This blog talks about closing a therapy practice.

The finance aspects of closing a therapy practice

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Of all aspects of being a mental health professional, there is little said about the financial aspects associated with closing a therapy practice. In this blog, we’ll cover all that, and more:

  • How to tell your practice’s clients you are shutting down
  • Managing the legal, administrative, and operational aspects
  • Financial implications of closing a therapy practice: insurance, tax impact, company retirement plans, etc.
  • Planning for the next chapter

Before we get into the blog, we are a financial planner for therapists and mental health professionals. If you are interested, it may be a good idea to check out the following blogs about finance for therapists:

Financial tips for therapists starting a private practice!

How does a therapist decide on a fee structure?

How to expand your therapy practice to another state

When do therapists retire (and how?)

Handle client matters in a straightforward fashion

One of the hardest things you’ll need to do when closing a therapy practice is tell your clients you won’t be their therapist anymore. If you are able to do so, the best thing to do is call each client personally. You may wish to send a letter simultaneously to those you can not reach over the phone, but a personal one-to-one phone call is the best way to reach out and deliver the initial message.

What do you say to a client that you can no longer work with?

The best way to convey this message is to be as straightforward as possible, and keep it brief. First, thank the client for their faith and trust in you and emphasize that you value the relationship. Then simply explain that you have made the decision that you are moving on for personal reasons, and if they require help finding another therapist you will be happy to assist them.

Allowing as much time for the client to find another therapist may help to lessen the shock of the news. It also may be a good idea to have on hand a list of other therapists that may be suitable for your clients to work with. Make it clear, however, they they’ll need to conduct their own independent assessment of the provider and that you aren’t endorsing anyone on the list.

After you contact each client, one at a time, also consider other methods such as an email newsletter, posting to your website, or social media.

For further guidance on other aspects of how to handle client matters when closing a therapy practice, it may make sense to refer to the APA ethical code. Look there for guidance on how long and what the requirements are pertaining to storing records compliantly, etc.

Let go of employees with dignity

Telling someone they don’t have a job is one of the hardest things to do as an employer, especially if you having to convey this message to loyal employees who have stuck by you.

The best thing to do is to express gratitude and provide as much support as you can. Give the employees as much lead time as possible, and offer a list of career support resources, such as therapy job websites. You may also try to refer them to other owners of private group therapy practices who may be hiring, or that would be open to networking with your employees to help them find a new role.

Whatever you do, never burn bridges, follow the letter of the law, and consult with an HR professional if you have any questions about how to let go of an employee as you close your therapy practice. 

How to handle insurance when closing your therapy practice

Think about these insurance issues when terminating a therapy business.

Liability Insurance – Think about if you’ll be pursuing tail liability insurance, which may be useful if you are worried about liability from past work done. It will cover you for cases in which a claim was not filed while your liability insurance was active, pertaining to work that was done during that time.

Insurance carriers – Another aspect is your practice’s insurance, and terminating your relationship with the carriers themselves. It’s likely that each of them has a different process for removing you from their program, so this may become time-consuming. Start early and be as organized as possible.

Manage the administrative and operational aspects

The sheer number of administrative tasks you will be confronted with when shutting down a therapy practice is, in itself, quite large.

Make lists!

Being organized is of high importance when selling or closing down a therapy practice, as exemplified by this diligent woman planning out such an event.

Here are a few starters:

Licenses – As you won’t be practicing anymore, you’ll be renouncing your licenses. Make sure you cover all the states in which you are licensed to practice therapy.

Website – Contact your IT administrator about shutting down your website. Make sure to retain an offline copy of the website contents, though, as reference in case you are ever asked for a copy. You may need to provide evidence of how you advertised your business.

Website domain name – Your IT person will deregister your domain. Before they do so, ask your IT person what the value of your domain name is, as more popular ones may have increased in value since you bought it. There may be the opportunity to sell it as an asset.

Social media accounts – You’ll need to close your business social media accounts to cease advertising it as a live entity. If you have been using your personal social media accounts, a simple adjustment that designates you are no longer actively involved with your business will suffice.

Real estate and assets – Terminating leases or selling property associated with the business is a big task to undertake. We’ll address this in the “financial aspects” section of this article.

Consult with your lawyer

Here are some examples of legal tasks you’ll need to address. It is best to consult with your lawyer on these aspects.

DBA/business names – Your DBA and business name may be canceled.

Intellectual property – Any patents, trademarks, etc., may be sold or canceled.

Dissolving your legal structure – It isn’t as simple as just not paying the fees anymore to maintain your legal structure. There is documentation required to officially dissolve your business.

This is just a cursory list to get you started. As we mentioned, your legal advisor is the best person to speak with for recommendations specific to your situation.

Selling a therapy practice to employees

Most of the time, the therapy practice is closed rather than sold. However, there are certain situations, particularly in the case of larger private group therapy practices, where it is viable for the employees to take over the practice. Are they closely involved with your clients – or is it just you interacting principally with them? Is there another therapist, or several, that would potentially be interested in resuming these relationships? Most of all, consider if this scenario would truly work in the benefit of the client.

If you decide to sell your therapy practice to your own employees, it may make sense for larger practices to consider an ESOP, or Employee Stock Ownership Plan. An ESOP allows the owner to sell and realize some of the liquidity, while creating a structure that allows employees to accumulate wealth.

For smaller therapy practices, there are less formal ways than an ESOP to pass ownership to your employees, such as offering equity compensation. These options are worthy of discussion with a financial advisor if of interest.

Tax impact of selling a therapy business

Because private therapy practices are service-oriented businesses, there usually isn’t a large sale price. Your clients don’t have long term contracts – many times they are served by the hour. You don’t have a huge investment in capital such as machinery, as you would if you owned a bottling factory.

However, there may be some tax impact from striking a deal with a buyer. If it is large, consider placing some of the business interest into a Donor Advised Fund (DAF), which would allow you to avoid paying taxes on that part of the business. You’d also write it off in your income for the year. DAFs are established as giving accounts that are separate from your personal investment accounts, and as such they usually come with additional fees.

Another strategy would be to recognize part of the sale over a period of years as to minimize the tax impact in any given year.

Manage the practice’s assets and liabilities

If you decide to close down the practice, the assets and liabilities of your therapy practice will need to be handled. You may decide to sell any assets, such as furniture, computer equipment, or other office items. You may sell the land or building that houses your office, if you own them.

You’ll also be liable for any debts incurred, whether they be lines of credit, tax liens, mortgages, or loans you took out as a business. There are likely to be questions on how to keep track of all of this, and it is best to consult with a CPA or tax advisor.

Company retirement plans

If you have established an employer-sponsored retirement plan, such as a 401(k) plan, you’ll have to close it down when you terminate your therapy practice. It’s best to consult with your financial advisor if you do so.

You’ll be following the IRS guidelines for terminating a 401k plan. According to the IRS, when closing an employer sponsored retirement plan, you’ll have to:

  • Modify the plan documents
  • Distribute all the vested assets to the employees who hold accounts in the plan
  • Officially provide notification to your employees
  • File the necessary 5500 and possible 5310 forms

Have a plan for what to do next

In our role providing financial planning for therapists and other mental health professionals, we see quite a few of them approaching retirement. While great care and attention are paid to the technical dimensions we’ve covered so far in this article, it’s common to overlook the emotional side of leaving your practice as a therapist.

What are your plans for the next chapter?

If you are pursuing retirement, please know that it’s just as important to stay true to your purpose in life as it was when you were practicing as a therapist. Put some thought into what to do next. For some, closing a business means retiring and completely ceasing all professional activity. For others, it means volunteering, mentoring, or pursuing an encore career (such as working part-time or starting a business).

Whatever it is, have a plan.

No matter where you are in your career path as a therapist…

As financial advisors for therapists, psychologists, and private practice owners, we believe that mental health is a noble profession, and we are proud to serve those who help others in this capacity, no matter where you are: starting out, mid-career, or terminating a therapy practice.

If you are a therapist looking for financial advice, closing down your therapy practice, or thinking about retirement, contact us for a chat.


Clay, Rebecca A. (2019, July 25). Shutting Down: How to Protect Your Patients When Closing Your Practice. American Psychological Association.

IRS. 401(k) Plan Termination.

Leslie, Richard. 2010, January. CPH & Associates. Closing a Mental Health Practice: Avoiding Liability Bulletin.

O’Leary Marianne, PhD. Closing a Private Practice. Society for the Advancement of Psychotherapy.

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