Starting a Practice

Is Private Practice Worth It for Therapists?

Headshot of Bryce Warnes
April 22, 2024
April 22, 2024
Bryce Warnes
Content Writer

Starting your own therapy practice has the potential to be an incredibly rewarding career move. It also has its drawbacks.

Whether you’re currently employed at an agency or group practice and you’re considering leaving to start your own practice, or you recently started your journey as a business owner and you’re having second-thoughts, understanding the realities of private practice reduces the likelihood of disappointment later on.

Here’s everything you should know about whether or not private practice is worth it for therapists. 

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The cost of starting your own therapy practice

Michelle Vo, LCSW saved up before going into private practice. “If I'm willing to spend money on daily expenses, I might as well save up and invest it in something that I am passionate about and helpful for my career,” she said. “If not now, then when?”

There are certain expenses every therapist incurs when they go into business for themselves. Many of them are part of the overhead costs of running your practice (more on that in the next section), but some are one-time expenses.

Before you launch your own practice, do the math and figure out how much it will cost you to launch.

Insurance

Professional liability insurance is a must-have for any self-employed therapist. It’s the most effective way of protecting you against claims made against your business by clients, colleagues, or anyone else who wants to sue you or file a complaint with your licensing board. 

Plan to spend around $800 for your first year of insurance. Some estimates put the cost as low as $350 or as high as $1,750 annually, depending on the specifics of your practice, but $800 is a safe middle ground for budgeting purposes. For more info, check out our article on insurance for therapy practices.

Business registration

The minute you go into business for yourself, the IRS considers you a sole proprietor. There’s no cost to operate as a sole proprietor. But if you decide to register your business as an LLC or a PLLC with your state, you’ll have to pay.

Costs for registering your LLC—plus getting a business name and filing franchise reports—vary from one state to the next. The total may come to less than $100, or in excess of $800. 

The LLC business structure gives you more flexibility than a sole prop in how you pay yourself and file your taxes, while also offering a layer of liability protection. Check out our complete guide to LLCs for therapists.

Website

If you already have clients clamoring for your services, you may be able to launch your practice without creating a website. But for most therapy practices, a business website is the first point of contact for potential clients and an essential marketing tool.

A basic, DIY website ranges in cost from about $5 to $20 per month, depending on which features you’d like to include. Web hosting services typically offer a discount if you choose to pay annually rather than monthly.

Hiring someone to create a website for you puts you in a new price range. Expect to pay several hundred dollars to several thousand dollars for a site, depending on the level of customization you’d like. 

Online freelancers charge in the low end of the price range to create Squarespace or Wix websites from templates. At the higher end, you can expect customized templates, original graphics and logo design, and other marketing elements.

Directory listings

After your personal website, the first link to show up on google when someone searches “[YOUR NAME] therapist” is typically a link to a directory listing.

Psychology Today, the most popular profile listing service by far, charges around $30 per month to host your profile. 

But there is a growing selection of alternative directory services catering to different niches. Therapy for Black Girls is a prime example. And some services, like TherapyDen, are free. 

Software

Apps and online services have become essential tools for many therapists. That’s particularly the case if you plan on seeing clients via telehealth and billing them online.

Typical software expenses for new practices include:

  • EHR software. A HIPAA-compliant way of managing client records, notes, and other information. Most EHR platforms also give you tools to bill clients and receive payment online. SimplePractice, a popular choice for therapists, starts at around $30 per month.

  • Teleconferencing. If you plan to see clients online, you need to use a HIPAA-compliant platform. Doxy offers free, basic online appointments. For more advanced features, plan to start paying $30 per month.
  • Email. Standard free email providers like Gmail are not HIPAA-compliant. If you’re planning to communicate with clients via email, you’ll need a service like Google Workspace, which offers added security. Google Workspace with HIPAA-compliant email starts at around $7 per month.

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The cost of running your own therapy practice

Dr. Amanda Buduris learned about the importance of budgeting when she started her private practice. “It's scary to look at numbers and to think about budgets and all of that. But if you're avoiding your money, you have no sense of what's coming in and what's going out,” she said. 

Overhead consists of the expenses your practice incur regardless of how many clients you see. This is the cost of “keeping the lights on.”

Business insurance, web hosting, online directory listing, and software are all part of overhead. In addition, you should expect to pay a yearly fee to renew your business registration.

Overhead expenses that may not be included in your startup costs include:

Rent

If you’re planning to see clients in person rather than exclusively via telehealth, you should expect to pay rent for an office. 

The cost of rent varies widely. Sharing a single office with other therapists may cost only a few hundred dollars per month, while renting an office to yourself, complete with front desk and waiting area, could cost thousands.

Before committing to seeing clients in person, do your research to see what’s available for offices in your area, and determine what you can afford. Be sure to factor in added costs like electricity, heating, and water that may not be included in the monthly rent.

Work phone

For reasons of privacy and professionalism, many therapists opt to use a separate phone dedicated to their work for speaking with clients. This can also be helpful for setting clear boundaries between work and your personal life.

After the initial cost of the phone itself, expect to pay $20+ for phone service.

Tax filing

According to our 2024 Financial State of Private Practice Report, half of all self-employed therapists hire a professional—typically an accountant—to help them file their taxes.

It’s a smart move. Having your taxes filed professionally protects you against making costly errors and helps you take advantage of tax deductions you might otherwise overlook.

If you plan to have your taxes filed professionally, plan to spend $200 to $300 if you’re a sole proprietor, or around $1,000 if you’re incorporated.

How many hours do private practice therapists work?

Beyond finances, it’s important to consider how being self-employed will affect your personal life. How many hours will you be spending in the office each day? How much do you need to work in order to pay yourself a reasonable wage?

Most therapists in private practice who work full-time—meaning 30–40 hours per week—only spend 20–25 hours each week seeing clients.

The remainder of their time is spent on tasks like:

Taking into account how many hours per week you spend with clients (while earning a session fee) versus completing other tasks (while not earning a session fee) is key to figuring how much you can expect to pay yourself.

But it’s also important for helping you decide whether private practice is a good fit for your lifestyle and interests. When you work for an employer, most of the back-office work necessary for running a business—like bookkeeping and marketing—is handled by someone else. 

When you run your own business, you can outsource many of these tasks to outside contractors or firms. But if outsourcing isn’t an option—professional bookkeeping services and marketing agencies cost money, after all—you should seriously consider whether you’re prepared and willing to take on these jobs yourself.

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Other responsibilities for private practice therapists

Like most therapists, Dr. Justin Dodson didn’t learn how to run a business in graduate school. “Graduate school teaches you how to become a therapist. They don’t teach you how to run a business,” he said.

Besides the financial obligations you shoulder when running your own practice, you have a greater range of responsibilities than you would if you were working for someone else as an employee.

Liability

Every therapy practice needs to protect itself—and its employees—from lawsuits. Even when an individual brings a fraudulent claim against your practice, the cost of going to court is often prohibitive. 

To get a rough idea of how much it costs: A report released by the Healthcare Providers Service Organization (HPSO) and supported by the American Counseling Association (ACA) states that, in 2019, the average cost of a malpractice suit against a therapist covered by insurers was $113,642.

The good news is that the same report shows that only about 2% of psychologists are ever sued for malpractice. But it’s not just malpractice suits you need to prepare for.

Almost anyone who knows you, professionally or otherwise, is able to file a complaint against you with your licensing board. The majority of complaints are settled in the therapist’s favor; the average cost of defending your right to practice is $5,454, a hefty sum to pay out of pocket.

You have a responsibility to make sure you have proper insurance coverage for your practice and budget accurately so you can cover the cost. To get started, read Do Therapists Need Professional Liability Insurance?    

Professional reputation

According to the HPSO report, therapists can have their licenses challenged because of improper use of social media. Meaning, if you post or share something on your personal social media account that someone finds offensive, there’s a chance someone could use it as the basis for a licensing complaint.

That isn’t the only danger when it comes to social media use. Even if no-one brings a complaint against you, anything you post on a public account has the potential to reflect positively or negatively on your business. Being careful about how you use social media—and making all of your personal content private, if possible—is one of your responsibilities to your practice.

Your personal reputation extends beyond social media, of course. It’s built on your treatment of clients, colleagues, and others in the community. Even if you’re a solo practitioner operating under your own name, think of your business as a separate entity, an institution that needs protecting. Your business is your livelihood, and it’s also a valuable resource for clients seeking treatment. When you’re the owner, you’re 100% responsible for how it’s seen by the rest of the world.

Taxes

When you work for yourself, it’s up to you to report your taxable income to the IRS and pay your tax bill on time.

If your practice owes over $1,000 in taxes for the year, that typically means filing quarterly estimated taxes. You’re responsible for calculating those payments four times a year, filing them, and making sure you’ve withheld enough money from your income that you’re able to pay.

When you make a mistake filing your taxes—or when you file late or underpay—you may be penalized by the IRS.

On top of that, every deductible expense you claim needs to be backed up by receipts. In the event you’re audited, the IRS can go back up to six years requesting receipts for all the claims you’ve made. So your responsibilities include storing and organizing supporting documents and information for past tax filings.

Finally, in order to accurately file your taxes each year, you need an accurate set of books reporting all your revenue and expenses. That means finding a bookkeeping solution—whether it’s help from a professional, or a spreadsheet on your computer—that collects all your data while minimizing stress and extra work.

It’s because correctly dealing with taxes is so important that many therapy practices hire an accountant and a bookkeeper.

Your clients

Your responsibility to provide the best care possible to your therapy clients comes first. But in order to discharge that responsibility, you have to manage all the other responsibilities you bear as a business owner. 

In order to fully show up for your clients, it’s important to keep the administrative side of your practice well organized and to manage your time well. If you’re purely interested in treating clients in a clinical setting, and the thought of running your own business sends cortisol levels through the roof, you may want to stick with working for an employer in a group practice or similar setting.

On the other hand, if running your own business sounds like an exciting challenge, a chance to practice therapy on your own terms and serve clients in a way that is uniquely your own, then launching a private practice may be the best career move you can make.

It’s your first year running your own private practice. Tax season has arrived. Do you hire a professional, or file your own taxes?

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult their 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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Simplified tax and accounting software built for therapists

Simplified tax and accounting software built for therapists

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