4 Common Business Blunders of Newbie Private Practitioners

"Learn from the mistakes of others. You can't live long enough to make them all yourself."

-Eleanor Roosevelt

When starting out in private practice, there's a lot to know. A lot. The learning curve can be painfully steep, particularly in ways for which we received no official training (finances, hiring practices, etc.). And no matter how knowledgeable or skilled a clinician is, he/she will inevitably take a few wrong steps. And that's okay!

We recently opened up a discussion on our Facebook page to get feedback about common business mistakes that therapists made when they were getting started in private practice. The responses were overwhelming; it seems many of you were eager to reflect on and share lessons that you learned the hard way! Though there were many answers given, a select few kept coming up that are worth addressing. Here are 4 common business mistakes to avoid when starting private practice:

1) Taking Clients Who Are Not Ideal  

Building a clientele from scratch can be daunting, and if you're desperate for business, it might be tempting to take just anyone. But agreeing to see someone who is not your ideal client can be a miserable experience for both you as a therapist and the individual who is paying for professional services. Instead, politely refer to a therapist who is a better fit, continue to market yourself using the REST strategy, and wait for the right clients to come along.

2) Not Hiring a Good Accountant

Many in our group regretted that they hadn't taken on a CPA sooner to handle the finances, bookkeeping, and taxes (especially quarterly ones!). As so many in our Private Practice Toolbox group can attest, it's a worthy investment. One woman explained how she had initially set up her LLC incorrectly and later had to pay thousands of dollars to fix her mistake and get her business running smoothly again. Moral of the story: hiring a skilled accountant may be a bit expensive, but it's absolutely worth it!

3) Insufficient Infrastructure for Unexpected Growth  

For those new to the game, having an influx of clients might sound like a good thing, but the reality is quite different. Having too many clients can cause burnout, being short-staffed, and getting behind on administrative tasks. Don't be afraid to refer potential clients to trusted and reputable colleagues. Making sure your practice is secure and stable will make it so that you can handle the growth over time.

4) Not Understanding Insurance Companies         

Insurance panels are notorious for being confusing and complicated. Enlist a seasoned friend or mentor in your local area to help you navigate the process. Don't wait until you encounter a business emergency or financial crisis to understand all the ins and outs of insurance companies (such as understanding how client health benefits are different from behavioral health benefits). Become as versed and experienced in how to work with them as you possibly can so that you can avoid problems and get properly paid on time.

(I do hope that your goal is to eventually get off of insurance panels altogether and instead adopt a fee-for-service model. Click here to access my webinar about how to do so.)

What mistakes have YOU made that you would advise others against?

What did you learn from them?

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The Difference Between Hiring Therapists As 1099 vs. W-2 (part 1)

Should you hire additional therapists for your practice as 1099 or W-2 employees? I'll walk you through the decision process in this blog series so you can make an informed decision.

If your private practice is thriving and you are considering hiring additional therapists, one of the major questions is how to structure the employment relationship. Should you hire additional therapists as a 1099 contractor or W-2 employee?

In my private practice consulting experience and based on recent discussions in my Private Practice Toolbox Group it seems that most private practice therapists favor hiring therapists as 1099 contractors. When I ask why I often hear something like, "I hire 1099's because then I'm not responsible to pay the therapists employment taxes and it provides some cushion against legal responsibility for the acts of therapists providing contract services." While these statements are true, there is a lot more to consider when structuring the employment relationship and misclassification can be a costly mistake.

So what what's the difference between hiring a 1099 and W-2?

An 1099 independent contractor is a tax-related and legal term referring to an individual who contracts his or her services out to other businesses. An independent contractor is considered self-employed and is not considered an "employee" of the practice. The 1099 workers pays all of their own income tax in addition to self-employment taxes.

"Independent contractors do the work where, when and how they choose. Nobody tells them what order to do the job in, what hours to work, or when they can take off, " says Employment Attorney, Donna Ballman, author of How To Stand Up For Yourself Without Getting Fired.

A W-2 employee is an official employee of a company, or a private practice, whose taxes are withheld from and whose earnings are reported to the IRS at the year-end via a W-4.  The practice owner participates in paying the employees state and Federal taxes and has the ability to control how, where, and when the work is performed by the employee.

Michigan attorney Donald A DeLong says that control is the key issue. "If you control when the therapist works, where he/she works, how and when he/she gets paid, you require that he/she use your equipment, etc., then that worker is a (W-2) employee."

As I've researched this topic it is clear that there are no easy answers and a lot of grey areas. I hope to share some helpful information and resources over the next several posts to help you make the best choice when it comes to hiring.

The costs of inaccurately classifying employees

Inaccurately classifying workers can be very costly to an employer warns Vincent Porter, CPA of Porter & Company CPAs in Arlington Tx. Porter shares these words of caution with employers.

The IRS can conduct an audit of a business that is paying employees on a 1099 and hit them with back payroll taxes that can be very costly to a business not in compliance. This is a big issue we face almost daily with clients. They should understand that if they were to be audited by their State Unemployment agency or IRS they could face severe penalties for improperly classifying employees as contractors. Not only could they face unpaid employment taxes they could face heavy penalties.

In my next post in this series I'll tell you about my employment tax audit experience a few years ago!

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What I Wish I'd Known Before Starting A Private Practice

If you're considering going into private practice, it's always smart to talk to other clinicians who have been there. When I opened my practice years ago, I had very little business experience. Luckily, I did a few things right that allowed me to be profitable (and it didn't hurt to be married to a CPA). Over time, I learned that I have a knack for marketing and networking that has allowed my practice to continue to grow, even during a recession. Few private practitioners are armed with small business skills when they venture into private practice. According the U.S. Small Business Administration, around 50% of new businesses will close their doors within 5 years.  The realities of making a profit and running a successful private practice can be discouraging and exhausting. If you're considering opening a practice, I think you'll enjoy several seasoned practitioners answer the question,"What do you wish you'd know before starting your private practice?

Private practice is a business

Like most of therapists, Emma K. Viglucci, CFT, LMFT, CIT  of New York City didn't really understand what it takes to run a business when she opened her practice. "I had some ideas about running a business as both of my parents owned businesses, and about running a practice from assisting run my graduate program's clinic. But, I didn't know the nuts and bolts of being in business."

It's easy to overestimate profit and underestimate the amount of work it takes to start and build a private practice. Psychologist and professor Karen Sherman, Ph.D. says she wished she'd know that working for herself  "wasn't going to be as lucrative" as she thought.

Save for self-employment taxes

When you go into private practice you'll be paying self-employment taxes. If you're used to working for an agency where your taxes are automatically withdrawn each paycheck that catches new practitioners by surprise. Just to give you an idea of how much to save, self-employment taxes for 2011 in the U.S. are around 13% (SBA.gov).  Psychologist Roberta Temes, Ph.D learned about taxes the hard way. "My first year I did not diligently deposit half my fees into a bank account earmarked for taxes. That was a learning experience."

Understand managed care

Texas counselor Shannon Purtell MA, LPC, LPC-S, NCC wishes she'd better understood the world of behavioral health insurance before she opened her doors.

Before entering private practice, I wish that I had truly understood behavioral health insurance and Employee Assistance Programs. Trying to learn the ins and outs of insurance while building a private practice was not only frustrating and time consuming, it was costly. Without completely understanding the industry, I failed to negotiate better rates, was unable to qualify for certain panels, and did not always understand the reimbursement structure. Each company had a different way of handling referrals, authorizations, and reimbursement. Unfortunately, I started in private practice prior to electronic billing and online benefit verification/authorization which has dramatically streamlined the process.

Importance of marketing skills

New York City therapist Diane Spear, LCSW-R wished she'd been better armed with marketing know-how when she opened her doors. Spears says, "You can be a terrific therapist and have a tiny practice if you're not good at marketing. And if you're not naturally good at marketing and networking? Practice! A lot."

Developing a niche and area of expertise is what Clinical Psychologist and author Dr. John Duffy wished he'd known before opening his practice.

I wish I had known the importance of establishing a niche when I started, developing a particular expertise. I found that I work well with families, in particular teens, tweens and their parents. Specializing in this area, I've found that I have a strong knowledge base in this area, and I am more and more confident in my work. As a result, I have a full practice, a waiting list of clients, a popular book, speaking engagements. I am also now considered an expert in a number of media outlets.

Stay on top of billing and record keeping

When you're your own boss it's easy to set some of the less enjoyable and often tedious business details on the back burner. Arizona therapist Lisa Gomez MA, LPC wishes she'd known the importance of staying on top of those tedious administrative tasks. Gomez wishes she had understood the importance of staying "on top of your billing and having good records in regards to accounting."

Practice ebbs and flows

Many private practitioners are surprised by the fluidity of referrals and fluctuating direct care hours. My own practice always dips to the lowest number of referrals and fewest client hours every December. I learned through not getting a paycheck one December to save 10% each month throughout the year to cover the holiday lull.

Portland individual and couples counselor Julie Jeske M.S. has also learned by experience to trust the ebb and flow of her private practice. "I wish I had known more about the way things can fluctuate. Some weeks (or times of year) are really busy and others are slower. The first time things slowed down for me I got really nervous, but it always picks up again," Jeske says.

Solo practice can be isolating

When you practice in a clinic or agency it's easy to take social interaction and peer relationships for granted. There's always someone to grab lunch with or to consult with on difficult cases. For many therapists, the transition to private practice often means a loss of built in professional support system, and the need to actively seek social interaction and professional consultation.

When therapist Amy Luster, M.A., LMFT of Santa Monica, CA opened her practice she found solo practice to be isolating. Luster says, "It would have behooved me to learn about the benefits of participating in a group practice while I was in my graduate program."

Importance of setting boundaries

Maryland therapist Dr. Mary Sidhwani wished she'd know the importance of setting boundaries with clients.

Before I began my practice, I wish I would have created healthier boundaries. I wanted to be available for all my new clients and so returned phone calls and emails 24/7. As time went by, it became increasingly difficult to maintain that with the growing practice. I was able to put healthy boundaries in place, however, it would have been much easier if I had done that initially.

Now it's your turn. What do you wish you'd known before starting a private practice? Please post your comments below.