So you want to be at your private practice full-time?
You dream of being able to work with the clients you want to work for while getting paid more, not being paid on an hourly basis and most importantly not having to deal with your out of touch supervisor at the clinic you’re working at.
Congrats to you for finally reaching the point of making your dream a reality!
However, before you pack up your office and kiss the supervisor at your clinic goodbye there are some serious financial implications that must be considered.
1. Will the income you make from your private practice clients fully replace the income from your clinical job?
This is the first and most obvious question to ask before you make that long-awaited leap of faith.
At first glance this question seems easy. All you have to do is take the income you are currently making at the clinic and see how many private practice clients it would take to replace that income. Wallah you’re done…well not so fast.
Gross and Net Numbers
There are two sets of income numbers you must look at when seeing if private practice can replace your clinic income, your gross income and your net income.
Your gross income is the first number you see BEFORE you take into account the expenses of running your own private practice. The gross number represents only the income you receive from seeing your clients.
While the gross number may seem like the number you use to calculate income replacement, it is in fact the net number that is most important.
Your net income is the number you’re left with once all taxes, business overhead costs and the cut your supervisor gets have been subtracted from your pay.
For example, say you charge an hourly rate of $150 per client, how many clients would it take to replace the $3,000 a month you make at your clinic? Easy the answer is 20 clients ($150 x 20 clients = $3,000).
Well not necessarily.
Your net income looks more like this:
$150 x 20 clients = $3,000 – Rent – Supervisor’s Cut – Marketing – Any other overhead = Your Net Income
This net income number is what you will then use to determine whether or not your private practice income will be able to replace the income from your clinic.
2. Did you build a private practice “income buffer”?
When looking at the amount it’ll take to replace your current income with your private practice income always always always give yourself a monetary buffer for the inevitable curve balls life may throw you.
Why? Because a wave of clients suddenly decides to quit therapy, your supervisor raises their cut of your fees, rent increases, business slows down, the list goes on and on.
Be sure that your income estimate has some extra leeway so you can absorb some of the unexpected events that will surely come up when switching to private practice full-time.
3. Have you taken into account the extra costs associated with being in a private practice?
I probably don’t need to tell you this because you already know but I’ll say it anyway.
You will have extra costs when running your private practice that you didn’t at your clinical job.
Your added social media presence, hiring someone to upkeep your website, rent for your office space, office furnishings, online client portals and booking systems, and virtual phone services (this list goes on and on) will all make a dent in that net income number we spoke of earlier.
4. Do you have an emergency cash reserve (for both your practice and you personally)?
A cash reserve is money set aside to cover any unexpected short-term needs such as a surprise loss of income.
An emergency cash reserve, which is also referred to as a rainy day fund, allows for protection when an emergency arises such as sickness, disability or slow months for your private practice. It prevents you from taking out additional funds used for your business (no shaking of pennies out of the piggy bank).
The general rule of thumb is to save enough to cover 3 to 6 months of your regular living expenses or in this case, business expenses.
It’s incredibly important to note that depending on the volatility and variability of your private practice income your cash reserve may have to cover up to 12 months of expenses. It all depends on the intricacies unique to your practice.
5. Have your prepared a new budget?
If you’re crunching the numbers and still finding that going into private practice full-time isn’t going to support your current style of living then stop spending all your money on weekend wine outings.
Just kidding.. but seriously try making a budget to see what monthly expenses of yours can be cut. By cutting out the unnecessary spending, you may come closer to having your full-time private practice being able to support all of your monthly financial needs.
6. Do you understand that initially money will be tight and you’re taking a significant financial risk?
Here’s another tidbit of information I’m sure you’re well aware of; going out on your own with your private practice as your only source of income requires you to take on a large amount of financial risk.
You will have good months and bad months, clients will come and go and unforeseen expenses will make the journey difficult. However with this added risk you also have unlimited upside.
By working for yourself and taking the leap of working in your private practice your income is only capped by how many clients you see and the effort you’re willing to put into your practice.