Eight Tips for Trimming Your Practice Expenses
by Communications and Corporate Relations and Business Strategy Staff
Making good use of resources is a key component in building a successful practice. Reining in office expenses is often a matter of working smarter, not harder. By thinking creatively, making the most of available resources and maximizing efficiency, practitioners can reduce expenses that cut into their profits.
This article outlines eight tips for trimming office expenses. Several of the tips below include suggestions from practitioners who responded to a call for cost-cutting tips from the last issue of the PracticeUpdate E-Newsletter.
Set and Follow a Budget
Create a detailed budget for your practice and stick to it. The starting point for reducing office expenses is to take a close look at your financial records, including your income statement, and determine whether, and where, changes are needed. Be sure to keep a record of your expenses every month and look for places where you could cut back. It is important to budget and plan for larger purchases and to periodically review the financial health of your practice.
Evaluate Your Rent or Mortgage Expenses
Office expenses represent a significant expenditure for most practitioners. Consider whether you can justify your costs in this area. Margaret Norris, PhD, a psychologist in independent practice in College Station, Texas, says that having a large office in a high-rent district doesn’t necessarily translate into increased income. She touts the benefits of having a less sizeable office in a well-managed building, in a location that is easily accessible to clients. “I could be spending twice as much in rent and I don't believe it would produce any more income than what I earn now,” says Norris.
Setting up a home office where you can handle administrative tasks can significantly reduce your overhead costs. Similarly, some psychologists find that they can see clients in an office connected to their residence. In both cases, you may be able to claim tax deductions for your use of the space.
Carol Lee Hilewick, PhD, a psychologist in private practice in Silver Spring, MD, has significantly cut back on expenses by having a home office. “In a high-cost area like Washington, DC, having an office of any size or quality can eliminate most profits,” says Hilewick. “The best thing I did to save money was to purchase a two-story home. I live upstairs, and the downstairs, which is above-ground, is dedicated to my office space. The layout is that of a professional office, which has a totally separate entrance.” Hilewick adds that while this arrangement offers benefits, she is careful to set up boundaries with her clients and to separate her professional life from her home life.
Seek out Better Rates for Communication Services
Are your local and long-distance telephone plans a drain on your budget? If so, call your carrier and ask about less expensive service rates and plans.
Holly A. Hunt, PhD, a psychologist in private practice in Long Beach, California, suggests calling telephone, cellular, paging, and Internet companies periodically to inquire about the availability of less expensive plans. “Companies are constantly competing with each other and generating new service plans and better rates,” says Hunt. “Even if you don't get all of your fees reduced when you call, you are likely to get some discounts. And if you don't periodically ask, you can be sure your rates will never change.”
An important reminder about phone expenses: Don’t forget to use toll-free phone numbers for third-party payers and other vendors whenever possible to save on long-distance charges.
Don’t Pay Full Price for Office Equipment
When making large purchases such as office or computer equipment, shop around for the best deal. Purchasing a multifunction machine that can fax, copy and print can serve multiple needs and reduce your expenses. Hilewick saves money by purchasing office equipment such as copiers, fax machines and printers from a business equipment company that sells lightly used equipment. “My supplier always refurbishes the equipment and provides a warranty,” says Hilewick. “In this way, I can get a $6,000, robust, multi-featured copier for about $1,000.”
Maximize Your Tax Deductions
Talk to your accountant about ways to maximize your deductions for business expenses. Eligible expenses may include business property expenses, health insurance costs, retirement plan contributions and business expenses such as professional memberships and journal subscriptions.
“Keep excellent business records,” advises Valerie L. Shebroe, PhD, a psychologist in East Lansing, MI. “Use a business credit card and business checkbook for ease of keeping business expenses separate.” Tip: Read “Making the Most of Your Accountant” to review economical and money-saving ways that a good accountant can be an asset to your business.
Review Your Staffing Needs
Periodically review your staff’s performance and salaries. Do you have the right person in the right job? Are staff members working efficiently? If you have an employee who is underperforming, work with that individual to create a plan for improvement. Although staffing costs can be a significant expense, the effective use of administrative support can influence your ability to generate revenue, work more efficiently and provide better customer service. Consider, for example, whether having one higher-paid staff position or using multiple part-time staff positions better meets your needs.
Rethink — Don’t Eliminate — Your Marketing Efforts
When it’s time to cut back on practice expenses, you may be tempted to target your marketing budget. However, cutting expenses that generate referrals and income for your practice can have a negative effect on your bottom line.
Instead of eliminating marketing, it may be time to reassess your marketing efforts or consider changing your marketing approach. For example, you may want to consider bolstering your efforts and activities such as community involvement or networking. Tip: Review "Low-cost Ways to Market Your Practice.”
Maximize Your Practice’s Efficiency
The more efficient your practice is, the more time you have to devote to clients and to building your practice. Take a close look at your various office processes, from billing to scheduling client appointments to making referrals, and look for ways to make them more efficient and cost effective.
Evaluate your scheduling. Are you making the most effective use of your office hours? If you find that you are regularly paying office overhead at times when you have no appointments scheduled, consider changing your office hours to better fit the needs of your clients and avoid spending money on utilities, staff and other expenses at times when you are not generating revenue.
Collect copays at the time of the appointment. Collecting 100 percent of copay amounts from clients at the time of service can reduce the amount of time and resources you spend following up later.
Use technology effectively. Consider whether you could increase your efficiency, or even reduce your practice expenses, with new practice management software or a new electronic billing service provider. Read more about practice technology.
Eliminate wasted postage costs. Are you losing money on postage? When you are mailing promotional materials, be sure to target the appropriate audience. When you pay bills, you may be able to save money on stamps by paying the bills electronically. Many banks now offer free online bill-paying for account holders. Before you submit bills and invoices, it is a good idea to review them for accuracy. This can save you time and money in the long run.
Maximize use of your office space. Do you rent or own office space but only use it a few days a week? Considering sharing the cost of your office space, your support staff, and your utilities with another practitioner on the days you are out of the office. Bringing another psychologist on board who offers complimentary services can provide a broader range of services to the community. Do you have more space than you need? If so, consider finding ways to use the space to generate revenue or consider downsizing.
When it comes to running a practice, some expenses are unavoidable. Practitioners who make an effort to use their resources effectively and to follow a budget can get the most value for their money and protect the financial health of their practice.
Share Your Tips
Do you have additional tips for trimming office expenses? Send your suggestions for ways — both large and small — that practitioners can reduce costs.