How to Start, Grow, and Manage a Private Therapy Practice: Part 2
What Are the Costs of Starting a Private Practice?
Believe it or not, the cost of starting a private practice can be as little as a few hundred to a couple thousand dollars. Of course, you can spend as much as you want on the perfect office space, décor, tools, and marketing. But when you’re just getting started, there are budget-friendly paths to build a legal and successful therapy practice.
There are two main types of expenses to plan for: start-up fees and operational costs. Start-up fees include anything you need to get your business off the ground and monthly expenses are what you need to keep it running.
Start-Up Fees
LLC Filing: $40-500
Forming a limited liability company (LLC) allows you to run your private practice like a small business and protects your personal assets. This means that you won’t be at risk of losing your personal finances in case of a lawsuit of bankruptcy. LLC costs vary by state but there is no need to hire a lawyer for $300+ an hour when you can easily register online in minutes. There are also LLC formation companies such as ZenBusiness, Northwest, or LegalZoom, that offer expedited state filing plus a suite of startup services (including a website, accounting, and invoicing).
Professional Associations: $100-300 per association
Joining national state, and local psychology associations enhances your credibility and provides invaluable support through every stage of your career. These organizations offer professional development tools such as access to recent journals, classes, seminars, and workshops to help you stay up to date on the latest industry news. Memberships also facilitate connections with other therapists for personal support. Additional perks may include free office documents (such as consent forms), and discounts on everything from insurance and legal services to hotels and car rentals.
Pro Tip: Check out these resources on national psychology associations, professional counseling associations, and social work organizations to get started.
Website: $200 and up
Having a website is essential to starting any new business venture. Your future patients use the web to research everything — and everyone — before making big decisions. You can easily create your own site using a top-rated website builder for roughly $200 upfront. With simple drag and drop design templates, anyone can master these tools and launch a beautiful, custom website. Alternatively, you can hire a website designer, but this will increase your startup costs quite a bit (think $5,000 for a starting rate).
Pro Tip: Once your website is up and running, be sure to add a Google My Business page to increase visibility and get more clients (bonus – it’s free)!
Office Essentials: $3000 (or so)
Your new office will need a bit of furniture, décor, and supplies. At a bare minimum, you’ll want a sofa, a comfortable chair for yourself, a coffee table or end table, and a few decorative elements to add personality and comfort. Your office is an important part of your personal branding and sets the tone for how others perceive you, your approach, and your quality of service. Surroundings have a subtle yet significant effect on mood, thoughts, and feelings. Adding wall art, plants, lamps, a rug, or other aesthetics can make your space feel more homey and welcoming. While you want to create an inviting and conducive space for your clients, you can always add to the ambiance once you have a steady paycheck.
Pro Tip 1: Consider your own needs and habits to invest in a few things you will use daily – like a coffee machine! Having a Keurig in the office will prevent you from hitting Starbucks every morning (and afternoon) and be tax write-off at the end of the year.
Pro Tip 2: If you’re looking to save money on office essentials, check out secondhand marketplaces such as Facebook for deals on gently used furniture and décor. Amazon, Wayfair, and Overstock are other great places to score quality couches at a fair price.
Operational costs
Rent: $400 - $3500/month
If the price tag of office space scares you, you’re not alone. In 2022, the national average cost of commercial office space is $38 per square foot. This rate changes drastically from city to city, so the best thing you can do is look up the current cost in your area. Keep in mind that price can fluctuate greatly within the same city for one reason: location, location, location. A high traffic area may be 2-3x more than space just a few blocks away.
In commercial real estate, cost per square foot is typically quoted for the entire year. To calculate, multiply your total square footage by cost per square foot, and then divide by 12 to get your monthly rate.
Monthly Rate = (Total office sq ft x Cost per sq ft) / 12
Let’s compare the costs of renting office space in two cities: Cleveland and New York. In Cleveland, Ohio the average cost of class B office space is $18/square foot. A 400 square foot office space (200 sq ft office + 200 sq ft waiting room) would be approximately $7200 per year or $600 per month. The same size office in New York City, where class B commercial office space is $66/square foot, would cost $2,200 per month.
If you’re not quite ready to sign a lease, research local therapy offices to rent by the hour. This low-risk option may be a good way to start seeing clients as you are just getting started and allow you to save up for future expenses. Check out Nexis Wellness, a Cleveland-based company with fully furnished offices and flexible pay-as-you-go plans just for health and wellness professionals.
Pro Tip 1: Follow your gut and ask to talk with other tenants in the building before signing a lease. Prioritize feeling safe, clean, and cared for above the cost. A good landlord is priceless.
Pro Tip 2: Educate yourself on how commercial leases work before jumping into a contract. Be sure to look out for common area fees and triple net costs (pro-rated property maintenance, taxes, and insurance) as these will affect your monthly payment.
Liability Insurance: $40-165/month
The two most important types of insurance for a private practice therapist are professional and umbrella. Professional liability insurance protects you and your practice from costs incurred by a lawsuit. Claims of negligence, malpractice, and misrepresentation – whether real or perceived – can lead to hefty attorney’s fees, settlements, and other legal expenses. Umbrella insurance provides coverage for any injuries, property damage, and office assets. Essentially it protects you from paying out-of-pocket for legal fees and damages that surpass other coverage. Just like rent, insurance rates will fluctuate by state, your degree, number of clients, and other factors.
Pro Tip: Check with your professional associations for advice and discounts on liability insurance.
Webhosting fees: $20-50/month
Once you acquire a domain and build your website, you’ll need to pay a monthly fee to keep it running. Website builders typically offer hosting as part of their package and costs can run anywhere from $2.50-$90 a month. With logical add-ons such as an email address, security, site backup, and annual domain name fees, you can expect to spend $20-50 per month.
High-speed internet and a dedicated phone line: $50-150/month
Investing in high-speed internet is no longer a luxury but a must-have for therapists, who increasingly rely on telehealth appointments to connect with clients. Check local rates and reviews to find the best deal for you. Internet providers often throw in a landline at a very reasonable rate.
Pro Tip: Set up a dedicated phone number for your business to maintain work/life balance and practice self-care. Whether you opt for a second cell phone or simply add a separate number via a mobile app, an additional line allows you to set automated messages after hours and truly unplug from work.
Therapy software
Modern software provides time-saving and cost-efficient solutions to manage your practice. Many therapist tools offer add-on services that may cross over into other areas of your business. For example, certain accounting software may also include scheduling, billing, and notetaking in an upgraded package. Therefore, list out all your software needs and do your research before investing in any program. This level of planning will save you overhead and the headache of managing multiple platforms.
Telehealth platform: $25-50/month
The pandemic proved the value of telehealth therapy and increased the need for reliable technology to connect with clients. Even if you prefer in-person sessions, offering a blended approach to care provides flexibility for patients who are traveling or physically unable to come into your office due to unexpected life events. Make sure to invest in a HIPPA-compliant platform to protect client confidentiality. There are free platforms available such as Doxy and Sessions. Paid subscriptions with the top-rated teletherapy platforms usually include other helpful tools such as scheduling, note-taking, and billing. Reputable, intuitive, low-crash software for a single private therapy counselor averages $25-50 a month.
Accounting: $10-25/month
Accounting software saves you hours of time each week and streamlines your practice’s finances and taxes. Quickbooks and Freshbooks are two user-friendly accounting services that offer convenient apps, custom invoices, and reporting. If you’re interested in occasional accounting support in the beginning, you can reserve $500-$2000 for quarterly help or a check-in during tax season.
Electronic health record: $50-60/month
Electronic health records contain the medical history of clients and can easily be shared with other providers for the most accurate and comprehensive treatment. Most EHR or EMR systems offer insurance billing and notetaking services as well. Tame Your Practice provides EHR and EMR reviews by a therapist and information technology expert.
Insurance billing services: 4-9% of claims
Therapists who accept insurance may want to consider an insurance billing service to help navigate the complicated world of claims. There are free resources available, such as Office Ally, but they do require quite a bit more work and a learning curve. A good rate for paid services is roughly 4-9% of claims. Be sure to read customer reviews and ask fellow clinicians about billing services to ensure you’ll receive good customer support when needed.
Startup marketing costs: $250-1000
There are many ways to market your new practice. You may have been given advice to post on Psychology Today ($30 month), hand out business cards at events, and send a practice opening announcement mailer. In our experience, the most powerful way to fill your practice with quality clients is to meet with other clinicians. So, our advice is to budget for regular coffee and lunch dates for the first few months.
Trusted Therapist Network simplifies your startup marketing efforts by allowing practitioners to search for similar clinicians in the area that can likely become referral sources.
Other annual expenses
Office Supplies: $300-600/year
Office supplies for counselors and psychologists tend to be light. With a regular stash of paper, pens, files, and Kleenex you should be set. Don’t forget to factor in the cost of stocking up on coffee, tea, creamer, and water.
Continuing education: $75-$2500/year
Your state license will require a certain number of educational hours each year. The associations you join may provide free and discounted resources, but it’s a good idea to budget for a few classes or workshops each year for professional development.
Professional Supervision or Consultation: $150-300/session
Professional consultations are regular check-ins with an established practitioner to gain support and insight for your practice and specific cases. Consider this supervision an investment as it will help sharpen your skills and become a better therapist or counselor. Meeting with an expert also enhances your reputation, helping you land more quality referrals. Rates typically reflect what the clinician charges per hour for a normal therapy session.
If you’re starting to feel overwhelmed by costs, take a deep breath. Fixed monthly costs are often covered after the first 10-15 clients of the month, which may only be a couple of days of work.
Pro Tip: Remember that every business-related expense is tax-deductible. Be sure to document everything you spend (start-up and operational fees) and keep receipts to positively impact your tax return in the Spring.
