Episode 181 Group Practice Startup Costs

Welcome back to another episode. So today, you’re going to be hearing a clip from one of my master classes inside The Exchange. This clip is going to be specifically for those that are looking to start their group practice. So if you are beyond the startup space, you can skip this week and spend the 15 minutes you would spend listening to this doing something fun and self care-y for you. Now, for those of you that are in that initial space of just getting ready to bring on that first person, this will be a good clip for you to listen to.

So what you’ll be hearing is part of a training that I had last month on starting a group practice some of the procedures and practices that you want to set up for your group practice to be set up successfully. And the particular clip you’re going to hear I’m talking about startup costs, specifically around you know, starting your group practice. So one of the things that I talk a little bit in depth about is how to sort of forecast your spending when it comes to the office decor and furniture. Because it’s one of the those are one of the things that I feel like you can really start to go overboard on if you’re not paying attention. And so I talked a little bit about how I budget for it, even now, with all the locations that I have. So take a listen. And I’ll hear from you in a little bit. All right.

All right. So I want to start with the startup costs before we jump into anything else, because I know that’s one of the questions that those who are just getting ready to either expand their solo practice and bring on a clinician or are in that like first step, try to anticipate what does it cost? What does that look like. And so this is a pretty rough, general sense of kind of those startup costs. So we have all of the kind of basic things that probably most of us know about, which is EHRs malpractice insurance, through rent, obviously, that kind of varies by state.

For, okay, so with furniture and office decor, one of the things that I did right from the beginning was think about a budget for myself per room, and I count the waiting room as a room as well. And so my cost anytime I open a location and I have a handful of locations, is that I try to budget $1,500 for each individual room. And that gives me a sense of if I’m going to have a six office space with a waiting room seven rooms around what the cost should be at the end of the day. It keeps me in line so that I don’t overspend and helps me stay in a within a certain type of budget. At this point, I already have a setup for what couches I like and what office decor I like. And so I’ve figured my budget out pretty well. But that’s something to really think about as you potentially expand your office location into multiple offices or moving forward multiple locations. Because it can get pretty pricey if you don’t have some sort of budget in mind.

So I like my budget of $1,500. It works really well, I’m able to get all the things that most therapy offices have couches, chairs, desks, lamps, wall decor, all that kind of stuff with it.

And that’s me being also a little thrifty. I don’t go, you know, I get a couple of West Elm type things. So our therapist chairs are probably the most expensive chairs. But a lot of the other things I get between, you know, IKEA, Home Goods, World Market, those kinds of things. Places where it’s not as expensive. So it really depends on how you want to spend within each room. But I suggest coming up with a price per room, once you figure out your style and what your offices need. So that moving forward, you can stay within a certain budget and not go overboard.

And then for employee based practices you want to consider, I just noticed that this is a little hard to see. For employee based practices here, is that a little better? Yeah, you’re going to have to consider when you’re thinking about how to pay your staff, you’re going to want to consider 1) workers compensation. When you have employees, you’re going to be paying for workers comp, and good rates are around 23 cents to 35 cents for every $100 of income.

I know, this was a hard concept for me to figure out. But essentially, you can you can contact different workers compensation policies, I use Gusto, for my payroll, and they have workers comp in there that I think is really a great rate. That is through the company called AP Intego. And my rates are somewhere in between 23 cents and 35 cents for every $100 that you’re paying in payroll to a person. So if someone makes nothing, you’re not paying any workers comp, if someone is paying, if you’re paying someone at the end of payroll $100, let’s say for a session they had, then you’re going to be paying about 23 cents to 35 cents for that $100 that you paid out, you’re also going to be needing to pay for malpractice insurance. If you have employees, for contractors, these things are not a part of it.

And so with contractors, you’re essentially just paying whatever the dollar amount or percentage split, whatever the compensation style that you’ve chosen to have with your contractors, that’s going to be it, they’re going to be in charge of their own taxes, you’re not going to pay any sort of employer taxes, you’re likely not going to need workers comp or to pay for their malpractice insurance. So this is really specifically for employer based practices.

You’re then in a paycheck gonna be paying out to the IRS, your state’s department of revenue, unemployment tax, and any sort of benefits you add. So the IRS at this point is around 7.65%. And then the Department of Revenue, so are mine is the Illinois Department of Revenue, every state has their own department of revenue is 3.75%. So that can vary very slightly. And then unemployment tax is about a half a percent. So when you hear people talk about commission based practices, and how contractors make around 10% more, that’s really where this is coming from. Because as an employer based practice, if you choose to have employees, you’re going to be paying about 10% ish in taxes on your staff’s payroll.

So where when they’re contractors, they’re going to have to be saved, you’re paying no tax, employer taxes, you’re just giving them straight up whatever dollar amount that they are owed, and then it’s on them to save on the side about 30%, right, just as you are a sole proprietor, and you’re probably saving around 30% to pay taxes at the end of the year, they’re doing the same thing.

But when they are employees, that 30 ish percent, you’re essentially paying around 10% of that, and then they’re going to be paying around 20% as an employee. So that’s where some of the taxes get taken out of their paycheck, and you’re paying some payroll taxes as well. So that gets split. And that’s why there’s this like false notion that contractors are paid more.

And if it’s done correctly, that’s not actually the case, it’s just that they are in charge of paying 100% of their taxes, which is why you as a business, if you have contractors are going to be paying out more around 10% more, because you’re kind of putting those taxes on the contractor. They have to pay that as their own business person. But when they’re employees, it’ll look like they’re being paid less because you have to account for the fact that you’re actually absorbing a bunch of their taxes–about 10%.

And you want to also think about the fact that if you’re going to be offering any benefits, time off, sick time, health insurance, any of those things, that is part of their compensation, and so you want to make sure when you first start to bring people on, that you’re not over compensating them, because it makes it really hard to then add additional benefits at the, you know, a year or two years down the line as you get used to running your business because you’ve front loaded all of that available pay into their actual paycheck and aren’t leaving enough income to be able to offer additional benefits later on.
So benefits are a part of that compensation. And you want to make sure that if there are any benefits that you want to be offering, that you’re paying attention to that and factoring that into whatever your compensation that you want to be able to pay your employees. Again, with contractors, you’re not offering benefits, that is something you can’t do. If you start to offer benefits, you’re stepping into misclassifying them as contractors and potentially getting in trouble without with the IRS or with your state.

Alright, what did you guys think? i If you have a process that is working for you, if you’re an established group practice owner who decided to listen to this, let me know how you budget for your office space specifically, it’s one of those things that as you get multiple locations or multiple Office suites, it can become quite a cost if you don’t have a system for making sure that you kind of stay organized with your finances around that startup. So hopefully that was helpful in getting you sort of prepared mentally on some of those basic costs that every group practice is going to be dealing with when they first start up so that you can be prepared when you bring that first person on. I’ll see you next week.