Starting a private mental health practice is a daunting task, and it is difficult to execute successfully. Only 55% of Health Care and Social Assistance businesses survive their first five years, according to the Bureau of Labor Statistics. On the bright side, this is 12% above the 5-year survival rate for all private businesses.
Despite the difficulty of maintaining a successful private practice, privately-owned mental health practices are popular and comprise 82 percent of all agencies, according to the Substance Abuse and Mental Health Services Administration.
Beyond strong clinical skills, operating as a private practitioner requires extensive knowledge of finance, marketing, technology, and mental health law. According to the American Psychological Association, the best course of action for someone interested in private practice is to first gain experience at an established agency.
Once you have gained experience and wisdom in the field, you may be prepared to operate your own mental health practice. Despite the challenges associated with starting out on your own, entering private practice can be lucrative. According to experts from the American Counseling Association, bringing home $100,000 a year is a reasonable expectation in private practice once you reach your second year.
Below, we've outlined the major steps required to start a private practice, including licensing requirements, business strategy, economics, the LLC creation process, and required technology. This ultimate guide was designed to be comprehensive. You can use the table to contents to more easily navigate the article.
How to Start a Private Practice
- Step 1: Obtain Your Private Counseling Practice Requirements
- Step 2: Develop a Business Strategy
- Step 3: Understand Your Private Practice's Economics
- Step 4: Form an LLC
- Step 5: Become Credentialed with Insurance Companies
- Step 6: Evaluate and Purchase Software for Your Mental Health Practice
Step 1: Obtain Your Private Counseling Practice Requirements
Opening a private mental health practice requires appropriate licensure as a clinician. While licensing requirements will vary from state to state, in general, you must be licensed to practice independently in order to operate a private practice. For example, a licensed social worker (LSW) cannot practice independently and must perform under the supervision of a licensed independent social worker (LISW) when providing therapy services. An LISW, on the other hand, can counsel without supervision and therefore run a private practice. For example, Ohio Administrative Code specifies that an LISW can perform therapy and psychosocial interventions as a private practitioner.
Similarly, a licensed professional clinical counselor (LPCC) can operate independently and open a private practice, whereas a licensed professional counselor (LPC) would not be able to open a private practice, as this credential typically requires supervision from an LPCC to diagnose mental health conditions. Clinical psychologists and psychiatrists can typically open private practices and function independently. Consult your state laws or licensing agencies to determine whether your specific licensure allows you to work as a private practitioner.
Step 2: Develop a Business Strategy
Once you have met licensure requirements and decided to embark upon opening a private practice, it is essential to develop a business strategy. The two most important elements of your business strategy are establishing your niche, or brand positioning, and determining your customer acquisition strategy.
Perhaps you already have a niche, such as treating eating disorders or working with clients who have mood disorders. Select an area of focus for your private practice and talk with community stakeholders to determine if your services match the needs of your community. For example, you may contact leaders at your local mental health board or community action agency to discuss what services are needed in the community and how you can fill those gaps. The Practice of Therapy has a resource with over 60 potential niches.
The second critical component of your initial business strategy is determining how you will acquire new clients. You may consider participating in community events or networking with potential referral sources, such as hospitals, schools, and physician's offices. You might also consider focusing on online marketing depending on your personal experience and preference. As you can see below, there is a clear trend in potential customers searching online for therapists near them.
Another aspect of your business strategy is determining whether you would like to work full-time or part-time in private practice. Some private practitioners recommend holding on to a part-time job at an established agency for two to three years before jumping into full-time private practice. You might be wise to start by seeing private practice clients part-time during the evenings and weekends while still working your regular job, and then transitioning into full-time private practice once you gain enough clients. On the other hand, if you have significant savings or a spouse who earns enough money to cover the bills, you may decide to jump into private practice full-force from the beginning.
For general business strategy guidance, we recommend this list of blogs and podcasts.
Step 3: Understand Your Private Practice's Economics
Having the appropriate licensure to open a private practice and creating a business plan are just the first steps toward operating on your own. Next, you must understand private practice economics. This includes what you personally can expect to earn and what your practice's financials will look like.
What Will You Earn if You Open a Private Practice?
You are probably wondering, "How much do private practice therapists make?" It is difficult to determine exactly how much you can expect to earn as a private practitioner, as earnings will vary based upon where you live, how many clients you see, your specific credentials, what types of payment you accept, and whether you work full-time or part-time in private practice. There is variation in income among private practitioners, but the earning potential is rather high.
According to the National Association of Social Workers, those who open solo private practices can earn upwards of $100,000 per year with experience, compared to the average social worker, who earns $49,470 per year, according to data from the Bureau of Labor Statistics.
The American Psychological Association collects salary data for psychologists by sector. As you can see in the table below, self-employed psychologists earn a median annual salary of $100,000, compared with $80,000 overall. Interestingly, psychologists in the private sector who are not self-employed earn a median annual salary of $70,000 per year.
Budgeting Your Practice's Financials
If you are new to finance or running a business, budgeting your financials can be overwhelming. While it can get very detailed, at the highest level, you simply need to estimate your revenue and expenses for a given time period. For this guide, we've based our example budget on estimates from this resource from the APA. While exceptionally detailed, this resource did not include a figure for software and technology expense, which we'll estimate at $6,000 per year.
To estimate revenue, we'll make assumptions about your average client fee ($80), number of sessions per week (35), and number of weeks you will work per year (48). In terms of expenses, we'll estimate:
- Office Space
- Office Supplies
- Professional Dues, CE
- Liability Insurance
Based upon those items above, it's relatively simple to use Microsoft Excel or Google Sheets to create a profit and loss statement, or P&L, similar to the one below. While simple, it is good to see the sample P&L project roughly $100,000 of income before taxes for a single-clinician practice. This fits nicely with the aforementioned data from the ACA and APA.
As mentioned above, this P&L is relatively simple. We recommend starting with a simple P&L and then fine-tuning it for your practice over time. For example, your final model should include factors such as health insurance, bookkeeping, taxes, unpaid session fees, and cashpay vs. insurance assumptions.
Step Four: Form an LLC
Once you are ready to start your practice, you will need to form a business entity. The most common is a Limited Liability Company (LLC). The benefit of an LLC is to separate your personal affairs from your business so that you are not responsible for the debts and liabilities of the business. Service providers like LegalZoom make it easy and cheap to form an LLC.
For $79, LegalZoom will:
- Have you complete a questionnaire online
- Formulate your LLC documents
- File your documents at the correct government agency
- Give you a tax identification number
- Deliver your Articles of Organization and LLC packet to you
- Provide you an operating agreement to sign
- Give you a tax identification application to be signed by the LLC officer
Step 5: Become Credentialed with Insurance Companies
Private money, such as grants, self-pay, and private insurance typically account for a small portion of revenue in behavioral health agencies. Therefore, unless you plan to operate as a cash only practice, a critical step for earning revenue is to become credentialed with insurance companies. You should expect to spend about 10 hours getting credentialed with each company. The ACA provides helpful advice for applying for insurance credentialing here.
In addition to insurance companies, it's important to consider enrolling as a new provider through your state's Medicaid department, as Medicaid dollars will likely be a significant source of income. The National Council for Behavioral Health reports that Medicaid dollars account for at least 50%, and up to 80%, of revenue in most practices.
Step 6: Evaluate and Purchase Software for Your Mental Health Practice
Congratulations! You have your licensure, a business strategy, a business plan, and a LLC that is credentialed with payors. Now it's time to consider the technology you should adopt to streamline your processes and enable you to spend more time with your clients. A private mental health practice will require at the least a computer, a phone, and software for completing daily tasks.
For example, you will need software that allows you to perform the following functions:
- Patient Intake
- Electronic Health Records (EHR)
- Client Communication
- Appointments and Scheduling
For new practices, we recommend using SimplePractice or TherapyAppointment as your practice management system. If you are a psychiatrist that requires e-prescribing, then we recommend evaluating Luminello. These practice management systems are built to streamline the majority of your day-to-day tasks from patient intake to scheduling, charting, billing and even telehealth. For more information, you can read our guide to practice management software.
Outside of your practice management system, you'll need to consider technology for operating your business (G Suite, Microsoft Office), payroll (ADP), and accounting (Quickbooks). Some practice management systems will help you create a website, if not, we recommend a cheap solution like SquareSpace.
Starting a private mental health practice is a multifaceted process that requires you to obtain appropriate licensure, develop a viable business strategy, model your economics, form an LLC, become credentialed, and determine what technology is needed to support your work. This involves planning and making personal decisions that will impact you and your family, such as whether to operate on a full-time or part-time basis. On the other hand, amazing benefits await those who successfully establish their own private practice. We hope this guide has been a valuable source of information and motivation. If you have any questions, please let us know.