How To Pay Yourself As a Group Practice Owner
When people start their own business, they’re often excited about setting their hours, pay, and living a freer existence. That all sounds great. But, once you’ve run a business for a while, you realize it’s not quite as simple as that.
Running your business means constantly juggling your needs and the needs of your business – it’s your most significant investment, and its continued success will ensure your future. You have to find a salary that allows you to live the lifestyle you want while providing continued investment in building your business and your brand. You don’t want to bankrupt yourself – or your business.
This guide will help you determine how much to pay yourself as a group or solo practice owner. We will discuss how to pay yourself and accounting considerations. This guide is meant as a starting point for making your action plan. Consult with attorneys and accountants to ensure you’re maximizing income potential while adhering to all laws and regulations of starting a private practice.
What Percentage Should I Pay Myself From My Private Practice?
Deciding how to pay yourself when you run a private practice depends on several factors. Consider the following when deciding:
- Are you the only owner, or will you have a partnership?
- How much work do I do?
- How many hours do I want to work?
- How many other people work for me?
- How much would I have to pay someone to do the administrative tasks I do?
- What are my rent, loan interest, insurance, and tax savings obligations?
- What are my marketing costs? (cutting these now can have a significant impact on future earnings).
- Do I have employees I need to pay? (Cutting employee hours to save money negatively impacts morale.)
- How much is my overall revenue?
Since your gross income determines your salary, it makes sense that growing your business so you can take on a more extensive caseload will increase your income potential. Many people opt to start a group therapy practice rather than work alone.
That decision means you’ll spend less time working with clients. Managing a business means you’ll have to balance how much time you want to spend on business tasks with how important clinical time is to you when choosing between solo and group practice.
How To Pay Yourself in Private Practice
Generally, private practice owners pay themselves a percentage of the overall revenue. Figuring out your gain requires careful accounting of income and expenses. The first step in figuring out how much to pay yourself is to get honest about how much money you want to make.
Once you know your desired salary, you’ll have to consider:
- The number of sessions you can provide (this number depends on the number of therapists working for you).
- The average amount you collect for each session (collection rate)
- How many weeks you are willing to work in a year, and how many hours each week.
- Your expenses.
- The benefit costs and tax obligations you have.
A basic salary calculator is: (# of Sessions) x (Collections Rate) x (# of Work Weeks per year) = (Gross Revenue) – (Expenses) = (Gross Pay) – (taxes & benefits) = (Paycheck)
What to Consider in Private practice Accounting
Many people start a private practice wanting to work for themselves without the goal of expanding and hiring additional therapists. That structure is more straightforward because you have fewer expenses and less overhead. However, if you want to scale your business into a profitable venture, you’ll need to add therapists and increase your caseload.
Setting up accounting systems from the beginning can help you avoid the end-of-the-year headaches. Here are some accounting practices to consider as you get started.
If you’re the sole business owner of private practice, have a segregated credit card, business checking account, etc., rather than using your personal account to handle business income and expenses.
Careful record keeping of all income and business expenses is essential when forming any small business. This record-keeping becomes vital when calculating both taxes and how much to pay yourself as a group practice owner. IRS categories include mileage, rent/mortgage, advertising, commissions/fees, employee benefits, legal or professional services, office expenses, company vehicles, taxes, licensure requirements, travel and meals, utilities, and employee wages.
Hiring a tax accountant or CPA for ongoing help or even a consultation to get an accounting system set up can be beneficial, especially if this is your first time starting a business.
Whether you’re starting a solo practice or a group practice, you’ll need to consider malpractice insurance and health insurance costs. These costs increase based on the number of employees you hire, so you’ll want to adjust your employee expense categories appropriately. Shop around different insurance companies to find the ones that best suit your needs.
You’re responsible for income tax, social security taxes, and self-employment taxes when you’re self-employed. You may also have property taxes depending on whether you rent or own your business location. Saving for these taxes throughout the year will help you avoid a large tax bill at the end of the year.
You’ll also want to consider tax deductions that benefit your business and your bottom line. Any investment you make in your business, new computers, equipment, etc., reduces your taxable income. Setting aside money in an IRA or a self-employment retirement plan can reduce your taxable income.
What is Different About Group Practice Accounting?
When you hire employees or independent contractors, there are additional business considerations.
What Type of Employees Will You Hire
When you hire a new clinician, you’ll want to consider what type of employment to offer. Some group practices have W-2 employees that are on payroll and receive payments with taxes withheld. These employees often accrue time off, and other employee benefits through employment.
Other group practices use independent contractors who receive a set amount for each project or client. Independent contractors are in charge of their schedule how and where they work but don’t receive time-off or other benefits from the company.
Decide How to Pay Your Employees
You can decide to pay employees a salary, an hourly rate, or based on commission. You can also use a combination approach. You may pay therapists differently based on their experience and whether they’re W-2 employees or independent contractors.
Set Up Payroll
If you pay your employees salary, hourly, or based on commission, you’ll want to purchase payroll software such as QuickBooks or hire a payroll agency. This will ensure you’re withholding the appropriate amount of taxes and that everyone gets paid correctly. Hiring
Hire an Attorney
If you’re hiring W-2 employees or independent contractors, it’s vital to form an LLC to protect your assets from employee negligence. An LLC is a company that exists separately from the owners (called members), so the owner isn’t personally responsible for the debts and liabilities of the owner. Hiring a business attorney in your state can ensure you follow all appropriate rules and regulations when starting an LLC.
What is the Typical Salary of a Group Practice Owner?
The typical salary of a therapist based on the May 2020 National Occupational Employment and Wage Estimates in the United States is between $34,000 and $96,000 per year. The average salary for business owners is between $62,000 and $185,000. So, a group practice owner will make significantly more money than someone running a therapy practice independently. How much you pay yourself will depend on the revenue of your business, which is why solid accounting practices are so important.
Get Support Making Financial Decisions for Your Group Practice
Talking about money often feels taboo in our society. However, to create and scale a successful private practice, you must get comfortable talking about money in great detail. Having guidance for a business coach or consultant who’s been where you are, knows the right questions to ask, holds you accountable to your goals, and action steps will help you create a business where you pay yourself a fair salary while investing in your private practice.
Soribel Martinez, LCSW, is a psychotherapist with over 20 years of experience in the mental health field who created SMPsychotherapy and grew it into a thriving private group practice with _____ therapists serving over ____ clients. She knows how to build a business and the nuances of working in the mental health field.
Now, Soribel offers business coaching and consulting to growth-minded mental health professionals ready to begin their private practice or scale their current practice into a successful group practice. She’ll provide support and accountability to set and achieve your business goals.Book your FREE Business Consultation Call today to learn more about Soribel’s business coaching services. She’ll learn more about your current business your goals for scaling your practice and provide her recommendations for your next steps.