain a Private Practice Budget
Just as your practice won’t remain static, neither will your budget. It’ll need managing and updating throughout the year to make sure you’re working off the most accurate information.
Every month, you should track your income and expenses. Compare what you budgeted with what you actually earned and spent. If your budget was correct, you estimated take-home pay and your actual take-home pay should be the same. If something doesn’t match, that tells you there’s something that needs attention, and you may need to adjust your budget or your schedule.
It’s important to do these check-ins monthly so you always have your finger on the financial pulse of your practice. If you catch potential issues early on, it’ll be easier for you to make the adjustments you need without overworking yourself or taking on debt.
Scaling Your Budget as You Grow
One of the goals of creating—and then sticking to—a budget is so you can create a thriving private practice. If your practice is ready to grow, how does your budget keep up?
Luckily, you’ve already done the hard part. If you’ve been diligent with keeping your budget up-to-date with your income and expenses, all you need to do as you grow is add new line items to your budget spreadsheet for new expenses as they occur. These line items might include things like salary for new clinicians or administrative staff, expenses for new corporation filings, tax preparation fees, upgraded office space or technology, and continuing education courses.
Creating a business budget seems like a lot of work in the beginning, and you will need to spend some time doing the math and the research. But once you set your budget in motion, it becomes second nature. An afternoon spent monitoring your budget can show you where you need to increase revenue, decrease costs, or change your priorities based on your work-life balance. Like I tell my clients, anything worth doing should be a challenge. Budgeting is a challenge, but it’s worth it to create a fiscally sound practice that can grow as you do.
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