If you go into independent practice with your eyes open and a willingness to work hard, it can be a positive career move.Author(s):
Carsi Hughes Ph.D.
For some of you out there, your job search was a piece of cake. You are now gainfully employed with ample compensation and benefits. You are happy. You are fulfilled. You have no use for the IPA Placement Services. For others of you out there, the process hasn’t been quite as smooth sailing. Over the years I have talked to dozens of people who, at one point in their career, have grappled with the question, “Wouldn’t it be better/more lucrative/easier/less effort if I put out a shingle?” Indeed, many psychologists make their livings at least in part through private practice. It can be done. It can be done well. However, many psychologists fail in their attempt to keep a private practice profitable. So for those of you considering striking out on your own, a few things to consider before shingling up.
1. BE REALISTIC ABOUT YOUR SKILLS AND RESOURCES. Are you organized? Do you understand finances and simple accounting? Do you have enough money to pay people to do the things you are not good at? Will you miss camaraderie at the water cooler? Independent practice is named appropriately; you will be functioning independently. For those of you who can’t manage the administrative aspects of psychology (keeping up to date with insurance, paying rent, scheduling clients, depositing checks, tracking expenses), you will seriously need to think before terminating a stable full time position.
2. CONSIDER REFERRAL SOURCES.
So many psychologists have the Poltergeist Attitude…..If I Build It, They Will Come. This is not true. Before taking the leap into private practice, be realistic about referral sources. If you leave a job to start your own practice, you may be in violation of a non-compete clause if you open your own office. Start thinking about marketing long before you get your name etched in gold on an office door. Contact potential referral sources and see if they would be willing to refer to you. If not, find out why. You may want to get on insurance panels for the referrals they offer. You may not. Think it all through and if you feel that you can sustain a practice, continue on.
3. ESTIMATE YOUR INCOME.
Although most people tend to estimate their expenses and then assume their income will cover them, I recommend sitting with a calculator and doing some income estimation first. First, decide how many weeks per year you plan on working. Be honest. It is unrealistic to think you will work all week every week. Some time off will be client motivated, some will be personal. Let’s say you think you will actually work 48 weeks per year. Then estimate how many clients you will see, on average, each week. Let’s say you determine you will probably see 25 client hours, perhaps less at the beginning and building to more. Finally, how much do you think you will get for each client session? If you are doing managed care, the best might be $70, provided you get all the authorizations done properly, bill properly, and get the co-pay. If you run a self-pay practice, you can set your own rate, but then your referrals will likely be less. Maybe you will do a sliding scale for clients in need or for longer-term cases whose insurance runs out. For this example, let’s say that on the average, each hour pays $70. Your yearly income is then $84,000. But don’t quit your job yet! We have another step.
4. ESTIMATE YOUR EXPENSES.
Malpractice insurance, association dues, office supplies, billing and/or collection service, rent, office furniture, accounting fees, phone charges……it all adds up. One of the biggest expenses is rent. I have seen many clinicians bury themselves in a monthly rent payment that they could not afford. If you are just starting out with only a few clients per week, you may want to rent by the hour. $8-15 hour in the long run is often much less than a huge payment for an office that you use only a few hours per week. Of course, if you rent hourly, your flexibility is diminished and that may cost you in referrals. But a large rent payment can set you so far behind every month that you find yourself quickly begging for your old job back. In our ongoing example, let’s say you rent your own space as you intend to work full-time. You get something reasonable or fabulous for $500/month (depending upon location). You buy inexpensive furniture including soundproofing machines for $1000. The billing service charges you ten percent of receipts, so that’s $8,400. Your accountant is helpful but that’s another $200 over what you normally spend. Your malpractice runs about $1000 year, your dues about $500/year. Telephone is $50 per month. Office supplies, including faxing and letterhead, business cards and tissue is $200 year. And oh, you gave up medical insurance from your full-time job….so that’s at least $300 a month. Surely there will be some marketing, even if it is just taking your favorite physician to lunch: $250 year. Of course there will be miscellaneous monies spent (workshops, supplies, books) so let’s tack on $250. You may have more or less expenses (perhaps you have insurance, but need child care, you may contribute to an IRA or have office sub-letters), but this will get you started. Using our example, The GROSS income minus EXPENSES is now $62,000.
Depending upon your tax bracket, your federal taxes will vary. Let’s use 20 percent ($12,400) to make it easy in this example. And Illinois taxes 3 percent ($1,860). Let’s not forget FICA. As an employee, your employer contributed 7.65 percent and you contributed 7.65 percent. Now that you are both the employer and employee, you need to chip in that additional 7.65 percent. So your total FICA contribution is 15.3 percent ($9,486). In our example, we are now down to a net income of $38,259. That’s under $3,200 per month.
Are you pleasantly surprised? Discouraged? Filling out an application for Starbucks? Independent practice can be very rewarding and yes, profitable. Many people are afraid to go out on their own and many others have delusions about a permanent vacation-lifestyle with a never-ending supply of cash-only clients. If you go into independent practice with your eyes open and a willingness to work hard, it can be a positive career move.
Meanwhile, if you prefer working in a not-so-independent position, send me your email address and I’ll send you my job leads. For you employers, I am always looking to distribute job leads to my growing list of interested clinicians. Both of these services are free. I can be reached at DrCarsi@Ameritech.net or at 312.531.2375