Can You Actually Recession-Proof Your Private Practice?

Please note: At Soul Of Therapy, we are not economists, accountants, or investment analysts. Please always consult with trusted professionals for specific financial advice. On occasion, we do share affiliate links on our blog posts. If you purchase an item using an affiliate link, we may receive some compensation at no cost to you.

Therapists don't agree on a lot of topics, but fears about financial struggles are something almost all of us can relate to. This is particularly true for therapists working in private practice. When things are going well, having flexible hours and running your own show can seem like lucrative perks. But when the prospects of an economic downturn come into play, these variables suddenly seem far more nuanced.

Do recession-proof businesses exist? And what steps can you take to protect your finances if a recession hits? Let's get to it.

Should You Open a Private Practice Right Now?

Here's the thing about recessions: no matter where you look, someone will always say we're either in a recession or about to be in a recession. This applies at any point in time. It's easy for people to form an opinion, and we often listen to fear more than we pay attention to reality.

So, here's a better question: Why do you want to open a private practice?

Answer that- and read through my considerations before opening a private practice- and practice getting more comfortable sitting with your anxiety.

No matter how much planning and preparation you do, you can't build a fully recession-resistant business, and trying to do is a useless endeavor. At some point, you have to accept the financial risk of running your own show.

That said, you can still take preventative care to ensure you're making logical decisions.

What Happens to Therapists During Recessions?

Many eager therapists will promise you that you can build a thriving, six-figure practice in three months. They're usually trying to sell you a product or course. Reality is different. 20% of small businesses fail within their first year, 50% within five years, and 70% within ten years.

These statistics are depressing, but here's the really good news: healthcare and social assistance industries have some of the highest survival rates! 85% of these small businesses succeed in the first year, and 60% make it through their fifth year.

It's no secret that people face significantly more distress during recessions. Recessions coincide with anxiety, depression, relationship problems, low self-esteem, and an entire spectrum of mental health symptoms. Where do they turn for support? Maybe your office.

That said, there are some caveats. During a recession, a client may be more apt to:

• ask for a sliding scale rate
• drop down to fewer sessions
• use their health insurance for treatment
• seek therapy services elsewhere (community health clinics, subscription therapy services)

Consider how your practice aligns with each of these four considerations. Do you have a sliding scale set up? If not, is it something you're open to doing? Are you willing to see clients once a month or every other week if necessary? What is your stance on using insurance panels? And finally, if needed, would you consider supplementing your work with other sources of income?

We'll dive into all of those questions in more detail below.

Your Therapy Recession-Proof Business Plan

First things first, you can't fully recession-proof any business. While recession-proof industries exist (and healthcare is considered one of them), every recession is different, so these downturns impact individual companies differently.

However, you can take steps to build a more recession-resistant practice. This applies whether you're just opening your practice or if you've been working with clients for many years.

Start Budgeting Now

You have to know your overhead costs, taxes, and incoming cash flow. Even when things are thriving. So many therapists struggle with this, but try to stay on top of it!

If budgeting feels like a curse word, it's time to change your negative relationship with money. You aren't doing yourself any favors, and being in denial often only makes things worse!

Don't wait for economic downturns to get a grip on your finances. It's kind of like therapy- you can go when things feel catastrophic, but most of us would agree that it's better to consider getting help before the situation feels unmanageable.

You can get started budgeting with a simple app like Mint, Personal Capital, or You Need A Budget. While it's crucial to keep your business and personal expenses separate from an accounting standpoint, you need to have a birds-eye view of all sources of income/expenses.

In other words, even if you make a lot of money in your practice, how does that compare to your total monthly bills/debts?

Pad Your Business Emergency Fund

Now that you have a budget in place, what does your business savings look like?

Every business should have emergency funds on hand. These funds provide a cushion during hard times. It's just like how you should have a personal savings account.

There isn't a hard number for what you should stockpile, but most financial advisors recommend around 3-6 months worth of operating expenses.

It's okay if that takes you awhile to build, but aim to prioritize stashing some away every month. The peace of mind is invaluable!

Maximize Cash Flow

Only you can decide how much in your cash reserves makes you feel secure. Before jumping to add on new clients, here are some ways to focus on increasing the money you already make.

Enforce your cancellation policy: If you don't have a cancellation policy for your practice, it may be time to revisit your intentions. Aside from impacting the therapeutic relationship, every cancellation costs you money.

Invoice in advance or on the day of: If you invoice clients, aim to send them either just before or right after the session. Make your payment terms explicit, and don't allow clients to collect unpaid fees for several weeks or months.

Raise your rates as needed: The average inflation rate from 1960 to 2021 was 3.8% per year. It's standard practice to raise your rates, and you should consider revisiting your fee at least once a year. Otherwise, you're actively decreasing your pay.

Consider Your Available Credit

Some financial experts recommend having more money available to borrow. You can do this by either opening a new line of business credit or increasing a current limit on one of your business cards. Ideally, these are for emergencies- don't use the extra credit as an excuse to unnecessarily spend!

During recessions, it's often harder to qualify for more credit, so it may be productive to consider doing it in advance.

Cut Costs

Transition to telehealth: Many therapists have already taken this approach, and it's certainly a method to consider if you want to save money. Telehealth slashes your typical office rent, equipment costs, and other brick-and-mortar fees.

Buy things used: Furnishing an office can get expensive. When I first opened my private practice, I checked out thrift stores, Facebook marketplace, and my local Buy Nothing group to get some basic supplies. If you work with young children, I highly recommend scouring the 'on sale' section at Play Therapy Supply!

Sign up for trials: When in doubt, try trials first. Almost every software/service offers 30-day trials or some steep discount. Of course, you're on the hook for paying full price, so make sure to set a reminder to either continue with the product or cancel it.

• Simple Practice: $150 credit applied (2-3 free months)
• Psychology Today: Often has free, 30-day trials
• IvyPay: $1000 in free charges 

Consider Diversifying Your Income Streams

Diversifying income can provide additional cash during economic uncertainty. The important thing to consider here is that passive income streams are not necessarily easy or guaranteed.

Therapy-adjacent income streams include:

• Creating courses or digital content

• Supervision or paid consultation

• Professional writing (including books)

• Public speaking

• Assessments and reports

• Selling physical products

Remember that all of these income streams require upfront time and planning. Be wary of people selling predatory "passive business ideas" that promise six figures.

Consider Insurance Paneling

Insurance panels can get a bad rep when it comes to private practice. The fears and disdain aren't totally off-base. Insurance companies come with their logistical challenges, and not all therapists agree with such constraints.

That said, accepting insurance does offer some undeniable advantages. Even the thought of a recession can make people hesitant to spend money. Paying for therapy out-of-pocket can get expensive, especially when people can receive cheaper services through their insurance.

In addition, insurance may help cut down on marketing costs. Depending on how many referrals you receive, you may not need to invest as much time or effort into putting yourself out there.

Double Down on Marketing

Although it may seem counterintuitive to spend money during times of economic uncertainty, doing so may be the best decision you make. This is especially true if you're a fully cash-pay practice- or if you're in a growth phase.

Significant research shows that businesses that continue engaging in their marketing strategy- and even increase their efforts during recessions- benefit significantly. It may seem like an initial hit,

Think about your marketing weak spots right now. Consider making a checklist of to-do items you know you need to prioritize. Some of these may include:

• optimizing your directory profiles
• making a high-quality website
• creating a social media strategy
• investing in search engine optimization (SEO) or online ads
• hiring a virtual assistant

Remember that marketing can sometimes be a trial-and-error process. Over time, you will develop a strategy that works well for your business (and this strategy will likely change as your business evolves).

Work with Professionals

Taxes are among some of the biggest expenses you will make in your private practice, but many therapists feel overwhelmed when they even think about tax season.

For this reason, I can't recommend outsourcing your tax preparation enough. The right professionals can help ensure that you're securing the right deductions for your business, and they can strategize to help you find more ways to save money.

If you have a larger practice- or you manage multiple income streams- you might also want to look into professional bookkeeping services.

Remember How Essential You Are

When the COVID-19 pandemic first hit, many therapists were rightfully concerned about losing their jobs. But what actually happened was the opposite: we saw an exponential need for therapists. There was a far higher demand than supply, and many agencies and private practice clinicians had long waitlists.

This isn't to say recessions don't impact therapists. But research overwhelmingly shows that economic downturns don't affect the mental healthcare industry in the same ways that they impact other businesses.

Remembering how important your business represents having a growth-oriented and strengths-based mindset. These mindsets aren't necessary, but they can help you maintain a positive spirit as you weather your daily uncertainty.

Therapists provide essential services to society. It's important to own this mindset as you navigate the fears of an economic downturn. If you can't believe that your business is worthwhile, you may have a harder time believing.

Start Networking Now (And Prioritize It)

Even though I run a digital marketing business, I'm a therapist first. And as a therapist, I can't deny the absolute importance of word-of-mouth referrals. When you're good, and you're known in your community, you will get referrals. And having that reputation is invaluable to your business.

Your networking preferences will depend on your personality. Some people find that it's better to attend in-person events while others find more connection online. Many therapists use some form of a hybrid approach.

But have something in place. Consider where your ideal clients might be, and try to focus your efforts there.

If You Have a Partner or Family, Have a Plan B and C

My husband and I both own private practices- among other companies, including this one- and our income and expenses often fluctuate. This is common in most small businesses, and therapists are no different.

That said, it's important to engage in routine money talks with your partner or family. Ideally, everyone should be on the same page when preparing for a potential economic crisis. Consider having quarterly meetings where you discuss:

• what your current cash flow looks like (and how it compares to the past and/or what you want for the future)
• alternative goals if your private practice suffers from a recession
• how you will manage your budget and spending if money becomes tighter

The goal isn't to have it all figured out right now. Instead, you want to focus on having open lines of communication (just like we do with our clients). The worst-case scenario may not happen, but it's good to know what steps you will take if things start looking bleak.

What If You Can't Recession-Proof Your Therapy Practice?

As therapists, we support our clients navigate fears of the unknown. We weather through storms of ambiguity and provide insight, guidance, and coping skills to manage stress.

An economic recession can be scary for everyone, and no business model is fully immune to the impact of unpredictable financial lapses. You can't fully prepare for every nuanced event (and the pandemic taught us all that), but you can try to get your affairs in order to prepare for a difficult economic situation.

But economic crises pass, and the healthcare sector certainly isn't going anywhere.