Psychologist Neal R. Morris, EdD, left a huge but struggling group practice in 1996 and started his own private practice. His independent venture thrived until the following year, when the patients who had followed him to the new practice began to complete their treatment.

"I was still doing very well but was worried that my referral base had evaporated," says Morris, who offers family and child psychotherapy in Bethesda, Md. "I was afraid I had jumped out of the frying pan into the fire."

The solution to his dwindling client base? A business plan that has helped him develop new services and attract new patients. With the help of a business coach, Morris developed a comprehensive plan that includes everything from marketing strategies to detailed financial goals to concise statements summarizing the various services he provides.

He has already developed a separate plan that covers services related to seasonal affective disorder, a niche he markets with everything from giveaway bookmarks advertising his services to offers of free consultations. Now he's performing the market research necessary to confirm his hunch that providing therapy for families of surgical patients should be his next move.

Today his business is thriving.

Having a business plan makes Morris unusual among psychologists, says Chris E. Stout, PsyD, MBA, who consults with psychological practices through his consulting firm, Stout Ventures, in Kildeer, Ill. But, he emphasizes, every private practitioner should have one if they want to monitor their practice's health, move into a new niche or seek outside funding for expanding their practices.

"There's often a stigma among clinicians against anything that even has the 'b' word in it," says Stout. "The word 'business' has become synonymous with mercenary or money-seeking. But treating your practice like a business means being able to stay in business."

Charting your course

A business plan is essential if you need outside funding, says Stout. Whether you seek a bank loan to build an office addition or want a large health-care system to help you create an outpatient treatment program, a plan shows you're serious.

"When I was on the side of a potential funding source, every single practice that came to us with a good business plan was successful in its request for funding," says Stout, who is also chief of psychology at the Illinois Office of Mental Health. "When you take the trouble of creating a business plan, it helps you flesh out answers to questions like how much money you need, what your costs are, what the money will go for, when you'll break even and when you'll make a profit."

Having a business plan is also important if you're moving into a new niche. Louis A. Perrott, PhD, used a series of business plans as he made a career switch in response to managed care's increasing domination of the health-care market. Once a private practitioner offering psychotherapy, he now helps organizations handle tasks like hiring the right executives, building leadership skills and responding to crises through his Roanoke, Va., company, Peak Performance Consultation. For psychologists eager for a change, he says, a business plan can help identify the best areas for exploration.

Business plans can also re-invigorate practices, says Lynn Grodzki, LCSW-C, the Silver Spring, Md.-based business coach who helped Neal Morris. A plan can help psychologists decide whether an idea will be profitable or even feasible, for instance. It can also guide psychologists as they make decisions that affect their practices. Minimizing income loss by scheduling vacations during low-volume periods you've identified is just one example, says Grodzki.

"Not having a plan doesn't mean your practice won't have a direction," says Grodzki. "But the direction will be one of circumstances rather than your vision of what you want your practice to be."

Getting it down on paper

Putting together a business plan doesn't necessarily entail hiring a professional. Books, software or small-business development seminars at your local chamber of commerce can all guide you through the process. No matter what your source of guidance, keep these pointers in mind:

  • Develop a vision. Think about the kind of practice you want. You might envision a practice incorporating alternative healing techniques, a practice comprised entirely of group sessions with breast-cancer survivors or a part-time practice that gives you time to write a book. What will keep you satisfied over the long term?

  • Conduct market research. Although you can hire someone to conduct a market analysis for you, you can also do informal surveys or set up focus groups of potential clients and referral sources to assess your environment. "Unfilled market needs are the most fertile area for new businesses or reorientations of businesses," says Perrott. But be careful: Situations where demand is high and supply is low aren't always ideal. The reason other psychologists haven't moved to fill the need may be that insurers refuse to reimburse them for the service, for example.

  • Analyze your competition. Find out who's practicing in your area, what services they offer, how much they charge and what kind of reputation they have.

  • Set financial goals. Establish benchmarks for the number of clients, billable hours and income you want. Include timelines so you'll be able to measure your progress. Analyze your financial history, such as identifying what kinds of sessions have been most profitable in the past. Morris's analysis, for instance, revealed that he was actually losing money by offering group sessions designed to help 12-year-olds develop social skills. Be sure to include expenses as well as income in all your calculations.

  • Create a marketing plan. "Marketing is often a dirty word for therapists, but you need a plan for generating referrals," says Grodzki. Decide what kind of advertising to use, promotional materials to create, presentations to give and networking opportunities to take advantage of. Be as specific as possible. Don't just say you'll call potential referral sources, for example; say whom you'll call, how many people you'll call and when you'll call them.

  • Adapt standard business plan templates to accommodate your needs. Providing mental health services is clearly different than other businesses. Psychologists' plans should include strategies for handling the psychic load they take on, says Grodzki.

  • Get feedback. Ask your accountant, professional colleagues, potential referral sources and other trusted individuals to review your plan.

  • Revise as you go along. Your business plan should be a living document that grows along with you.

For practitioner Neal Morris, the act of putting his thoughts on paper has inspired a whole new perspective on his practice.

"Like many psychologists, I'm so interested in helping people that it's easy to do things that aren't good for my business," says Morris. "I can't emphasize enough how important having a business plan has been in terms of reminding me that I'm running a small business."

Rebecca A. Clay is a writer in Washington, D.C.

Further Reading

  • APA's Practice Directorate (1996). APA practitioner's toolbox series. APA Books.

  • Grodzki, L. (2000). Building your ideal private practice: a guide for therapists and other healing professionals. W.W. Norton.

  • Perrott, L.A. (1999). Reinventing your practice as a business psychologist. Jossey-Bass.

  • Stout, C.E., co-editor (1996). The complete guide to managed behavioral healthcare. John Wiley and Sons.

  • Yenney, S.L., and APA's Practice Directorate (1994). Business strategies for a caring profession:a practitioner's guidebook. APA Books.