Starting a Practice

How to Start a Therapy Practice

Headshot of Bryce Warnes
September 28, 2022
September 28, 2022
Bryce Warnes
Content Writer
Therapy office with two chairs

If you plan to start a therapy practice, “to do” lists are your friend.

There are a lot of moving parts to keep track of, from setting up a legal entity to figuring out the financial side of your practice. Being organized from the start will keep overwhelm at bay and set you on the path to success.

This guide gives you a complete overview of what you need to do to start your own therapy practice, so you can begin planning the steps you need to take. 

In areas where you may want to take a deep dive, you’ll find links to other articles from Heard.

Before you begin

There’s no point getting caught up in technical details—like business structures, bookkeeping, and billing—if you haven’t already decided on the fundamentals of how your therapy practice will operate.

Before continuing with this guide, make sure you’ve decided:

  • What your niche is. What kind of clients will you be seeing? What do you specialize in? This will determine how you market your practice, as well as how you build your client list.
  • Whether you’re going solo or starting a group practice. For the most part, this guide assumes you’re starting your practice without employees or business partners. If you have your heart set on going into business with other therapists, you can supplement it with Heard’s guide to bookkeeping basics for group therapy practices
  • Whether you’ll meet with clients in an office, remotely, or a mix of the two. It’s important to figure this out early on. Office rent is a major recurring expense. Knowing now whether you’ll be looking for an office space is important for creating a budget for your therapy practice.
  • How you’re paying for it. Plan to spend at least $1,000 out of pocket to get your therapy practice started. You may be able to spend less, depending on whether you have an office, and the cost of business licenses in your state. Where is that money coming from? Do you have cash savings? A line of credit? It’s a good idea to get this sorted out before the first bill comes across your desk.

If you’ve already figured these out, congratulations! You’re well on your way to starting your new therapy practice.

If you’re not sure about any of the above, however, take some time to decide before moving forward.

Build a startup budget for your therapy practice

When you’re just starting your practice, and don’t even have any clients yet, you probably aren’t ready to build a monthly budget. 

However, you will need to figure out what you’ll need to launch your practice. These are one-time and first-time expenses that are absolutely essential for getting your practice off the ground.

Major expenses include:

  • Damage deposit, plus first and/or last month’s rent, if you’re going to have an office.
  • The cost of furnishing a new office, if applicable.
  • The cost of a business license. This depends on your city or municipality, but typically ranges from $80 - $200.
  • The cost of launching a website. Since most web hosts offer savings if you pay for one full year of service up front (as opposed to monthly recurring payments), you may wish to pay for your first year in a lump sum.

For a complete guide, check out our article on how much it costs to start a therapy practice.

Set up a legal entity that protects you

When you go into business for yourself and start earning non-employment income, the IRS considers you a sole proprietor by default. As a sole proprietor, your personal taxes and your business taxes are one and the same.

On one hand, this is good, because sole proprietor tax filing is relatively simple. On the other hand, it’s not so good, because you’re 100% liable for all your business debts and legal proceedings. 

Meaning, if you can’t pay your business debts, you’re personally responsible. And if someone sues your practice, they sue you personally.

Many solo therapists going into business for themselves opt to create a single-member S corporation. This business structure offers greater liability protection than a sole proprietorship, without incurring any extra taxes on the federal level.

Others choose to incorporate as a limited liability company (LLC). LLCs are created on a state-by-state basis. When you file your taxes as an LLC, you can elect to file them as a variety of different entities—including an S corporation—depending on your preference and on how you run your business.

Some states, like California, may require therapists to form professional LLCs (PLLCs). This is a business structure meant specifically for professionals licensed by the state. In other states, forming a PLLC is optional, and not required. To find out whether you live in a PLLC state, consult with your Secretary of State’s website.

It’s a good idea to set up the legal business entity you want to use right off the bat—changing it later, once your business is established, may create extra complications. You can learn more from Heard’s article on how to choose a business entity for your therapy practice.

Get an Employer Identification Number (EIN)

Even if you don’t plan on hiring employees, you’ll need an EIN in order to open a business bank account and form a legal business entity.

An EIN is like an SSN for your business. In fact, if you didn’t get an EIN, you would use your SSN to file taxes as a sole proprietor. The IRS uses your EIN to track your tax filings. 

You can apply for an EIN for your business online, or learn more from our article on EINs for therapists.

Get an National Provider Identifier number (NPI)

Regardless of whether or not you plan to operate in-network with an insurance provider, your practice needs an NPI number in order for clients to file out-of-network claims for reimbursement called “superbills” with their insurance providers.

An NPI number is a ten-digit code, and you can apply for one online.

File a Doing Business As name (DBA), if necessary

If you plan on doing business under your own name, you don’t need a DBA. If you are planning to do business under a different name, however—”Jane Smith Counseling,” as opposed to just “Jane Smith”—you’ll need to apply for a DBA from your state.

The cost of filing a DBA, and the exact process for getting one, varies from state to state. In most cases, you’ll be able to find the information you need on your Secretary of State’s website.

Get a business license

As with a DBA, the process for getting a business license—and the cost—depends on your location. Unlike a DBA, a business license is typically not optional.

Your business license allows you to legally operate within the bounds of your particular municipality or city. It needs to be renewed annually. You can expect a business license for your private practice to run you anywhere from $80 - $200.

Your Secretary of State or your local Small Business Administration office should be able to provide you details on getting a business license.

Register for liability insurance

Liability insurance is essential for any therapist going into private practice for themselves.

 In the event a client—or anyone else—sues for damages you may or may not have inflicted in the course of doing your job, general liability insurance will cover the cost of the legal suit, and may also cover the cost of damages.

On top of that, general liability insurance can protect you in case of images or damages you or your clients suffer at your office. It may cover lawsuits, injuries, and the cost of replacing property.

One subset of liability insurance, malpractice insurance, protects you only in the case of lawsuits from clients. General liability insurance includes malpractice insurance, plus coverage for all of the eventualities covered above.

Depending on your level of coverage, annual premiums for liability insurance can range from $350 to $1000 and up. But it is absolutely necessary to purchase this insurance before you start working.

Open a business bank account

A small business checking account is one of the most powerful tools you can have at your disposal for keeping your private practice’s finances organized.

When you have a business bank account, every business transaction—every time you spend money on expenses, or earn money by billing clients—shows up on your bank statement. You have one, authoritative source of information for tracking how your practice spends and earns money.

On the other hand, when you use your personal banking account for your practice, your personal revenue and expenses get mixed up with your business transactions. Later, once you’ve set up a bookkeeping system to track your finances, you’ll have to do a ton of work any time you update your books, because you’ll be sorting between personal and business transactions, trying to figure out which is which.

Heard has partnered with BlueVine to offer online business checking accounts for therapists. When you register with BlueVine, you avoid a lot of the business checking fees banks typically charge. There are other perks, too—like earning 1.5% interest on your account balance if you meet certain minimum banking requirements. Learn more about Heard and BlueVine.

Decide whether you’ll use an electronic health record (EHR) system

You may be happy keeping patient notes and other records on paper, stored in a secure filing system (in compliance with HIPAA.) But, if you’re looking for a paperless solution, an EHR system is your answer.

An EHR system gives you a secure, centralized location where you can store all of your client data. You can certainly start off your practice using paper records and migrate to an EHR system later. 

But there are two good reasons to choose between one or the other now, before you start your practice.

First, transferring paper files to a digital system is time-consuming. It could cause extra stress later on, especially once your client list fills up and you have a bigger workload.

Second, most EHR systems allow you to bill clients within the software. Whether you use an EHR system or not will help determine how you bill clients, which in turn affects how you set up your bookkeeping system and track your income.

Determine how you’ll bill clients

Before you’re faced with the task of billing a client for the first time, get a billing solution set up, so you aren’t scrambling later on.

Your options for billing clients include:

  • Your EHR or practice management solution, with built in billing
  • Payment processors like Stripe or Square
  • Electronic fund transfers via online bank accounts
  • A combination of the above

Typically, EHR systems or payment processors will collect funds from clients, then send them to your bank account via ACH transfer. In that case, make sure you understand how they will show up on your bank statement. That’s important for tracking income when you set up your bookkeeping system.

Set up your bookkeeping system

Bookkeeping is the practice of tracking day-to-day business transactions, so you know how much you’re spending and how much you’re earning. 

As part of bookkeeping, you generate profit and loss statements (P&Ls), balance sheets, and cash flow statements that tell you how your business is performing. An accountant uses that information to file your taxes for you and report deductible expenses.

Not 100% clear on what a bookkeeper does? Get a straightforward rundown from our article on bookkeepers vs. accountants.

Many therapists start off using spreadsheets or accounting software to do bookkeeping for their therapy practices. The benefit of these DIY bookkeeping solutions is that they’re inexpensive. The downside is that they can take up a lot of time—not just in day-to-day tasks, but as part of the process of learning how to use the software.

Working with a professional bookkeeper, you have someone who categorizes all your transactions for you, and generates financial reports an accountant can use to file your taxes. Bookkeepers are more expensive than software, but they save you a significant amount of time, and can prevent you from making bookkeeping errors.

Heard is a complete bookkeeping and accounting solution for therapists. When you sign up for Heard, you get a team of professionals working for you, handling your therapy practice’s day-to-day bookkeeping as well as filing your taxes for you.

Set fees for your therapy practice

There are a few factors to take into account when setting fees for your therapy practice:

  • How many hours per week you can spend seeing clients (versus doing administrative work or other tasks to keep your practice running)
  • How much you need to earn on a weekly or monthly basis to cover the costs of running your practice (ie. break even)
  • How much you expect to earn (that is, how much you would like to pay yourself)

For a complete guide, check out our article on how to set fees for your private practice.

Begin marketing your therapy practice

In order to start attracting clients to your therapy practice, you need a marketing plan. 

Your marketing plan includes:

  • Who you’ll market to
  • Which channels you’ll use to reach potential clients (e.g. SEO, social media, digital or print ads, referrals)
  • How you’ll measure the effectiveness of your marketing
  • How much you will spend on marketing for your therapy practice

To get started, check out our article on how to set a marketing budget for your therapy practice.

Ready to get going? Create a startup budget for your therapy practice.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post.

Bryce Warnes is a West Coast writer specializing in small business finances.

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