In this blog, we’re going to talk about financial tips for therapists starting a private practice. We are thrilled to welcome our guest Gordon Brewer, a therapist, private practice consultant, and the host of the Practice of Therapy podcast.
- What should therapists know about finance if they want to start their own practice?
- How is being self-employed as a therapist different from working for someone else, financially?
- What are the mistakes therapists tend to make when they start their practices?
- How do you know if you should go into private practice?
- Tips for managing your income needs as you transition
- How can you expand the practice beyond the therapy room?
- How much of a lift does this provide financially at first?
- How do you stay organized?
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We are financial planners for therapists. Before we get into the blog, it may be a good idea to check out the following blogs if you want to hear some financial planning tips for therapists, psychologists, and mental health professionals.
And having said that, let’s get on to the blog!
What should therapists know about finance if they want to start their own practice?
When he was in graduate school, Gordon’s dream was to own his own practice. After working for an agency for 10 years, he realized he didn’t know much about the financial side of things. But as he got into it, he did learn eventually.
Here is a summary list of financial tips for therapists starting a private practice:
- Learn how to use Quickbooks.
- Take a primer course on the basics of business accounting and how to keep financial records.
- Think about the best way to collect money from clients.
- You want to set up a separate legal entity for your practice. Talk with a lawyer about how to do that.
- Set up a separate checking account apart from your personal finances.
- Establish a cash fund to support your expenses for six to 12 months while you build up your client base.
- Put together a financial plan for you as a therapist and private practice owner
- Stay consistent throughout. It’s important to conduct ongoing financial planning as you progress through your trajectory in private practice, from starting a therapy practice, growing it, and eventually retiring from it
How therapists starting a practice should set fees and pay themselves
One of the most important financial tips for therapists starting a practice is to think carefully about how to charge fees. When starting your practice, it’s important to think about:
- What type of fees you charge
- What your hourly rate is,
- How you plan to pay yourself in private practice
All of this will play a big part in the financial planning for you as a therapist and private practice owner, and also in the finances of the therapy practice itself. Check out this video interview with Miranda Palmer where we discuss these topics and more.
Managing your income needs as a therapist transitioning to private practice
Transitioning from an employee to owning a private practice is when financial planning is super critical for therapists. When establishing your fee structure, try to map out your personal and business expenses for the year.
As they move from being an employee to an entrepreneur, people tend to overestimate the amount of income they will need. Many times someone making $150,000 a year, for example, automatically assumes they’ll need that amount of take home pay as a therapist to support themselves. This may or may not be true.
For most high earning therapists who are working for someone else, taxes take a big chunk of your gross income. However, if you have lower income when you are starting your practice, you are paying lower income taxes. Your biggest personal expenses will likely be rent and health insurance. Look into ways to manage your personal expenses while you are transitioning to private practice to make this easier on yourself financially. For therapists in this stage of private practice, financial planning must be done properly and is of critical importance.
How is being self-employed as a therapist different from working for someone else, financially speaking?
There are a variety of new things, such as self-employment taxes, that came into the picture once Gordon became self-employed. It takes self-discipline because you have to be able to track everything. You also need to know about cash flow, how much money is coming in, what the profit margins are, and if you move into group practice you need to know how to pay your employees.
One mistake people in private practice make is they believe that if you build it, he will come. In reality it doesn’t exactly work that way. You have to be able to build the business and some referral sources, and in the meantime you need to pay yourself. Being prepared financially before you go into it is important.
When Gordon went from part time to full time private practice, he spent a year building a reserve for himself. One of his fears was if something were to happen which would prevent him from getting clients. He wanted to make sure he had enough money to survive if he had a slow time.
What are the mistakes therapists tend to make when they start their practices?
Gordon feels that one of the mistakes he made early on was not seeking out enough mentorship. He is now involved with several mastermind groups allowing him to talk to other people who have been there before and gotten coaching. He feels it’s upped his game tremendously.
How do you know if you should go into private practice?
Private practice isn’t for everyone. You really have to know yourself well. You have to have a bit of entrepreneurial spirit and be able to take some risk. You do have to be willing to put yourself out there and make that leap.
What makes it less scary is getting some coaching and mentoring along the way, and learning from those who have come before.
How can you expand the practice beyond the therapy room?
For most people who go into private practice, they want to be a solo practitioner. You can quickly get your practice full and have lots of clients. But there is a limit to that. You can hit a ceiling because there is only so many clients you can see in a day. There’s also a limit to how high you can go up in your rates.
Once you hit that point, look for ways to diversify your income streams that aren’t necessarily within the therapy room. A lot of the skills that therapists have can translate in other ways. That was why Gordon started coaching other therapists.
Look outside the therapy room to find other ways to create income.
- You could go from the one-to-one way of providing therapy to the one-to-many. With group therapy you get a larger volume of clients for your time committed.
- Offer workshops and seminars that you charge for
- Offer online courses (anger management, parenting)
- Going from solo to group practice
- Coaching other therapists
It’s important to diversify your income stream because we all hit slow periods in our practice. So many of us took a hit back in March of 2020 due to the pandemic. Many people didn’t know what to do.
How much of a lift does this provide financially at first?
Like with anything, you have to adopt an attitude of being consistent and persistent. Gordon’s podcast started off pretty slowly, but he was constantly publishing content and it started to grow.
Once you gain some momentum, it kind of rolls from there. But you’ve got to put in the work by putting small things into action over time.
How do you stay organized?
Gordon uses Google Workspace as a practice platform. He uses a paper-based planner called Full Focus Planner. He uses TherapyNotesTM for electronic health records.
He’s also learned how to outsource instead of trying to do it all himself. Many practice owners hang on to answering the phone calls and handling intakes, setting appointments, and referrals. That ends up eating up a big chunk of their day. For a therapist, the best use of your time isn’t this; it’s sitting in the therapy room with your clients.
Gordon recommends Getting Things Done by David Allen and Free to Focus™ by Michael Hyatt for therapists who want to improve productivity and workflow.
Summary of financial tips for therapists starting a private practice
We hope that you enjoyed this article on financial tips for therapists starting a private practice.
As financial advisors for therapists, psychologists, and private practice owners, we believe that mental health is a noble profession, and a successful career in this field, if managed correctly, can be enough to take of your financial needs.
If you are a therapist looking for financial advice or thinking about retirement, contact us for a chat.
About Gordon Brewer
Gordon Brewer helps clinicians find success in their private practices and if you’d like to learn more about him please visit the Practice of Therapy website.