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Starting a Private Practice in Psychology: A Checklist

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Thinking about starting a private practice in psychology?

Whether you’ve just graduated or you’ve been practicing for some time already, opening up a private practice offers many benefits, with one of the major ones being greater earning potential and increased autonomy. The overhead costs can be pretty low as well – especially if you start out part-time.

Indeed, it’s likely why (as of 2015),  nearly half of practitioners do work in private practice. This comes from the American Psychological Association.

Of course, the path to private practice can seem like a daunting one. That’s why we’ve laid everything out with our handy dandy checklist. 

Consider if Private Practice is Really Right for You

The first step when considering starting a private practice in psychology is to truly think about whether private practice is really for you. Although you may love helping your clients, how do you feel about running a business? Remember: the business side of your practice will take up at least twenty or so hours every single week. 

It’s important to speak to others in private practice and hear more about their experiences so you can get a sense of what your life will look like. If you don’t know anyone in private practice personally, consider Facebook or Reddit forums.

What Do You Need Before Starting a Private Practice in Psychology?

The basic requirements in order to start a private practice include a valid state license. Some states do allow you to work as a pre-licensed associate, but this isn’t true of all states. 

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How to Start Your Mental Health Practice: A Checklist

Assuming that you have the basics taken care of (i.e. you hold a valid state license, etc.), here is a list of things you will need to have in place and/or start thinking about when it comes to starting your private practice in psychology.

  • Write a Business Plan
  • Determine Costs and Spend Appropriately 
  • Determine Legal Requirements
  • Decide Whether You’ll be Cash-Based/Insurance-Based and Whether You’ll Offer In-Person Therapy or Telehealth
  • Choose a Mental Health or Medspa Practice Management Software
  • Determine Your Marketing Strategy
  • Determine Office Requirements
  • Set Your Rate and Accepted Forms of Payment
  • Prepare Essential Paperwork
  • Determine Your Scheduling Process 

We’ll cover each of the above topics in more detail below.

1. Write a Business Plan

In the event that you require any sort of business loan to start your practice (although this is generally not the case for many therapists moving into private practice), you will need to have a business plan in place. Nevertheless, it’s still a good opportunity to think about your business more concretely even if you don’t plan to take out any sort of business loan.

At a high level, your business plan will need to cover the following three things: what your business does, how it does it and why. However, it should also include the following items as well:

  • How much money you need to make every year to continue your practice
  • A loan repayment plan (if you need a loan)
  • Your goals for the first few months, year and first five years 
  • Your financial goals (i.e. hiring an office manager)
  • Your marketing plan

Remember that you can always change it at any time.

2. Determine Costs & Spend Appropriately 

When it comes to starting a private practice in psychology, you’re likely wondering how much you can expect to spend on opening up a private practice. Some of the biggest, non-negotiable expenses will include: your website, office space, liability insurance and a city business license (if required by your city). 

One of the biggest mistakes many therapists make, though, is that they start out with too many overhead costs before they actually have any clientele. That’s why it’s recommended to start out on a part-time basis and build up to full-time.

However, while you may want to postpone spending on office space, it’s still important to spend on things like a website and other marketing efforts, for example. These are justifiable expenses even early on as they will help you see growth. 

Even once you do gain a few clients, it’s important to not also increase your expenditures (like moving into a new office space right away) under the assumption that you will continue to grow. To avoid unnecessary financial stress, it’s best to move slowly with regard to expenditures.

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There are also some legal considerations when it comes to starting a private practice in psychology.

Choose Your Business Entity 

Before you can register for a business license or permit, you need to decide which business structure is most suitable for you – that is, whether you’ll be a sole proprietor, limited liability company (LCC), S Corp, etc., with these three being the most common for therapists. This is an important decision as it will have ramifications for future business decisions, such as how you pay taxes.

Keep in mind that you’ll automatically be considered a sole proprietor and will need to file an application in order to switch to an LLC or S corp. It’s recommended to consult with an accountant when doing your application.

Generally speaking, an LLC is the most common choice for those going into private practice; in fact, it’s often thought of as the best one because you’ll carry less liability given that the LLC’s assets and liabilities will be separate from you as the private practice therapist. The problem with the LLC structure, however, is that some states won’t permit it.

Another option open to therapists is the S Corp; this option is somewhat similar to the LCC in that the profits and losses remain separate from the owner.

Taxes and Accounting

Taxes and accounting will be another important consideration when it comes to starting your private practice in psychology in order to protect your business and avoid tax penalties. You’ll want to ensure that your finances remain separate from the business. As a first step, that’s why it’s a good idea to set up a separate banking account. Not only is this a good idea in terms of keeping track of your expenses and revenue, but you’ll also get business account benefits, and it will be helpful in the event that you’re ever audited. A separate business account will also help to protect your personal assets in the event of a lawsuit.

For those just starting out, many small business owners choose to rely on accounting software programs to track incoming revenue and expenses whereas others may rely on an office manager or even an accountant. 

As mentioned above, your business structure will determine how you pay taxes. However, all private practice psychologists will need to keep track of business receipts in order to write off expenses. You’ll also need to pay quarterly self-employment taxes to avoid a large tax bill.


Insurance is an absolute must for liability purposes. It should cover both the private practice itself as well as you, the psychologist. This will be one of your bigger expenses when starting out, but there are often discounts available for new therapists. The general rule of thumb is to get coverage of $1,000,000/$3,000,000 limits (or enough to cover all of your assets).

Insurance in this category includes:

  • Professional Protection. In the event that you’re sued, malpractice insurance would cover the legal fees.
  • Business Protection. This insurance covers various accidents on the property, such as a fire. 
  • Personal Income Protection. Disability insurance will cover loss of income in the event of unforeseen circumstances, such as a temporary disability.

HIPAA Compliance

You’ll also need to meet national HIPAA standards. This means you’ll need to maintain written policies that speak to HIPAA compliance as well as adhere to these standards when it comes to emailing and phoning clients, storing patient files and your choice of payment system. PayPal, for instance, does not meet HIPAA requirements. 

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A final consideration when it comes to starting a private practice in psychology is maintaining compliance as it relates to accessibility. This means that you must remove any barriers that would prevent people with disabilities from being able to access your services per the Americans with Disabilities Act (ADA). This means having wheelchair accessibility and designated parking. It even extends to your website. For example, your website must be accessible to those with hearing and visual impairments.

Get a City Business License (If Applicable)

Some cities also have their own requirements, which will mean that you may need to get a city business license depending on the city that you live in. This process will require completing an application and paying a fee. 

Keep in mind that you’ll need your business address in order to get one. 

You’ll also likely be required to have your business license in view, so check if that requirement applies to you as well.

4. Decide Whether to Be Cash or Insurance-Based and Whether You Will Offer In-Person Services or Teletherapy (or Both!)

Another important consideration when starting a private practice in psychology will be to decide whether you’ll be cash or insurance-based and whether you’ll primarily offer in-person services or teletherapy.

On the cash versus insurance front, the good news with being cash-based is that you can always add insurance panels in the future. However, it’s not so easy to switch from an insurance-based practice to a cash-based one unless you don’t mind having multiple clients leave at once.

Keep in mind that it can take at least three months to be accepted on an insurance panel, so it’s recommended to start this process as soon as possible if you know for sure you’re going to be an insurance-based practice.

On the topic of in-person services versus teletherapy, keep in mind that if you decide to mostly offer in-person therapy, it’s still a good idea to offer teletherapy as well. It’s much more convenient and often more comfortable for many patients as well. 

If you decide to exclusively offer teletherapy, this is a great way to save on office space. If you’re just starting out, one option is to start by offering teletherapy and then go from there as you build your clientele. 

Also, while the majority of states don’t typically require certification in order to provide teletherapy, it’s a good idea to double-check if this holds true for your particular state. For instance, this certification might be necessary in order to get liability insurance.

5. Choose a Practice Management Software

When it comes to software, mental health practice management software will serve as the foundation of your practice. Put another way, it’s an important consideration! Indeed, most private practice therapists will tell you that this software functions as their “admin assistant” much in the same way that a human admin assistant or office manager would. Generally speaking, you can expect to save between five to seven hours every single week.

Here is an overview of what it can do (which may vary slightly depending upon the software):

  • Calendar. This allows you to schedule appointments in your online calendar. With Yocale, for instance, it’s as easy as a drag and drop.
  • Online Booking. This allows your clients to schedule appointments on their own (per your set schedule and availability, of course), effectively taking scheduling off your plate. 
  • Appointment Reminders. When appointments are booked, clients will go on to receive an automated reminder in the days/hours leading up to their appointment. This helps to reduce no-shows. Yocale’s reminders are complete with directions, forms to complete and more.
  • Electronic Records. This allows you to store your files digitally instead of in a physical filing cabinet. As your practice grows, and you run out of space, you’ll be thankful for electronic records! Another bonus is that you’ll also have access to them from anywhere. Electronic records also aren’t subject to the same security issues as paper files, such as fire. 
  • Digital Forms. Practice management software will also allow you to automate your intake process. When an appointment is scheduled, the client will be automatically sent the required forms to complete depending upon the session type and also whether the client is a first-time client. Clients can complete forms in advance, and they’ll be automatically saved in their electronic file online, helping you to save hours every week. 
  • Electronic Therapy Notes. Many psychologists are now moving to electronic therapy notes (here’s why). In short, electronic therapy notes are generally much faster, are more legible/organized and offer greater security. Practice management software like Yocale also has a variety of built-in features to help you write faster notes, including inserting commonly used text or creating custom notes with checkboxes, etc., designed to reduce actual writing time. Here’s how to write faster therapy notes.
  • Payments and Payment Processing. This feature allows you to securely accept payments from anywhere. What makes Yocale different is the fact that it automates your invoices and allows you to process payments with a click for super fast payments. You’ll also get access to wholesale rates (with completely transparent payment processing), saving up to 30% with Yocale Pay.
  • Video Therapy. Software like Yocale also allows you to meet with your clients virtually with secure and encrypted sessions. 
  • Marketing. Finally, practice management software may also offer some type of marketing feature to increase your online visibility. Yocale, for instance, offers an SEO-optimized booking page, which will bring you higher up in search results. 
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6. Determine Your Marketing Strategy

When starting a private practice in psychology, you’ll want to start developing your marketing strategy in advance of actually opening your practice to determine how effective your strategy is and to make changes as necessary.

Developing your marketing strategy will include determining your niche, building your brand story, building your website and actually promoting your practice through networking, etc. You can also explore online directories like Psychology Today to see what kinds of clients you can generate from there.

Also make sure to get great headshots – this can be the deciding factor when people choose you as their therapist!

7. Find a Therapy Office or Create a Home Office

The next step will be to find a therapy office (or create a home office). Given that office space will be one of your bigger expenses, that’s why it’s suggested to start out part-time when you open your practice in order to build your clientele and also reduce some expenses. Starting out part-time first is ultimately a good way to take some of the pressure off where cash flow is concerned.

Pro tip: With the rise of technology and the increasing demand for flexible options, many therapists are now offering teletherapy sessions, which eliminates the need for a physical office space. This option can be especially beneficial for those who are just starting out, as it reduces expenses significantly, and allows for the opportunity to reach a wider client base regardless of location. Teletherapy is also a convenient option for clients who may have mobility issues or cannot easily travel to a physical office. By offering teletherapy, you can reach a diverse population and provide access to mental health services in a way that is both cost-effective and convenient. 

8. Set Your Rate and Accepted Forms of Payment

How much should you charge? 

One of the biggest mistakes to avoid is starting out with a lower rate – for example, looking at what other therapists in your area are charging and then charging a little bit less. 

While you may think this is a great way to bring new clients through your doors, it can actually signal to potential clients that you’re having trouble getting business. You might end up feeling burned out because you’re not being fairly compensated. 

Instead, you should consider what your ideal income would be and then work backward to consider how many client hours you’d like to work each week as well as expenses. This will allow you to determine what fee you need to charge in order to make your desired income. 

A common question on this front is also, “Should I charge less for teletherapy”? Unless you are exclusively offering teletherapy (which would result in lower overhead costs and therefore a slight reduction in fees), you should charge the same for both services.

When it comes to the types of payments to accept, you might be tempted to only accept cash or cheque to avoid payment processing fees. But think of how often you find yourself paying with cash over a card – not likely very often. You’ll also avoid having to spend time chasing down payments when clients inevitably forget their cash/checkbooks as well.

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Before you meet with clients, you’ll also need to have informed consent forms ready. On this front, it’s important to consult your local governing body to make sure you have all of the requirements in place. 

Once you do, you can add your forms to your mental health practice management system and, with a platform like Yocale, automate the process so clients can complete forms in advance. They’ll then be automatically saved in each client’s record. 

10. Determine Your Scheduling Process

This process will likely go hand-in-hand with your mental health practice management software, but one of the final steps when it comes to starting your private practice in psychology is to determine what your screening process will be – that is, the process for what happens when clients initially contact you to the time you schedule your first appointment. 

One such process might look like scheduling a free consultation first and then going on to schedule your first appointment. 

You should also think about the types of information you’ll need to communicate, such as types of payment accepted, where you’re located, etc. A great aspect of mental health practice management software like Yocale is that you can set your automated reminders to include all of this information so the process is completely hands-free. 

Challenges to Starting Your Own Private Practice in Psychology

While starting your own practice can be very rewarding and offers a lot of benefits, it’s still a good idea to consider some of the challenges that you might face ahead so you know what to expect ahead of time.

  • Meeting Both Clinical and Business Responsibilities. One of the biggest challenges you’ll likely face is having to balance both patient and business responsibilities – especially since the business side is often outside the scope of what you went to school to learn!
  • Managing Finances. It can also be a challenge to think about managing the financial side of your business – tracking expenses, your salary, health insurance, taxes and so on.
  • Marketing Your Practice. Another challenge will be marketing. It can take time to grow your practice, which can be a challenge in the beginning. 

Major Decisions You’ll Make When Starting a Private Practice in Psychology

Similarly to considering the challenges you might face when starting a private practice in psychology, it’s also important to consider the major decisions you’ll likely have to make. Many of these decisions can go on to greatly influence your success in private practice, so it’s best to think about some of these decisions in advance so you know how best to approach them when they come up.

Here are some examples:

  • Do I have enough clients to make the transition to private practice?
  • What will my schedule be?
  • How do I find the right people (attorneys, accountants, etc.) to help get me started?
  • How will I handle a complaint?

Tips for Starting a Private Practice in Psychology

Here are some tips for starting a private practice in psychology:

1. Find a Support Person/Group of Therapists

One of the most common tips you will see when starting a private practice in psychology is to have a support person (or group!) of therapists that you can go to not only for emotional support but also to consult on various things that will inevitably come up during the process of starting your practice. 

There will be a lot of highs and lows in the process, and even some level of uncomfortableness with being outside of your comfort zone, so it’s important to have someone you can rely on.

Your support person or group will also be an important source of support when you come up against various roadblocks along the way. A mentor or guide, who has likely encountered the same challenges that you have, is also a good investment.

2. Don’t Rush

While enthusiasm for starting your practice is so important, it’s important to take your time when starting out. You want to give yourself enough time to clearly think through all of the important decisions you’re going to have to make. Taking your time will also ensure that you don’t overburden yourself along the way.

3. Hire/Outsource When You Can

Many business owners who start out want to be involved in every aspect of their business – and that makes sense! While you might have the best of intentions, trying to do it all can quickly burn you out. Many seasoned business owners will go on to tell you that they wished they outsourced sooner.

For those who are starting a private practice in psychology, consider hiring and/or outsourcing on things like administration and marketing. In fact, that’s where your mental health practice management software comes in! It acts as your admin assistant.

4. Market Your Practice Before You Open Your Practice

It’s also important to market your practice before you open your practice. There are several reasons for this, with the first one being that it will ensure your marketing strategy is an effective one.

Wrapping it Up

Starting a private practice in psychology can be a very rewarding experience. But make sure to take your time (and even consider going part-time to start off!) to ensure as easy of a transition as possible.

Here’s to the start of your entrepreneurial journey! 


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