Financial Tips for Therapists Starting Their Own Private Practice
One of the most important aspects of owning your own practice is setting a solid financial foundation. Creating a budget that aligns with your vision for your practice can help reduce stress, ensure financial sustainability, and allow you to focus on what you do best—helping others. Here are some budgeting and financial tips to consider when starting your own therapy practice.
1. Create Clear Financial Goals
Before you start spending, take the time to develop a detailed income plan. Identify your costs for sessions (including private pay and insurance pay), outline potential costs, and create a strategy to make your practice sustainable in the long run. Think about startup costs, ongoing expenses, and projected income. The clearer your plan, the easier it will be to determine how much money you’ll need to launch and sustain your practice. You can start by calculating your average income per session and plan how many sessions per week you want to host to make the income you would like. (Sign up for our newsletter to receive a Business Plan for Private Practice Guide and a Goal Setting Worksheet for Finances and other Private Practice Goals.)
2. Track Your Expenses from the Start
You’ll need to manage both personal and business finances, so tracking your expenses is crucial. There are many resources available, or you can create a simple spreadsheet—that will help you keep everything organized. Start by listing both one-time costs (like office setup, licensing, website development) and recurring monthly costs (such as rent, utilities, marketing, and insurance). Be sure to categorize expenses for tax purposes.
3. Separate Business and Personal Finances
It can be tempting to mix personal and business finances when you’re just starting, but this can lead to confusion and potential issues come tax time. Open a separate business checking to make transactions easier to track. Not only will this simplify bookkeeping, but it also protects your personal assets if anything goes wrong with your business.
4. Budget for Professional Development and Supervision
As a therapist, ongoing education and supervision are important for growth and compliance with licensing requirements. Budget for continuing education courses, workshops, and any required supervision. While these are long-term investments in your career, they can also be an essential part of providing the best care to your clients.
5. Include Marketing in Your Budget
Even the best therapists can’t succeed if potential clients don’t know about them. Set aside money in your budget for marketing efforts, such as building a website, advertising, creating social media accounts, or purchasing tools to manage bookings and appointments. Many marketing strategies don’t require a large investment upfront, but making this a priority can help your practice grow.
6. Plan for Taxes
Tax season can be stressful, especially when you’re self-employed. It's essential to set aside a percentage of your income each month to cover taxes. The general recommendation is to set aside around 25-30% of your earnings for federal and state taxes, but this can vary depending on your location and business structure. Consider consulting with an accountant to ensure you’re on track and to learn about tax deductions that could benefit you, like office space or equipment.
7. Start Small and Grow Gradually
It can be tempting to invest in everything upfront—fancy office furniture, premium software, a high-end website, etc. However, starting small and scaling gradually is often the best approach. Begin with the essentials, and as your practice grows, you can reinvest in things like additional resources, hiring support staff, or expanding your office space.
8. Keep an Emergency Fund
While it’s impossible to predict the future, it’s essential to have an emergency fund in place. If you face slow months or unexpected expenses, an emergency fund can give you peace of mind and keep your practice afloat. Aim to have 3-6 months' worth of living and business expenses saved up.
9. Create an Allocation Guide
An allocation guide is a useful tool for determining how to divide your financial resources across different areas of your business, ensuring that you're managing your funds effectively and staying within your budget. It helps you prioritize expenses and ensure you are setting aside enough for things like taxes, savings, etc. For example, at the end of the month(after expenses) you put 60% into paying yourself, 25% into tax savings, 10% into Emergency Fund, and 5% towards CEUs or Certifications.
10. Be Realistic About Your Income Projections
Starting a private practice doesn’t mean you’ll be profitable right away. Be realistic about your income projections and recognize that it may take time to build a client base. Set achievable financial goals for the first few months, and adjust as necessary based on how your practice grows. Remember that consistency and persistence are key.
11. Seek Out Support and Mentorship
You don’t have to navigate the financial side of running a private practice alone. Consider seeking advice from a financial planner who specializes in working with small businesses or therapists. Joining a network of other therapists, like through a coaching program or professional group, can provide insights, strategies, and emotional support to help you stay on track financially. I have found Heard to be an amazing resource- the help with bookkeeping, taxes, and are always available for questions regarding business incorporation, tax estimates, and any other confusing financial stuff!
Book Recommendation:
Profit First for Therapists: A Simple Framework for Financial Freedom by Julie Herres
Other Resources We Have for Budgeting Concerns:
Episode 15 of Our Podcast: Worrying About Income and Taking Time Off
Episode 10 of Our Podcast: Budgeting for the Lows
Episode 8 of Our Podcast: Unraveling the Martyr Complex and Your Relationship with Money
Sign Up For Our Newsletter for some helpful handouts on goal setting and business planning as well as an excel sheet including expected costs of starting a private practice.
Our Tier 2 Coaching Bundle has a video on Budgeting for Private Practice where we dive deeper into important concepts to incorporate and other financial insights. The Coaching Bundle also includes a Goal Tracking Workbook and Excel Sheet to help with budgeting.
Conclusion
Starting your own private practice is an exciting step toward greater autonomy and work-life balance. By carefully managing your budget, tracking expenses, and planning for the future, you’ll be setting your practice up for success. Take the time to review your financial plan regularly and adjust as your practice grows and evolves. With thoughtful financial planning and persistence, you can create a thriving and sustainable practice that brings both professional fulfillment and financial security.
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