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Starting a practice

How to start a private practice in California

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The state has unique requirements for therapists when it comes to running a practice.

Starting a private practice is a big — and exciting! — leap. Along with building your client base and outfitting your office, you’ll need to take several logistical steps to set up your business. While some of these requirements are the same across the board no matter where you live, if you live and work in California, you may have to follow a few different steps to establish your private practice. 

Nick Bognar, a Marriage and Family Therapist who owns a private practice in California, says the state has some unique requirements for therapists in general.

“The biggest difference is that California therapists typically have to get more supervised clinical hours in order to practice, compared to other states,” he says. California, he adds, also has some unique guidelines for therapists starting their own practices — but because the demand for therapy is so high, taking the time to do things right is definitely worthwhile. 

If you’re starting a private therapy practice in California, here’s an overview of the key considerations you’ll need to know to help get started.

How to start a private therapy practice

Going out on your own can come with a learning curve, especially if you’re not familiar with the business aspects involved in a private practice.

How to start a private therapy practice

Choose a business entity

In California, licensed mental health professionals can’t form LLCs. Instead, you have two options when establishing a business entity as a therapist: You can operate as a sole proprietor, or a professional corporation

When you open up a business by yourself, you are operating as a sole proprietorship. With a sole proprietorship, you’re in control of your business, you receive all the profits, and you’re in charge of the taxes and liabilities. As a sole proprietor, you can opt to use your social security number for tax purposes, or get a federal Employer Identification Number (EIN). 

On the other hand, obtaining a professional corporation can help shield you, as the owner, from personal liability related to some claims against your business, like a contract dispute. But corporations don’t protect you from liability due to professional negligence, or other claims related to the rendering of your professional services. Professional corporations may get some tax benefits, but they also have to follow more rules about financial recordkeeping and may pay more accounting fees.

California law has various rules and regulations governing how professional corporations are owned, staffed, and managed. If you’re considering this route, a business attorney, tax attorney, or CPA can help you understand the best approach for your business.

Name and register your business

Next, you’ll need to name and register your business. It’s a good idea, first, to check that the name is available and not trademarked in your state (you can do that on the Secretary of State’s website). 

You don’t need to register your business name if you operate under a sole proprietorship and just want to use your name as the business’ name. But if you have a professional corporation, or you want a different name for your sole proprietorship, there are some steps you’ll need to follow to get a “doing business as” (DBA) name. 

Business names are registered at the city or county level. Your local clerk can provide you with the paperwork needed to register your business and give you information about fees and requirements. Keep in mind California requires licensed therapists to follow certain conventions when naming their businesses. 

According to CAMFT, California has specified criteria for naming a professional corporation: “The name of a marriage and family therapy corporation must contain one or more of the words: “marriage,” “family,” or “child” together with one or more of the words: “counseling,” “counselor,” “therapy,” or “therapist.” 

According to Bognar, these nuances can be difficult to understand and follow, so pay special attention (and don’t hesitate to hire an attorney for help getting it all sorted out if needed). “It’s easy to miss these guidelines when you file your application,” he says.

Get a business license or permit

Depending on your location within California, you may need city- or county-specific licenses and permits to operate in private practice as a therapist. Your local government office or website is a good starting place for learning about the documentation you’ll need to provide, processes involved, and the potential fees involved (for example, some businesses are required to publish notice of their new business in a newspaper or other publication).

According to Bognar, these licenses are typically relatively easy and inexpensive to obtain, compared to other legal requirements for therapists.

Secure liability insurance

Liability insurance protects you from financial fallout in the event of a lawsuit related to your professional services. The exact cost of your insurance premium — which is typically an annual premium broken down into monthly payments — depends on several factors, such as the size of your practice and where you practice. 

If you employ anyone else in your practice, then you’ll need to obtain workers compensation insurance as well. Some rental leases also require premises liability insurance. It may help to consult an expert and get a few insurance quotes before purchasing a policy to be sure you’re getting the coverage you need at a price you can afford.

Budget for California taxes

In addition to federal taxes, you or your business will need to pay taxes to the state of California.

Sole proprietors pay taxes as individuals; the business’ income is their personal income. Your earnings, however, aren’t subject to regular tax deductions like they may be if you worked for an employer. Work with an accounting or tax professional to help you budget for your tax bill, and help you understand if you’re required to make quarterly tax payments.

If you have a professional corporation, the corporation is expected to pay taxes on the company’s earnings. As an employee of the corporation, you’ll also pay personal taxes on the salary you’re paid by the corporation. Professional corporations in California are subject to a tax rate of 8.84% on their net income. 

No matter which route you take, Bognar recommends hiring an accountant who can help you properly file your taxes (and, hopefully, identify tax write-offs). “So many therapists don’t want to spend money on this, but the peace of mind is worthwhile,” he says.

Network!

Once you cross your t’s and dot your i’s with these other business requirements, it’s time to build your business through networking. Take some time to connect with other licensed therapists in your area, so you can benefit from referrals (and get some much-needed support from professionals who understand the ups and downs of your work). 

To start, Bognar encourages joining the California Association of Marriage and Family Therapists. “It’s a trade organization that provides legal advice, advocacy, and networking opportunities for therapists,” he says. “You can join even if you’re not a marriage and family therapist.” To stay on top of continued education — and connect with other therapists — you can also attend seminars and conferences in your area, such as Evolution of Psychotherapy or Therapy Reimagined.

Start your practice with Headway

When you request a call with Headway, you’re matched with a practice consultant whose number one goal is to make getting started with Headway as simple as possible. From credentialing to marketing your practice to claim submission, we make the entire process seamless and stress-free.

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