Understanding The Costs of Owning a Private Practice

As helping professionals, we work to heal others because we love people. But we also own businesses to see a return on our investment and earn a living. Owning a private practice is a beautiful marriage of the two concepts. 

While the age of teletherapy may have made it seem easier and more financially feasible to start a private practice or expand into a group practice, is it really as simple as we might think? I wish I could say it was, but the honest answer for most practitioners is it’s not that easy at all. Unless you happen to have a natural entrepreneurial spirit, business-oriented mind, and love a good challenge, private practice may come as a challenge to you.

Of course, that doesn’t mean you can’t open a private practice. It’s definitely still doable—you’ll just want to be prepared for as many challenges as possible before you actually face them. In my experience, one of the first things that can leave new private practice owners feeling like they’re drowning is the actual cost of owning a private practice.  

What it Really Costs to Run a Private Practice

At first glance it seems like it can’t be that bad. You’ll need some basics like practice management software, liability insurance, and a HIPAA-compliant email service. Especially if you are being cost-efficient by running a 100% teletherapy practice and leaving out office expenses, there can’t be that much more, right? Wrong! 

There are many more surprising expenses when running this type of business. So if you are considering starting a solo practice or expanding your solo practice into a group practice, it’s important that you are aware of the full breadth of costs (both money and time) that go into running a practice. Otherwise, you’re risking investing resources and not seeing a return on that investment.

In this article I’ll be highlighting the majority of products and services needed to run a successful practice and sharing the expense level each involves, along with how frequently you’ll need to pay for the expense. Because exact dollar amounts will vary based on where you are and when you read this, I’ll use dollar signs to represent numeric place value so you have a general idea of the expense level.

Cost Category: Professional Services  

Though many private practices start out doing all the jobs themselves, it sometimes makes more sense to spend the money to outsource certain tasks, rather than take the time needed to do all those tasks yourself. Plus, certain professional service providers will have expert knowledge that you might not, saving yourself the headache and expense of a data breach or liability concern later. 

Healthcare business attorney
Frequency:  Monthly initially; As needed on an ongoing basis
Cost level: $,$$$, reducing to $$$ over time

Though this may seem extreme, having a healthcare business attorney can save you a lot down the road. Not only could your business be at stake, but your license and professional reputation as well. And, if you have therapists working for you in a group, their livelihoods and reputations are also dependent on you and the success of your practice. 

Plan to pay at least $300+ per hour for this service. After the first few months, hopefully, you won’t need your attorney as often and then only on occasion in the future, so this won’t be a permanent monthly expense. It’s worth noting that it can be quite difficult and time-consuming to find an attorney who specializes in healthcare business AND is a good fit on a personal level—but it’s definitely worth investing your time here, especially when you’re just starting out and have the most questions.

Security and HIPAA-Compliance consulting firm
Frequency: Usually contracted for a year, can be continued
Cost level: $,$$$ 

I don’t know many people who enjoy reading government websites to sift through what you do and don’t need to know when it comes to HIPAA, PHI, privacy rules, and other security concerns. If that’s not how you want to spend your time, it can be a wise use of money to hire expert consultants. This is another area, like attorneys, where having expert knowledge can cost you some money upfront, but can also save you a lot of money and time by preventing potential security breaches. 

Accounting Firm
Frequency: Monthly
Cost level: $$$ 

I wish I had hired my accounting firm much sooner. I wasted so much time researching and learning what was needed when I could have been spending that time doing something much more meaningful to me, like working with my clients to improve their lives. There’s so much that goes into business accounting and taxes that it’s yet another area where spending money upfront can save you more in the long run. 

Billing Service
Frequency: Monthly
Cost level: $$$ – $,$$$ 

You could spend the countless hours it would take to properly learn billing (and how not to inadvertently commit insurance fraud) and then on top of that spend a great deal of time handling the routine billing tasks each week. 

With the growth of my group practice and my role evolving, I’m just now getting to a point where I am considering hiring an in-house biller, since a contracted service would not make sense financially for the size of my practice. However, when I began my solo practice, I chose the countless hours of learning it myself. 

To be perfectly honest, I actually wouldn’t change a thing about how I did this because, especially as my group practice has grown, I’ve been able to teach my clinicians and practice manager how to bill effectively and legally. I’ve seen huge practices go up in flames and numerous clinicians lose their jobs because the practice was repeatedly submitting fraudulent claims (oftentimes at the behest of the owner). If you do choose the DIY version, you’ll want to take advantage of the next item on the list.

Billing & Insurance Consultant/Educator
Frequency: One-time, potentially ongoing
Cost level: $$ to purchase resources, $$$ per hour for consulting services

Just as “accidentally” going over the speed limit because you didn’t notice the sign is still considered breaking the law, accidentally committing insurance fraud is still committing fraud, even if it’s purely out of ignorance. We’re all responsible for knowing what the law is and following it—and none of this is taught in grad school!

Not only will you need this education in order to protect yourself from making costly mistakes, you’ll also find yourself genuinely needing to understand the ins and outs of insurance well enough to be able to fully explain insurance to your clients in easy-to-understand terms. Unfortunately, most clinicians I come across don’t have this basic understanding, and not only does it make business more confusing for them, it means they’re not providing the level of service their clients are wanting.

Payroll Company
Frequency: Monthly
Cost level: $$$ for a group practice

A payroll company may make more sense if you own a group practice than if it’s just you operating and running your business. That said, depending on the kind of entity you chose to set up as (an LLC or otherwise), it could be beneficial regardless. 

Cost Category: IT & Business Services

Whether you run a virtual practice or still see clients in person, you’ll have IT and other technological needs to run your practice efficiently. 

Internet Service
Frequency: Monthly
Cost level: $$$

I’m talking about gaming-level internet speed here. If your private practice offers telehealth, you may need a higher internet speed, and although it costs more, it pays off in the quality of care you’re providing. The last thing you want is to be in the middle of an intense session and have your connection cut out, leaving your client without a resolution. 

Helpful hint:  If you have the option, fiberoptic is usually better quality.

Website Domain Name & Server, Website Host, & Website Builder
Frequency: Yearly
Cost level: $$$

When I say website host and builder, I don’t actually mean a person who hosts and builds the website. I’m talking about an online service provider that you pay monthly or yearly for, which allows you to then build the website yourself. If you want to pay someone to build and maintain the website for you, go ahead and add another one or two $$.

Website Design Service
Frequency: One-time, potentially ongoing
Cost level: $,$$$ initially, $$$ monthly for ongoing service

If you’re not the visually-creative type or don’t feel comfortable designing your own website, then this may be an essential service for you. This can be a pretty hefty up-front cost, and if you need help maintaining and updating the site as needed, the costs may continue, albeit not quite as high. 

It’s important to keep in mind here that your website is usually the first interaction your client has with you. It sets the tone for your entire practice. It can either give an impression of professionalism and friendliness, or it can make you seem distant or out of touch. You might be exactly the right fit for a potential client, but if your website doesn’t effectively communicate that, you both might miss out. 

Practice Management Software
Frequency: Monthly
Cost level: $$ (Solo Practice); $$$+ (Group Practice, size dependent)

I honestly don’t know how anyone could run a therapy business without this. My practice management software is the cornerstone of my business. In addition to storing and protecting our clients’ medical records, it allows us to manage our schedules and availability, handle all direct patient billing and insurance claims, securely message with patients, run numerous reports including ones necessary for payroll, and enables new and established clients to schedule appointments from the convenience of their own device. And honestly, this is just scratching the surface of everything I use my practice management software for.

Secure, HIPAA-Compliant Email, Fax, & Phone Services
Frequency: Monthly
Cost level: $$ (Solo Practice); $$$ (Group Practice)

Secure communication is an essential component to running a private practice, but it doesn’t come free! My practice has separate service providers to handle each of these methods of communication, but sometimes you can find providers that combine these services. You can also streamline your services (and associated costs) if you only communicate via email, for example. 

Adobe Creative Suite, Canva, etc
Frequency: Monthly
Cost level: $$

These kinds of services may not be totally necessary, depending on the kind of marketing you do, if you outsource any of it, and how visually complicated your materials are. If you rely heavily on social media to market your practice and engage with your community, engaging visuals are a must-have, and these services can make a huge difference. 

Cost Category: Miscellaneous Private Practice Essentials 

These last expenses are unique to running a private practice, but are all at the foundation of running and advertising your business. 

Professional and General Liability Insurance
Frequency: Yearly
Cost level: $$$ (Solo Practice); $,$$$+ (Group Practice, size dependent)

When I was in solo practice, I was quite pleased at how liability insurance didn’t seem to cost me an arm and a leg. But as I grew into a larger group practice, I learned that this expense can increase drastically. If you’re considering adding clinicians to your practice, check how much your liability insurance might increase, and make sure you factor that into your budget. 

Job Postings & Background Checks
Frequency: As needed
Cost level: $$$

If you’re in solo practice and plan to stay that way, this is a cost that might not ever apply to you. But if you plan to expand into a group, or want to explore hiring a biller, scheduler, or other administrative support, then it might come up. Between posting jobs, running background checks, and other expenses associated with hiring more people, make sure you budget a large enough amount before signing any offer letters. 

Helpful hint:  Take advantage of free options for posting job openings first. This will help you nail down what works and what doesn’t work before spending money on job posting sites.

Office Expenses: Rent, Utilities, Supplies, etc
Frequency: Monthly
Cost level: $,$$$

In my solo practice, I saved a lot of money by seeing my clients from my home rather than renting an office—but that’s not an option for everyone, and it’s also not legal in every state to do so. If you see clients in person, regardless of if you have a solo or group practice, the costs associated with your office space (like rent, utilities, and office supplies) can add up, and will likely be a permanent line in your budget. That’s not to say you shouldn’t rent office space, but that you should make sure you’ve allocated enough budget before signing the lease. 

Valuing Your Time: How to Choose Which Expenses are Worth It

Now that you’ve reviewed this (rather lengthy!) lists of potential expenses, you may be thinking “I can handle a lot of my own admin work to try to save money.” My response to that would be yes, you could—if in addition to having the  mind of a counselor, you also have the mind of a biller, accountant, lawyer, HR rep, IT person . . . you get the idea. Some people do have the minds of all these people. I did—at first. 

Eventually, I got tired of working every single day, staying awake until the wee hours of the morning to finish up my administrative work. I wanted to have more balance in my life, which meant I need to hire more support to help run my business. That meant a greater financial investment, but it also helped me reduce the amount of time I was investing in my business. 

If you only take one thing from this article, I hope it’s that you calculate and consider how much your time is worth. Determine your maximum potential income for one hour of work (whether that be a 60-minute session, an intake, consulting, marketing, etc) and use that as your gauge of whether or not it’s worth outsourcing to someone else. 

Let’s assume your time is worth $200 an hour. If you’re considering whether or not it’s worth hiring an accountant who charges $800 a month, and it typically takes you more than four hours to do the accounting for your practice each month, you can be certain that the return on your investment into an accounting service is worth it

How SimplePractice streamlines running your practice

 

SimplePractice is HIPAA-compliant practice management software with everything you need to run your practice built into the platform—from booking and scheduling to insurance and client billing.

 

If you’ve been considering switching to an EHR system, SimplePractice empowers you to streamline appointment bookings, reminders, and rescheduling and simplify the billing and coding process—so you get more time for the things that matter most to you.

 

Try SimplePractice free for 30 days. No credit card required.