How mental health practice owners can effectively plan their finances

Welcome to the "What to Know Before Opening a Mental Health Practice" series by Kristin Trick, MA, LPC-S, RPT. Drawing from a decade of diverse clinical experience spanning psychiatric hospitals, nonprofit agencies, and private practice, Trick shares the top 5 lessons she wishes she had known before becoming a solo practitioner. Packed with practical advice and insights from her journey, this series supports mental health professionals looking to establish a thriving and sustainable practice.

A counselor may have exceptional clinical skills and be highly regarded by their clients. If they cannot expertly manage money, though, their private practice tenure will be short-lived. Graduate school programs for counselors rarely require courses in finances, which is regrettable since most of us join the profession to help people — not to balance numbers. It is only when we are already in the field that we learn the complexities of running a business. Having operated a profitable counseling practice for several years, there are a few mental health practice financial choices I recommend to other counselors who hope to open their own business.

Seed money serves as the initial investment to start your business. It decreases your anxiety about paying for practice needs as they arise because you already have a source from which to pull funds. Before starting your practice, review personal finances to decide how much money you are willing to invest in your company. Consider what you will need to purchase at the outset, along with the estimated costs for at least 6 months. Once you have calculated this number, transfer that money from your personal account into a business checking account.

For its kickoff, I chose to invest $5,000 into my practice. That number has served as a comfortable cushion since I can depend on it whenever my regular business income is compromised, such as when clients’ insurance deductibles are reset or their session pay rates are reduced. The seed money has helped me measure my practice’s financial success, too. I view it as the baseline of my income which allows me to better track my business’s cash flow. Similarly, the availability of seed money has helped me prepare for emergencies.

Monetary crises for private practitioners can arise in 2 chief forms: the replacement of essential work items and insurance adjustments. You can anticipate the former scenario as you consider the quality of your office supplies. Think about the resources with which you intend to stock your private practice and their current level of functioning. Electronics — including laptops, printers, and phones — tend to require updates every 3 years. Likewise, the well-worn couch and armchairs you have used for years will soon need an upgrade. You can use seed money to purchase initial supplies for your business, as well as restock or revamp existing items.

To avoid going into debt, private practitioners must be well-prepared for insurance companies to make abrupt modifications. These adjustments can include reductions to insurance rates, in which you are suddenly paid less for sessions. While working with one insurance company, I learned of an approximately $20 decrease for family sessions after I had already delivered several. In response, I scheduled more individual sessions (the rates of which had remained the same) and reserved the final 10–15 minutes of those hours for speaking with parents.

Insurance shifts can involve “clawbacks,” in which the company requests that you return money from claims they have already paid. Reasons for this extreme intervention often involve insufficient documentation, which is discovered during audits. Certainly, an event such as this can leave you panicked and distressed. Rely on your seed money to make payments if this occurs to avoid financial harm to your business.

Keep in mind that clients can change their insurance coverage or lose it entirely during the course of therapy. I met a client twice weekly for several months whose insurance payments were substantial. One day, the client informed me that they were no longer married to the spouse who held that insurance plan and would lose their coverage by the end of that week. Do not expect your clients’ insurance benefits to remain the same as when their treatment began.

A wise move when approaching your mental health practice finances is to set up a business checking and savings account. This will help you to efficiently manage the assorted payments from clients and insurance companies. It will also make it easier for you to prepare taxes. Choose a different financial institution for your business banking than you have for your personal finances to better differentiate between them.

Arrange for client and insurance payments to be directly deposited into this account. Challenge yourself to keep the value of these funds above that of your seed money. This practice will ensure that you have money available for emergencies and can gauge the financial evolution of your practice. Pay yourself regularly by transferring money from this business account into your personal checking account. I typically pay myself each quarter, on the same day that I make my quarterly tax payments to the IRS.

Reserve this account for tax funds and investments in your practice’s long-term growth. Keep a separate spreadsheet in which you track your business income and expenses for each month. Verify your estimated taxes with your tax professional, then move this sum from the business checking to savings account. When you make quarterly federal tax payments in January, April, June, and September, do so from this account. If you are diligent in totaling and transferring your estimated taxes each month, you will not feel a financial sting when the business quarter closes. You can use these funds for infrequent and costly purchases, too, such as a new laptop or weeklong professional training.

Attempts to project your monthly income as a private practitioner can appear impossible. Multiple streams of income from numerous clients and insurance plans, all deposited at unique intervals, may overwhelm you. The importance of controlling your practice’s finances is matchless, though, and you can develop a system that works for you.

I felt the strain of financial planning for my business almost immediately after I opened it. Though I had initially only contracted with 2 insurance plans, I struggled to keep up with their payments. While my electronic health record (EHR) platform monitored payouts, I personally needed a hands-on method to track my business’s income.

After trying several strategies, I found that a dry-erase board calendar with a coding system was my remedy. At the start of each month, besides opening hours in my EHR calendar, I now write these hours on a large dry-erase wall calendar. When clients schedule appointments, I draw an empty shape next to the corresponding hour on the board: 

While checking my business accounts (usually once or twice a week), I compare the deposits shown to my EHR system and then shade in the shapes on my calendar. This habit has become an enormous help because I am able to quickly spot unpaid appointments. Having such a visual readily available is critical when working with clients who have copayments; your client may pay you straight away but their insurance may not complete the payment for 3–4 weeks.

Another tactic that has increased my peace with my mental health practice finances is determining how many appointments I need to schedule within a month to make a profit. If you vacation often or are a parent who anticipates their child’s school breaks, this approach will pay dividends. You will know the exact number of sessions your practice needs to provide that month. Afterwards, you can choose if you want to meet more clients or not.

First, consider the sessions you most often provide (individual, couples, family, group) along with their payment source (insurance, third-party, self-pay) and rate. Identify the lowest rate that you regularly charge. Then determine how many appointments you will need to secure that month to satisfy your bills and have money left over. For instance, if most of your clients use insurance and you frequently bill code 90834, use that billable amount as your standard. If you contract with multiple insurance plans, choose the lowest code 90834 rate for your calculations.

Next, examine your projected costs for the relevant month. Add up your standard expenses along with any uncommon items, such as your license or liability insurance renewals. Divide this total by your lowest session rate to find how many sessions you will need to provide that month to break even. Perhaps you expect your practice to owe $2,000 in various bills next month. If your most common and lowest paid session brings in $50, you will need to complete 40 sessions within that month.

Remember that this final number is based on your least profitable service. If you schedule more expensive sessions, such as code 90837 or self-pay clients, you will inevitably meet your financial goal. You can then decide to schedule additional appointments to increase your surplus, or simply enjoy the time off. This technique will help you plan your time away from the office, too, because you can stack clients before you leave and after you return. Instead of completely missing your standard week of 15 appointments, for example, just add the extra hours to your surrounding workweeks so you do not suffer the fiscal loss.

Most private mental health practice finances include the same items: office supplies, therapy resources, continuing education units (CEUs), and technology equipment. When compiling a monthly expense list for your personal practice, identify the essentials first. Choose “good” quality purchases as you begin your practice and note which items you would like to improve as your income grows. Review the following sample monthly expenses and settle on the costs for your business. Pay for particular services annually, simply divide the cost by 12 and list it in your monthly budget.

Insert the cost to rent your office space here. Remember to factor in the extra utilities of water, gas, electricity, and internet. If you share these costs with another practitioner, ensure that you have a well-documented agreement of how long all parties are bound to these financial commitments. This extra step will diminish your chances of having to make all these payments independently if the other counselor unexpectedly closes their practice.

These fees include those you pay to use your EHR platform, email account, and website domain. If you pay for magazine or journal subscriptions for clinical use (e.g., Psychology Today or Counseling Today), categorize them here. Membership dues for professional organizations also fit into this section, whether for a state-sponsored group or international body.

Depending on your services, supplies can become rather expensive. Think about the tools you regularly need to provide therapy and how often you need to replace them. General examples are copyrighted assessment tools, computer paper and pens, compliant computer software, and sound machines. More specialized therapies will require increased purchases, such as toys for play therapy and advanced electronics for parent-child interaction therapy (PCIT).

Even as seasoned counselors, these fees can surprise us due to their infrequent renewals of every 1–3 years. Mark on a calendar when your counseling license and therapy certifications expire, and whether or not you will need to submit CEUs. Note, too, when your professional liability insurance (PLI) will terminate, since this is a crucial renewal for your practice.

As your mental health practice finances grow stable, it is helpful to identify other potential sources of income. You may relish your direct client contact, but also find it rejuvenating to offer other services, including supervision, consultation, and trainings. You can secure many of these opportunities through a strong professional network. Besides helping your practice expand its reach, this supportive cohort will help you continue to provide top-quality and ethical work.