Key Takeaways
Plan to spend two to four months launching your private practice, and budget at least $1,500 for startup costs. Take your time: The decisions you make now—like setting fees, choosing a business structure, and planning how you’ll handle daily admin—will all impact day-to-day operations.
Heard handles bookkeeping, taxes, and payroll for therapists. This is a step-by-step breakdown of what you need to launch, with links to actionable resources.
If the idea of starting your own practice feels overwhelming, you're not alone. Most therapists feel the same way at this stage. But launching a practice is one of the most rewarding things you can do, and it gives you the freedom to work with clients exactly the way you want to.
This step-by-step overview covers everything you need to consider when launching your practice, with links to detailed guides when you’re ready to take a deeper dive.
What do you need to plan before starting a therapy practice?
Before you launch, start by answering a few key questions about how you want your practice to work:
- Will you accept insurance?
- Will you treat clients in person, remotely, or both?
- Who are your target clients?
Your answers will shape decisions you make later on, from how you market your practice to how you manage the financial side.
A word about budgeting:
- Plan to spend two to four months getting your practice off the ground.
- If you’ll be treating clients 100% via telehealth, startup costs should range from $1,500 to $3,000.
- If you’ll be treating clients in-person, plan on $5,000 to $10,000 for startup expenses due to the need to rent office space.
Outside of rent, your biggest startup costs will be liability insurance (most policies are under $800/year), business formation fees (if you register an LLC which vary by state but typically run $50 to $500), and an EHR subscription (starting around $50/month).
Essential resources:
- How to Start a Therapy Practice How Much Does It Cost to Start a Therapy Practice?
- How Much Does It Cost to Start a Therapy Practice? Is Private Practice Worth It for Therapists?
- Is Private Practice Worth It for Therapists? How Long Does It Take to Fill Your Therapy Practice?
- How Long Does It Take to Fill Your Therapy Practice?
What business entity should a therapist choose?
When you operate as a sole proprietor, your person and your business are identical for legal and tax purposes. That means there's no legal separation between you and your practice. If your practice takes on debt or faces a lawsuit, your personal assets (savings, home, car) aren't protected. Registering an LLC (or a PLLC in the states that require it) makes your business a separate entity. Your personal assets stay protected as long as you keep your personal and practice finances separated. That means opening a business bank account. To open one, you'll need an EIN (Employer Identification Number) from the IRS. It's free, and registration takes about five minutes.
Besides liability protection under an LLC, a separate business account makes bookkeeping more straightforward. It’s easier to track how your practice is doing financially and to file your taxes.
California Professional Corporations (PC)
In California, therapists are required to register a professional corporation (PC), not an LLC. Members of a PC must all belong to the same profession. The PC structure provides benefits similar to PLLCs in other states.
Pro tip
You can elect to have your LLC taxed as an S corporation. That potentially saves you thousands in self-employment taxes. But there’s a tradeoff: S corps cost more to run. It only makes sense to consider S corp status later on, once your income grows to about $100,000 per year.
Essential resources:
Key takeaway
Most therapists choose to register an LLC for added liability protection. Many states require therapy practices to register as professional LLCs (PLLCs), which must carry professional liability insurance. As your revenue grows, an LLC or PLLC can elect S corporation status with the IRS as a way to potentially save thousands in self-employment tax.
As soon as you start earning self-employment income, the IRS considers you a sole proprietor by default. You must register as an LLC or PLLC with your state in order to elect a different tax status.
Among survey respondents, 51% were registered as LLCs, 36% as sole props, and 20% were LLCs electing S corp status.
What licenses, registrations, and insurance do therapists need?
You need an active clinical license issued by the relevant board in the state where you practice.
There’s a good chance you’re already licensed. In that case, you have just three more things to do before you get up and running:
- Register for a National Provider Identification number (NPI). You need an NPI to bill insurance. Even if you don’t plan to accept insurance, you’ll need one to prepare superbills. These are the documents your clients use to request reimbursement from their insurance for out-of-network sessions.
- Register with the Council for Affordable Quality Healthcare (CAQH). Most insurance panels require you to be registered with CAQH before you can become credentialed. Registration is free.
- Buy professional liability insurance. This is your malpractice insurance, and you need it in order to legally work as a therapist. Most policies cost $800 or less per year.
Essential resources:
How should therapists set their fees?
The fees you set for therapy depend on your credentials and experience, and the modalities and treatment types you offer. Location also pays a role: Average fees for therapy tend to be higher in areas where there is a high demand for therapy.
You’ll also need to take your budget into account. That means operating expenses for your practice, but it also means your personal income goals.
Insurance panels can give you a steady stream of new clients, but pay reimbursement rates lower than your session fees. Seeing private pay clients means you earn more revenue per clinical hour, but you’ll have to do more work to fill your client list since you aren’t getting referrals from insurance. Many therapists use a mix of both.
If you decide not to accept insurance, learn about superbills. These are the documents you’ll prepare for clients so they can request reimbursement for therapy sessions via out-of-network benefits.
Finally, you’ll need a HIPAA-compliant payment solution. Consumer-grade cash transfer apps like Venmo or Zelle aren’t compliant. To meet HIPAA requirements, you must sign a Business Associate Agreement (BAA) with any billing platform you use. A BAA is a legal agreement that the platform will keep your clients' health information secure. Many EHR suites include HIPAA-compliant billing and invoicing.
Essential resources:
How do therapists handle bookkeeping and taxes?
Once you’ve opened a bank account and chosen a billing solution for your private practice, the next step is to set up a bookkeeping solution. Simple and accurate bookkeeping helps you track what you’re earning, how you are doing financially, estimate what you owe in taxes, and to pay yourself consistently.
When you’re self-employed, it’s your own responsibility to withhold and pay taxes from your earnings. Setting aside 25% – 30% of your revenue helps ensure you can cover the cost. If you expect to owe $1,000 or more in federal taxes, the IRS requires you to pay in quarterly estimated instalments. (This requirement is waived your first year in business.)
If you're a sole proprietor or a single-member LLC that hasn't elected S corp status (the IRS calls this a "disregarded entity"), you’ll pay yourself in owner’s draws. Setting a regular schedule for the owner's draws makes it easier to budget for both personal and practice expenses. Resist the temptation to simply take money out of your business whenever you need it; this can destabilize your finances and create bookkeeping headaches.
Heard handles bookkeeping, taxes, and payroll for therapists in private practice. Learn how it works.
Essential resources:
- Should You Do Your Own Bookkeeping as a Therapist?
- The Complete Guide to Bookkeeping for Therapists
- How to Pay Yourself as a Therapist
- How Much Money Does a Private Practice Therapist Make?
For all things taxes, visit our Therapist Tax Center and Complete Guide on Tax Deductions for Therapists.
Key takeaway
As soon as you start earning income from your practice, set aside 25% – 30% of your revenue for income and self-employment taxes. It feels like a lot, but it saves you from a painful surprise later. Underestimating the cost of taxes is one of the most common mistakes therapists new to practice make.
Accurate, up-to-date bookkeeping helps you track revenue, estimate tax liability, and pay yourself.
Do you need an office space or EHR to start a therapy practice?
If you plan to treat clients in person, you’ll need to lease an office space. The cost of a therapy office varies widely depending on your location. You may be able to reduce operating expenses by sharing a rented space with other therapists.
On the other hand, if you plan to treat clients 100% via telehealth, you may only need to set up a home office. That substantially reduces your overhead. It also allows you to deduct a portion of your home expenses on your taxes.
Once your space is established and you’re ready to see clients, register for an EHR. At its core, an EHR suite provides HIPAA-compliant records storage. But most EHR suites have added HIPAA-compliant functionality—like teleconferencing, billing, invoicing, session booking, scheduling, client intake, and communications.
Some of the most popular EHR suites are TherapyNotes, SimplePractice, and Jane, with prices starting around $50 per month.
Essential resources:
How do therapists get their first clients?
In most cases, your practice’s website and your Psychology Today listing will be the first touchpoint for new clients. As your practice grows and you have more income to reinvest in your business, you can consider expanding into social media and paid advertising.
Many therapists build their caseloads through referrals. Take time to introduce yourself and build relationships with other therapists, local healthcare providers, and community support groups. Be clear about which niche you serve and the types of insurance you accept.
Your niche is the specific demographic and conditions you treat, and the methods or modalities you use to do it. Deciding on a niche early on gives your marketing efforts purpose and helps attract the clients you’re most interested in treating. And it can help your client list grow faster from day one.
Essential resources:
Key takeaway
You don't need a big marketing budget to get started. A Psychology Today profile and a simple website are how most therapists find their first clients. Picking a niche and building referral relationships speeds things up.
Networking with other therapists, local healthcare providers, and community resource groups helps drive referrals, especially when you have a clearly-defined niche.
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