Perhaps two of the scariest things about going into private practice are profitability and self-employment taxes. Gone are the days of vacation and sick leave hours and other company-sponsored benefits. If you’re a planner like me, then preparing for private practice, especially if full-time is the ultimate goal, is something important to consider when taking the leap of faith! I can share some of the tips I’ve incorporated along the way being in private practice full-time, over the past year.
One area to consider is whether you’ll be classified as an individual/sole proprietor or if you’ll establish a Limited Liability Company (LLC). On a basic level, a business identity tends to put an extra layer of professionalism behind your name! When it comes to the technical stuff, an accountant will always be the best source for your business accounting needs. However, what a general Google search will show is LLCs are known to offer some additional legal protections against liability, as well as taxation options (i.e., being taxed as a ‘S Corp or ‘C Corp’). It creates separation between you, as a practitioner, and your company as a business entity, when it comes to liability, particularly when the formalities of operating an LLC are upheld. One such formality is having a separate business account to keep personal assets separate from business assets.
In opening a business account, it’s recommended to obtain a free employer identification number (EIN) from the Internal Revenue Service (IRS). Then, the golden question . . . “How the heck do I pay myself?” If you are a sole proprietor or LLC, this typically entails paying yourself via what’s called an owner’s draw. If you’re taxed as a corporation, then you’re obligated to pay yourself a “reasonable salary”, along with other headache-inducing accounting things a certified public accountant (CPA) can help you navigate. One word of advice I will give is to be mindful of electing a corporation tax election. It’s typically not recommended until a certain annual salary level is reached, as “reasonable” falls in line with average salaries for your area, experience, and credentials.
There are a variety of business checking, savings, and credit card accounts to choose from. Personally, I use Bluevine (an online-only bank). Although they do not have a brick-and-mortar location, you can easily withdraw money, if you ever find yourself in a bind, from any bank in the MoneyPass network (most notably with credit unions) with no ATM fees on either end! Bluevine also offers 2% APY by meeting 1 of 2 options: spending $500 per month through your business debit card or receiving at least $2500 per month from qualified deposits. Additionally, this bank supports the Profit First method.
Bluevine allows customers to create up to 5 subaccounts. There’s your main checking account, which money is deposited into and is linked to your business debit card. With the sub-accounts, you will have separate checking account numbers linked to the same routing number. In the profit-first method, there are 4 accounts: profit, taxes, owner’s pay, and operating expenses. While there is a formula the accounting gods recommend on a certain percentage to delegate into each account, the most appropriate percentage is based on your current business needs. Bluevine allows you to create a ‘rule’ that automatically moves money from your main account to your sub-accounts on a frequency/day of your choosing. For me, I currently have the following breakdown weekly:
Profit: 5%
Tax: 15%
Owner’s Pay: 70%
Operating expenses: 10%
Keeping up with the ins and outs of business money flow is important, which is why bookkeeping is essential! I’m sure we have all heard of QuickBooks, but what may be less known is there are free accounting software options for those who have basic bookkeeping needs. For the DIYers like myself, I’d recommend using ‘Wave’. You link your business account(s) to the accounting software and your profits/losses are categorized. The system learns your habits; however, you can also manually categorize based on your business needs. For those who prefer a hands-off approach or more support with accounting, there’s a company called ‘Heard’ designed specifically for bookkeeping and taxes for therapists; they even help you with those pesky estimated quarterly taxes!
*Disclaimer: Tava Health is not endorsing Bluevine, and these statements are reflective of the individual contributor. Tava Health does not provide accounting or business checking, but we do provide free access to your EHR. Click here to learn more.
If you’re still with me at this point and want to build your dream private practice, you may be wondering, “How do I actually get started?” Well, once you decide whether an individual/sole proprietorship or LLC is the best route for you, tailor your professional liability insurance accordingly. If you have an LLC, it’s recommended to be added, along with yourself, to your liability insurance to ensure both you and your business are protected. There are lots of options that exist, but I can directly recommend the one I use: CPH & Associates. They have a niche focus on healthcare professionals and are reasonably priced at around $300 annually. Speaking of niches, having one for your professional practice also helps you stand out! If you’re risk-averse like me, you may prefer to join group insurance panels that guarantee payment on a regular schedule and handle administrative tasks such as marketing and dealing with insurance companies directly. Or you may decide a cash-pay-only practice or get individually credentialed with insurance companies is better. I’d recommended exploring different platforms and joining employee assistance programs (EAPs).
You now know what payment methods you’ll accept, but now you may be wondering about the best way to deliver what you do best! Telehealth all boils down to a personal preference and options. Telehealth is convenient for keeping overhead costs down, as well as reaching clients in other places, outside of your immediate area, where you are licensed to practice. However, some people prefer in-person contact. If that is the case then telehealth, at least in isolation, may not be best for you.
Now that you’ve handled all those foundational things, you may be wondering what to actually expect being a private practitioner. I’d say expect the unexpected and be prepared to adjust to the additional lack of oversight and autonomy you may not have had in a community-based setting. Also, let go of what may be years of internalized thoughts that you have to work with every client who seeks your services; there are no more assigned clients. It’s not just about if a client feels they match with you; it’s about if you feel you are a match for them, too! Expect that you have more freedom to tailor your treatment approach and the clients you serve. Otherwise, you can expect therapy sessions to encompass all the things you spent years training for!
