Owning a group practice: How hard can it be?
Self-employed therapists often expand to group practice because demand for services is greater than the therapist’s availability, they see the potential for revenue generation, and have a vision that is larger than the single practitioner model.
But owning a group psychotherapy practice is not just an expansion of solo clinical work; it requires a different level of entrepreneurial acumen. While the owner of a solo practice is responsible for all aspects of running their own practice, the owner of a group practice is charged with the challenge of leading others and managing all financial, legal, and administrative aspects of the company.
A well-run group psychotherapy practice can be lucrative. Unlike solo practice, which can be financially rewarding but is capped by the number of hours the therapist is willing to work, group practice is scalable. Overhead is proportionally lower because scheduling, billing, office space, and other administrative costs are shared across multiple providers, thus freeing up time for therapists to provide clinical services.
As a simple example, a solo practitioner working 20 hours a week and averaging $150/hour might gross $156,000.00/year. Assuming that about one-third of gross revenue ($50,000) is applied to fixed and variable expenses, the therapist might net approximately $100,000/year.
By comparison, a practice that employs four 1099 contracted employees working an average of 20 hours/week at an average of $150/hour has the potential to gross $620,000/year. If the contractor keeps 60% of fees collected, the practice share of the gross revenue is $248,000. If overhead is kept low but increases to $75,000/year, the owner might draw $173,000 from the practice.
A well-managed group practice or mental health clinic is a long-term investment. Group practices often lose money in the early years because of the upfront capital needed to launch the business. In the early years of running a practice, a therapist owner may continue to see clients but also holds the administrative responsibilities of running the practice.
The challenges of group practice include high turnover rates of contracted therapists, which in turn, might affect customer perception of the practice. Even when 1099 contracted therapists provide services, the practice still has the potential for legal liability in the event of malpractice.
The 1099 independent contractor model is common for group practices because it avoids the expense of payroll taxes, benefits, and paying contractors for clients who fail to show for appointments. However, practice owners are responsible for ensuring compliance with federal regulations that classify independent contractors as distinct from W-2 employees. The business owner is liable for failure to comply with these regulations.
As must be evident, a group practice has the potential to become larger and more sustainable than is possible for a solo practice. An established group practice can develop the infrastructure needed to hold large contracts to provide services. A midsize or large group practice can be more impactful in that it can have greater reach and has potential to achieve a long-term vision.
An established profitable group practice can also provide a withdrawal plan for the business owner. There is a growing trend for private equity companies to acquire community mental health clinics and substance use disorder clinics over the past decade. A large, multi-therapist, multisite mental health or substance use disorder practice that generates seven figures annually in profit could sell for an eight-figure price.
Therapists with strong entrepreneurial traits, who are not risk averse, have excellent business and employee management skills, and have the capital needed, have the potential to develop a group practice that is financially lucrative and could eventually be sold.
The skill set of the successful therapist (clinical expertise, emotional intelligence, legal and ethical knowledge) is valuable but not sufficient to be successful as a business owner. Business owners also require financial expertise, operational skills, regulatory and legal knowledge, risk tolerance, the ability to delegate and manage people, and leadership skills.
Therapists are often gratified by the ability to make significant impact on individuals and families. Such an impact can be life-changing with a positive impact that can affect future generations of the family.
Business owners may lead other therapists in the delivery of care, leaving a lasting mark on the community and the field. Both career trajectories can be rewarding. But a deep understanding of the potential risks and benefits should be considered before pursuing the path of business ownership of a group psychotherapy practice.