How to Start a Private Practice in Psychology
Updated August 16, 2022
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Starting a private practice marks an important and common milestone in a psychologist's career. According to the American Psychological Association, about 44.8% of psychologists work in private practice. Opening a private practice in psychology carries many benefits, but also more responsibility.
Private practice psychologists enjoy being their own boss and making their own schedule. They also have more autonomy in their practice, a luxury not afforded to mental healthcare professionals who work on teams at outpatient clinics, nursing homes, hospitals, and medical schools.
At the same time, private practice therapists also hold more responsibility and liability. Starting a private practice can prove isolating and overwhelming, especially in the inaugural years. Running your own practice takes more than a desire to work independently -- it takes hard work, time, and money.
To set yourself up for success when considering your options, read this guide to get tips and advice from private practice psychologists on how to start a private practice.
What Do You Need Before Starting a Private Practice in Psychology?
Many psychologists pursue a private practice after obtaining years of clinical experience. At that point in their career, psychologists hold a valid state license and a doctoral degree in psychology from an accredited university. To open a private psychology practice, they also need to meet the business requirements set by their home state.
Any licensed psychologist who holds a National Provider Identifier number can apply for a business license. Those taking insurance may also need to register with CAQH ProView, says Dr. Robin Hornstein, licensed psychologist and co-founder of Hornstein, Platt & Associates.
"Following the state guidelines in each state is important. Your license to practice is a given, but it is also important to know how to protect yourself," Hornstein says, explaining that private practice therapists also need to consult with tax accountants and lawyers.
Challenges to Starting Your Own Private Practice in Psychology
Private practice psychologists enjoy certain freedoms, but they also face many challenges that come with owning a business. Running a private counseling practice requires working long hours and performing tasks outside of a psychologist's purview.
While you cannot avoid the obstacles that come with owning a private counseling practice, preparing for common responsibilities ahead of time can ease the load.
Balancing the Clinical and Business Aspects of Private Practice:
- Opening a private practice requires mastering many business functions. Besides seeing clients, psychologists also need to order office supplies, pay taxes, and manage support staff.
- Dr. Jerry Opthof, a psychologist with over 20 years of experience, explains that "The greatest challenges or barriers to running a successful practice, are being able to balance everything and know everything."
Marketing Your Practice:
- Private practice psychologists perform many tasks outside of counseling, such as marketing. As Opthof explains, "You need to know how to market yourself. No one can sell you better than you can sell yourself."
- To begin, identify your target customer and the facets that make your business stand out. Then you can build a strong social media presence and intuitive website to drive traffic to your private counseling practice.
Managing Finances and Taxes:
- Every business owner needs to understand financial management. In addition to tracking expenses, Hornstein explains that private practice therapists must consider financial incidentals, such as their own health insurance and salary, business taxes, and payroll.
- Hornstein suggests reaching out to professionals. "To me, it is all a puzzle, and you need to rely on the right advisors to make a safe, profitable organization for yourself."
Bringing on New Associates:
- There comes a time when every private practice psychologist must consider expanding. Hiring additional staff requires making major decisions.
- "As you grow beyond working as a solo practitioner, you may also need support staff as well. If you add associates, you'll need to decide on compensation and if you'll engage them as independent contractors or employees," Hornstein explains.
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Legal Considerations for Private Practice in Counseling
Choosing Between an LLC, S Corp, and Other Business Structures
Before opening the doors to your private practice, you must decide on the business structure that best fits your needs. This must happen prior to registering for a business license or permit and impacts both small and large scale business decisions.
A limited liability corporation (LLC) remains the most popular business entity for a private psychology practice. With an LLC, business owners do not pay corporate taxes, and the structure provides a reduced liability risk when compared to a sole proprietorship. Instead, the LLC's assets and liabilities remain separate from the private practice therapist.
However, some states don't allow licensed private practice psychologists to form an LLC. In that case, the next best option may be a professional limited liability corporation (PLLC), which incurs taxes much like an LLC.
An S corp, another option open to therapists, also operates like an LLC in that the business profits and losses remain separate from the owner or owners.
Taxes and Accounting
While complex financial matters warrant consultation with tax accountants and attorneys, private practice therapists can learn basic accounting to protect their business and avoid tax penalties.
Business owners should first ensure that their personal assets remain separate from their business finances. A small business owner may use Quickbooks or other accounting software programs to track incoming revenue and outgoing expenses, whereas a larger company may use an accountant.
A private counseling practice's business structure dictates how it pays taxes. Nevertheless, every private practice psychologist must keep their business receipts and maintain financial paperwork to write off expenses. Additionally, they must pay quarterly self-employment taxes to avoid a large tax bill or penalties come tax day.
Insurance
Psychologists can pick from various insurance policies. The most appropriate insurance coverage for a private counseling practice depends on the business and its size, as insurance needs differ. Regardless, basic insurance should cover a private counseling practice, the business, and a private practice therapist, including the following types of coverage.
Professional Protection:
- Suppose a client sues your private counseling practice. Malpractice insurance would cover the legal fees. The amount you pay for malpractice insurance depends on the coverage you need.
Business Protection:
- Running a business requires renting or owning an office space. A business owner needs liability insurance to cover potential accidents on the property. The same goes for equipment and furniture that could become damaged from a fire or leak.
Personal Income Protection:
- Disability insurance offers protection from unforeseen circumstances. Suffering a temporary or permanent disability or illness means a loss of income. With disability insurance, a private practice psychologist would receive financial compensation.
HIPAA Compliance
Running a private counseling practice requires maintaining HIPAA compliance. Private practice therapists, along with all healthcare providers, need to meet national HIPAA standards.
Businesses legally need to maintain written policies and procedures addressing HIPAA laws. In accordance with HIPAA, private counseling practices also need to maintain the security of their patients' files. Psychologists must protect digital information from a cyber breach and keep paper records in a locked cabinet.
HIPAA rules also affect a private counseling practice's payment system. Venmo and PayPal, for example, do not meet HIPAA compliance rules. Business owners need to use a HIPAA-compliant payment system that signs a business associate agreement, which explains a third party's responsibility regarding protected health information (PHI).
To organize your practice in a HIPAA compliant way, Hornstein advises investing in "a good electronic health record (EHR), which can also manage your money and billing."
Accessibility
All businesses need to comply with the Americans with Disabilities Act (ADA). Private counseling practices must remove, at their own cost, barriers that would prevent people with disabilities from accessing therapy.
Under the law, people with disabilities must receive equal access to healthcare, whether a private practice therapist currently treats people with disabilities or not. Keep in mind, the government considers the business size and its financial capability when enforcing the law.
Maintaining ADA compliance requires making facilities accessible to all clients. Businesses need wheelchair accessibility and designated parking. Private counseling practices, including telemental health companies, also need to apply ADA compliance to their websites, making them accessible to individuals with visual and hearing impairments.
Major Decisions You'll Encounter When Starting a Private Practice in Psychology
Starting a private counseling practice comes with personal sacrifices and large financial commitments. The major decisions business owners make early on influence their counseling practice's day-to-day operations and its long-term profitability and viability.
With proper planning, private practice psychologists can set their business up to succeed. If you know what decisions to expect early on, you can be better prepared to handle them.
As Hornstein explains, private practice owners must consider the practical and logistical business questions: "Who will cover me if I am sick, on vacation," or in other unpredictable life situations?
Other decisions, Hornstein adds, affect daily operations like fees. Ask yourself: "If I don't take insurance, will I have a sliding scale?"
As you run your business, you might need to consider the following questions:
Do I have enough clients to make the jump to private practice?
What will my work schedule be? Should I be prepared to work nights and weekends?
What is my fee? How do I decide how much to charge?
How do I find the right attorney or accountant?
What do I do if a disgruntled client leaves a public review?
How much should I invest in my office? What's necessary and what's optional?
Tips for Starting a Private Practice in Psychology
Expect Ups and Downs:
- Every business encounters ups and downs. Hornstein explains that during the "lulls or rushes" in business, you can create opportunity.
- The pandemic has created an influx, she explains. Psychologists can use this time to provide pro bono sessions to those who need counseling.
Hire Help When You Can:
- Draw on professionals to help you build your social media presence. Ask lawyers for advice on legal issues and enlist staff to handle invoices or perform time-consuming administrative tasks. Running a business means being able to delegate responsibilities when needed.
Build Your Brand With Free Workshops and Events:
- Freebies serve as a good method to market your private counseling practice. Complimentary workshops and events build your business recognition.
- "Charging for everything is a foolish mistake when you are just starting out," Hornstein explains.
Build a Network of Colleagues:
- Building a network of psychologists allows you to get help from your colleagues on business matters. "You also need a network of colleagues so you don't feel lonely," Hornstein says.
- Additionally, a tight professional network lets private practice psychologists refer out clients and ensure appropriately matched clients.
Meet Our Contributors
Dr. Robin Hornstein
A co-founder of Hornstein, Platt & Associates, Dr. Robin Hornstein has been a licensed psychologist and counselor for over 30 years. Prior to that, she completed a degree in early childhood education and worked with young children. After earning a doctorate from the counseling psychology program at Temple University, she spent many years serving clients in recovery before entering private practice. Wanting to contribute to the Delaware Valley community in a more significant way, Dr. Hornstein co-founded Hornstein, Platt & Associates, where she has been the clinical director, focusing on ensuring their therapists provide the most effective treatment possible and matching clients with therapists who will best meet their needs. HPA serves the diverse community around Philadelphia and suburbs with a focus on inclusive care.
Dr. Jerry Opthof
Dr. Jerry Opthof has been counseling individuals, couples, and families for over 20 years. His practice is built on connection, relating to his clients as whole people and not just the problems they are facing. He offers strategies built on his professional knowledge, experience, and the perspective that he has gained from his own life challenges.
Dr. Opthof specializes in individual and marital counseling; sexual, relationship, and family issues; addiction and recovery issues; and grief, depression, and anxiety.