How to Start a Private Practice (10 steps)

Written By Kyrsti Tam

Are you a therapist or counselor who feels STUCK in their group or agency job? But every time you Google “How to start a private practice” you immediately feel overwhelmed? You’re NOT alone!

 

Grad school totally skipped the business 101 portion of how to start or run a business (or maybe I just missed that day….). But lucky for you, I am a CPA (accountant) AND therapist with my own private practice. I have a BA and MS in business, and I don’t gate-keep. So if you’ve been looking for a go-to guide or checklist of HOW to actually start a private practice, let’s get into it!

(And if you want an ACTUAL checklist, I have a FREE one here)

How to start a private practice
 

HOW TO START A PRIVATE PRACTICE

(10 STEPS)

 

Step 1: Initial Considerations (budget, location, insurance)

Before getting your practice off the ground, there are some important things you should consider that will dictate timing and the rest of getting your practice off the ground. Let’s talk about them!

Budget: Anticipate your estimated start-up costs. Does it fit in your current budget?

  • Considerations:

    • Business filing fees

    • Professional fees (CPA, lawyer)

    • Marketing materials

    • Technology needs

    • EHR/CRM system

    • HIPAA-compliant communication

    • Malpractice & business liability insurance

    • Rent

    • Furnishings

    • Client materials

 

Location: Do you plan to have an in-person offering, or will you be starting just doing telehealth?

  • A lot of therapists start with telehealth to save on costs. If you plan to take insurance, confirm that your desired panels reimburse for telehealth sessions.

  • If you’re planning for an in-person office, do you have a space and budget in mind?

  • For telehealth, ensure you have a private/secure space, stable internet, and a reliable device for hosting sessions.

(P.S. Your space doesn’t need to be fancy—it just needs to be quiet, private, and secure.)

 

Insurance: Do you plan to take insurance?

  • If yes;

    • Get an NPI

    • Complete a CAQH account

    • Decide what panels you want to credential with & gather your application documents!

  • If no;

    • Get an NPI (to be HIPAA compliant)

    • Set your fees

    • Decide if you’ll be 100% self-pay or out-of-network (OON).

      • What is a superbill?: Documentation of a session so the client can get potential insurance reimbursement if they have OON benefits

 

Step 2: Entity type consideration:

You have several choices when it comes to starting a practice. Most common for single member practices are sole proprietorships or PLLCs/LLCs (professional limited liability companies or limited liability companies).

Do some research into these different types of entities. I really like this accounting firm’s blog.

  • Sole Proprietorship

    • Pros: Simple and low-cost to set up, with no separate business tax return (it is filed on Schedule C of your 1040)

    • Cons: You’re personally liable for all business debts and lawsuits

  • PLLC/LLC

    • Pros: Protects your personal assets from business liabilities. single member LLCs have no separate business tax return (it is filed on Schedule C of your 1040), option to elect different taxation structure for potential tax savings

    • Cons: Costs more to set up and maintain, with additional administrative requirements

Other information: Single member PLLCs/LLCs can elect to be treated as an S Corporation for potential tax benefits. I highly recommend consulting with a CPA if you would like to consider this.

FAQ: Can I change my entity type later? YES! If you start off as a sole proprietorship or PLLC/LLC, you can always change later (although there may be some additional admin work depending on the type of change)

 

Step 3: Entity formation:

So you picked your entity type, now how do you actually FORM your business?

For LLCs/PLLCs: Hop on your Secretary of State website (Google: “Secretary of State in ______ (your state)”). Make sure you are on a .gov site for your state. Most states have a business center page with all the info you need to get started!

Instructions will vary by state.

Additional Information for LLCs/PLLCs: Ensure you are in compliance with YOUR state.

  • Does your state require therapists to be PLLCs (as opposed to LLCs)?

  • Does your state allow therapists to be LLCs (i.e. CA does NOT)?

  • Are certain words prohibited or required in your business name?

  • Is your chosen business name available in your state?

    • Also if applicable: check social handles, email address, domains, US trademarks

 

For Sole Proprietorships:

  • Check your local town/city regulations (e.g., every city/town has its own process).

  • If using a DBA or “trade name,” you may need notarization and a small fee.

After you choose and form your entity type, I recommend getting a FREE EIN from the IRS here. (Recommended to protect your social security number from bank accounts/billing information etc.)

 

Step 4: Separate personal from business:

This is essential for accounting and tax reasons.

‘PLEASE NOTE: Even if you are a sole proprietor using your own name, you may need an EIN for your business bank account. Get one here!

 

Step 5: Protecting yourself & your business:

Malpractice insurance is essential, but it’s often misunderstood.

What it Covers:

  • Claims related to professional services (e.g., errors or negligence).

What it Doesn’t Cover:

  • Non-professional risks like accidents or property damage.

To Fill the Gaps:

  • Get general business liability insurance.

  • Consider cybersecurity insurance for breaches.

 
how much does it cost to start a private practice

Step 6: EHR & HIPAA Compliance:

EHR systems are an extra expense, but they can be well worth it for streamlining processes.

I personally use Sessions Health (which is super comprable to Simple Practice for 1/2 the cost).

Recommended EHR Systems:

 

Being HIPAA compliant is ESSENTIAL to your practice.

Did you know a HIPAA violation could cost $50,000?! If you are looking for HIPAA compliance trainings, I highly recommend Person Centered Tech.

Recommended HIPAA Compliant Communication:

Recommended Email Encryption:

 

Step 7: Insurance, fees, & paperwork:

Insurance: If you decide to take insurance, the credentialing process can take several months. You may need an NPI type 2 and you will need a CAQH profile set up.

  • NPI 1 vs NPI 2:

    • As an individual provider, we are required to have an NPI 1 to be HIPAA compliant. However, if you have an LLC, PLLC or LLC taxed as an S Corp, you can get an NPI type 2 (for businesses only) to credential through insurance with

Fees: Setting fees is where people get caught up sometimes. To help, I made a FREE template to help set fees here.

  • Will you have a sliding scale? If so, how many spots and what is the range?

  • Does your fee align with other professionals in your area?

  • Does your fee consider any specialized trainings or skills you have?

Paperwork: In general, most EHR systems have pre-made intake and consent forms that you can customize.

You can also purchase lawyer reviewed forms online, or create your own and have a lawyer review them.

  • Basic Form Checklist:

    • Informed Consent

    • Telehealth Informed Consent

    • Privacy Notice (HIPAA)

    • Practice Policies & Procedures

    • Emergency Contact Form

    • Release of Information

    • Intake forms

    • Credit Card Authorization

    • Good Faith Estimate

      *Forms may vary based on state and license type, insurance to check with your regulating boards

 

Step 8: Filling your practice:

The biggest tips I have for marketing your practice are:

  • Networking

    • Join a local Facebook group of wellness professionals, send an email to a therapist with a complimentary niche from a therapist directory, join local associations. Also network with complimentary professionals; APRNs, doctors, naturopaths, etc.

  • Therapist Directories

    • Psychology Today, Good Therapy, Therapy Den, Zocdoc, Monarch (& more) are some options.

      • TIPS: Have a warm, welcoming profile picture. Make sure you are speaking DIRECTLY to your ideal client. What are their pain points, how do they HOPE to feel after therapy, how can YOU help them achieve their goals. Avoid therapy jargon!

 

Step 9: Taxes & basic accounting:

As a sole proprietorship or LLC/PLLC (single member or otherwise) you are responsible for quarterly estimated tax payments to the IRS and your state (if applicable)

Non-compliance can result in penalties & interest.

If you worked a W-2 job before, this might be new. As a business owner, an employer is no longer withholding employment taxes on your behalf. So you have to pay them in quarterly. As an example, let’s say you are going to owe the IRS $100. They want $25 paid in every quarter, otherwise you can be penalized.

If you have worked a 1099 job, you might be familiar with this process.

Suggestions:

NOTE: For LLCs/PLLCs who elect S corporation treatment for tax purposes, you will be required to do payroll and withhold your taxes. At the end of the year, you will be issued a W-2.

Step 10: Ongoing compliance:

As a business owner, it is your responsibility to start on top of filings and business compliance requirements.

Unfortunately “I didn’t know” is usually not a good enough answer.

Suggestions:

  • Subscribe to a local lawyer’s blog who works with healthcare professionals in your state

  • Subscribe to a local accountant’s blog who works with healthcare professionals in your state

  • Regularly check any updates from your licensing board

 

I hope you found this helpful! If you need more assistance with starting your private practice, I have a course that walks through EVERY step here!

Or you can set up a free consultation to see if I can help you.

Kyrsti Tam
Next

Maximizing Tax Deductions for Your Private Practice: What You Need to Know Before Tax Season