Author Topic: Abstract / lean small business plan for private therapy practice  (Read 1607 times)

Archipelago

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In 2016 my wife began working on her doctoral clinical psychology graduate program, which stemmed from an early desire to help members of the veteran population. In her training years she gathered experience in a multitude of settings on the way to becoming a licensed therapist.

While completing a tour of duty with the VA my wife felt a sense of great reward when helping veterans and found herself surrounded by dedicated co-workers. However, she felt at times the VA was mired in archaic rules and bureaucracy when it came to providing mental health care for veterans. She felt that the system might benefit from some tweaking and reform, but her desire to help veterans remained unchanged.

We endeavor to build a private therapy practice to address the ever growing need for mental health support services. The primary focus of the business is mental health support and care for veterans, with specialties in complex trauma and PTSD. The secondary focus is a ‘lifestyle business’ aspect to allow a flexible balance between work and family life. This is a life goal/passion project of ours that we are thinking up as a seed and allowing to evolve over time.

Our mission is to honor veterans, meet them wherever they are in life, and support them in making changes to live out their best lives. This is a person-centered/humanistic approach based on Carl Rogers theory, which is a natural clinical orientation for my wife.

We are looking for a small office building plus wooded acreage & trails to build out a professional therapy clinic. This setting is inspired by a Japanese cultural idea known as “forest bathing”, where people visit local forests for relaxation and well-being. The concept is also known as nature therapy, ecotherapy, and grounding. Trails adjoining the property would allow for traditional talk therapy in a natural setting - away from the sterileness of office therapy or behind a computer screen.

When COVID happened, there was a shift to a remote/telehealth model which has become commonplace due to a lack of providers plus overwhelming demand for mental health services. We would operate primarily as an in-person clinic, with the ability to do teletherapy for flexibility and for inclement weather (we get rather cold, longer winters where we are).

If my wife wishes to be a solo owner/operator, she would be inclined to rent space in an office building. If she goes the route of hiring a team of therapists, we’d look to purchase a building to place staff, or build out tenant spaces to rent to other professionals (would not be limited to therapists). More benefits of owning a building would be the ability to gain some real estate income/equity, plus the ability to do things like a community garden, support groups, yoga classes, family retreats, etc. If buying a building, we’d need at least a 30% down payment for commercial property.

One constraint of a solo practice is limited interaction with other therapists which is helpful and even necessary for practicing in the field. In this case, my wife would find or create an online group to meet and discuss caseload for support and feedback.

VA insurance can be used for community care, which means referrals can come directly from the VA. My wife would need to be paneled for Tricare insurance, a process that generally takes 3-12 months. In the interim she would use a cash pay model and charge $50-200/session with an income-based sliding scale.

My wife would be the majority shareholder and run the actual business. She is a soon to be licensed psychologist and a talented one at that! My role would be handling the background workings of the business - registrations, setting up S-corp, taxes, bookkeeping, handling RE transactions, making property improvements, maintaining trails, setting up a website, etc. I would be helping her get off the ground and running while she’d focus on direct client care, scheduling, submitting insurance claims, etc.

Attached are some nature therapy pictures that have served as inspiration.
« Last Edit: June 20, 2023, 01:09:42 PM by Archipelago »

Chris Pascale

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Re: Abstract / lean small business plan for private therapy practice
« Reply #1 on: October 21, 2023, 10:12:27 PM »
This looks awesome. My wife and I would be very happy taking a retreat like this, preferably with good beds, and if it accommodates families that might also help.

VA therapy can be seriously lacking. I heard of someone who went in for the initial meeting and there wasn't even a box of tissues as very serious things were being shared. And then the meeting ended with the vet being told an initial meeting would be scheduled with someone.

Metalcat

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Re: Abstract / lean small business plan for private therapy practice
« Reply #2 on: October 22, 2023, 07:46:51 AM »
I was a medical professional (not therapist) and worked in private practice, I also worked as a consultant for clinic owners (nor therapy), but a lot of the concepts are the same. I'm also finishing up grad school to become a therapist myself.

None of these plans sound particularly lean, they all seem to maximize your overhead in an industry where it's very easy to generate great cash flow with incredibly low overhead.

Expansion in clinical settings is a very, very tricky thing, this is what I was usually consulting on. The more you expand, the more you risk over expanding your overhead.

How would you monetize an acreage? Veterans aren't really know for having a ton of money and they generally need a lot of therapy. Rogerian therapy for complex trauma is the kind that will take a lot of sessions. How would you bill for forest bathing? I can't imagine the VA would pay for that as a modality.

Also, would the acreage *just* be for the clinic? Or would you live there? If you aren't living there, who will maintain the acreage? How will you account for that? If you are living there, do you really want an endless supply of people with PTSD, likely addiction issues, and potentially violent behaviour coming to your home where your children are?

I've had a patient become fixated on me and had to involve the police. As a female therapist, this is one of the main reasons I would never have a home office.

Assuming there is a ton of demand for VA services, the most efficient model would probably be virtual care where she could limit her overhead to the cost of a laptop and Jane/Owl service.

So for any model aside from that, you have to justify the massive increase in overhead. Which is fine if she just doesn't want to practice virtual, many therapists don't.

If she wants to make less money to work the way she prefers, just make sure you are *both* comfortable with the trade offs. I say both since you are posting here and using "we" language, so I assume you will be involved in the business somehow? If so, are you taking a salary? Because you will need to account for that in overhead as well.

As for hiring other practitioners, that's a whole other kettle of fish. Therapists are usually hired as independent contractors, and that's very, very different than hiring employees. You have minimal say over how an independent contractor works, so that can create some conflict and your clinic reputation hangs on their work as much as your wife's. This is very tricky because once your expansion model depends on the cash flow of additional providers, it can be extremely challenging to lose them even if they're not good for the practice.

Every time you add a provider, it takes time for them to build their clientele, and you can't just expect all of those clients to transfer to a new provider, so the process of replacing someone can be extremely financially painful.

Then there's the fact that if you take enough of a cut of their work to make a profit yourself, you are likely to drive them to want to open their own solo practice and will likely take the majority of their clients with them when they do. This is playing out constantly in the therapy practice management groups I'm part of. Clinic owners are including more and more egregious clauses in their contracts to protect their business and that's turning off the more experienced contractors, and selecting for the more inexperienced and naive contractors. It's a vicious circle, and guaranteed to lead to more lawsuits.

You can very easily end up paying a fortune in advertising and other overhead to build up a contractor's business for them to walk off into the sunset with all of the clients *you* paid to attract to them. And then your only option is expensive litigation, which isn't likely to actually help you in any way. Plus then you're the clinic known for suing it's contractors.

To be a group practice with minimal contractor turnover, you have to offer *something* to contractors that makes it worthwhile for them to give up some of their potential earnings AND some of their autonomy. At the end of the day, there's just no way to make a lot of profit off of individual contractors without them figuring out how to leave and keep that profit for themselves. So expect the margins on the cost/benefit of contractors to be very low and sometimes negative.

My first year working as a contractor I was the sole practitioner in the office. The owner owned multiple practices and I was at one of them by myself. There was a month that was slow (August is always slower), and I took two weeks off to move and work on my new house. I made $10K that month, I was perfectly happy, but the clinic went 8K into the red.

Finding that out was the day I decided I didn't want my own clinic, I wanted to be able to take time off and not worry about cash flow and overhead. Now, that was an extremely high overhead business. So it was very obvious what the benefit to me as a contractor was. I was willing to give up a fair amount of profit to not have that stress in my life and to have flexibility.

However, a therapy contractor can leave and have a low overhead virtual practice at any time. In fact, they can run a parallel solo practice outside of your clinic and get the benefits of both. So the question of what you have to offer to keep them there is even more critical.

So what is that thing that you offer? And what will it cost you?

I've consulted at MANY successful looking clinics that were losing money by expanding compared to staying a solo practice. I once consulted on a 20M annual gross clinic that was famously the place that contractors wanted to work at. They invested so much in making sure that there was virtually no turnover in their contactors because it was just so expensive to lose them. If you asked any contractor working there, they would openly tell you that they would never want to run their own clinic compared to working there.

They figured out how to keep contractors but not how to profit off of them, the clinic made less profit each year for the owner than if he had just stayed a solo practitioner his entire career. He was basically working two full time jobs: doing his clinical work and running a huge clinic all for a bit less than the pay he would have made as a solo practitioner.

That said, he made money selling the clinic, quite a bit of money. But selling clinics is not always a thing in various professions. This was a procedural profession, so the physical value of the equipment and supplies was massive and it was in an industry where you can sell your patient load. You will want to find out if selling psych clinics is a legal or normal thing in your jurisdiction. If it isn't, then expansion will be a tough equation to pull off.

If you can't sell the practice and you own property for it, then that means the value of the property will only be as an empty space, so factor that into the business model as well.

If the main reason for wanting a group practice is to have community with colleagues, that will be VERY tricky. Being the owner is an extremely politically delicate role to occupy. I've coached many clinic owners and the main thing I've had to do is teach them to get comfortable with people on their team actively resenting them most of the time. It's HARD to be the boss if what you want from your team is to connect with them.

Being a clinic owner is often one of the most alienating, lonely positions out there. The community that the clinic owners turn to is community of fellow clinic owners, people who truly understand the stresses they experience on top of the already very taxing clinical work.

It's hard to find that compassion from staff and contractors who know that you are profiting off of their work. That's a very tricky dynamic to manage.

My last point on expanding is fraud. It's so unbelievably common, and so few clinic owners know much about business to even be able to tell it's happening, which is why it's so incredibly common. If you are going to expand at all, educate yourself thoroughly on all of the ways that staff can commit fraud and steal from you.

Now onto commercial real estate. You will want to analyze *very* closely the numbers on commerical real estate, especially if you will be looking to sell it when she retires and closes her practice. In my area, buying a building has been the WORST financial mistake that many clinicians here make. They balk at the insane rents and limitations on what they can do with the space and then assume that buying is a better option and then end up with a huge real estate albatross around their necks. The commercial real estate market here is not attractive for small business owners.

If she ends up not closing the practice when she retires, what will this mean, what will it look like? Will she still own the practice and just manage it indefinitely with only contractors providing service? How would that work in terms of overhead/cash flow? We've already established that you can't bank on too much profit from each provider, so that would mean slim, slim margins and therefore more stress.

Or you can sell your property empty or you can find tenants of another kind and be landlords. There are options, just think them through before committing to commercial real estate overhead. That's a BIG monthly nut to carry.

You will have to analyze very, very carefully what your real estate market looks like, what kind of overhead that will add. The issue with owning is that that puts a permanent cash flow demand on you. The more overhead you take on, the more vulnerable you are to the *very normal* variations in income in clinical settings.

So say you have big income and big overhead and you're making a solid profit because you have 5 contractors who are fully booked. If you are virtual, you can easily weather if 3 of those providers leave in one year. But if you are brick and mortar and own the building, you could easily end up cash flow negative for several/many months.

None of what I'm saying is to deter you from your plans or from group practice or from expanding.

What I'm telling you is basic concepts that you might already know, but it's shit that I have charged a lot of money to tell stressed out clinic owners. Stuff they all wish they had heard before they opened a practice so that they could have understood the impact of the decisions they were making.

As for me, I plan to start solo and virtual, keeping my overhead as low as humanly possible. My years of consulting have given me an allergy to high overhead business models. I'm going to use that time to understand the market, the demands, the insurance system, etc. I'll test a few expansion concepts, like providing uninsured services and see what the demand for that looks like.

From there, I'll look at the basic finances and see what balance expansion would have in terms of increasing cash flow vs increasing overhead. After 5 years I'll 100% become a supervisor, which will open other avenues for me. I'll very likely take on practicum students, which is a whole other calculus.

I'll likely always stay 100% virtual because I want to have as broad a client base as possible while specializing in a narrow area, and I will also get licensed in multiple jurisdictions, allowing me to expand in a way that if I add contractors, they will be in different markets so that we're not competing with each other for the same local pool of clients/insurance dollars.

Because that's another risk of expansion, you are bringing your own competition closer to you. In leaner times, your contractors can cannibalize some of your own marketshare.

Those are my basic, basic thoughts on clinic factors to think about in your planning. Again, none of this is to discourage you, just to help you in assessing each stage as you move forward and hopefully avoid some of the most common and very avoidable pitfalls that I used to charge A LOT of money to clean up.

Chris Pascale

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Re: Abstract / lean small business plan for private therapy practice
« Reply #3 on: October 22, 2023, 12:50:02 PM »
None of these plans sound particularly lean, they all seem to maximize your overhead in an industry where it's very easy to generate great cash flow with incredibly low overhead.

Having tried to find a specific therapist for a relative, I agree. There's a shortage of people in many places, and there's a huge shortage of good people.

Michael in ABQ

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Re: Abstract / lean small business plan for private therapy practice
« Reply #4 on: October 22, 2023, 01:38:29 PM »
I would try to find some sort of grant to help support this. Either from the VA, other government sources, or private donors. If you could help cover some of the overhead with other income sources it could make everything else easier.

A veteran I used to serve with had a small farm and would have veterans come out and work there as therapy. I don't really know the details but a mutual friend said somewhat cynically that it seemed like he found a way to get free labor for his farm.

Many people aren't willing or able to spend hundreds or thousands of dollars on therapy on top of paying for medical insurance. Being able to accept Tricare would be very important. Keep in mind there are multiple different types of Tricare. As a Soldier in the National Guard I have Tricare Reserve Select - that's very different from Tricare Prime which is what you have on active duty - or if you're a full-time Soldier in the National Guard. Then there's another flavor of Tricare for retirees - not to mention Medicare.

Smokystache

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Re: Abstract / lean small business plan for private therapy practice
« Reply #5 on: October 23, 2023, 06:05:31 AM »
I'm a PhD Counseling Psychologist (but don't see client anymore), consider myself client-centered in orientation, and have worked in a VA hospital (but not for decades), if that matters.

I agree with much of what MetalCat said.

I think the leanest way to start this is to offer a weekend/weeklong retreat to a setting like you pictured. Put down a refundable deposit for a date quite a ways in the future, create a program/schedule, advertise (as cheaply and effectively as possible using professional contacts, etc.), and see if you can fill a group with your spouse as the only therapist. Cap it at no more than 8. If you don't get enough to cover your costs, then cancel your reservation and rethink. Either way, everyone will learn a lot and you won't be making huge financial commitments before knowing if people will sign up, if your spouse would really like this style of work, etc.