Attorney Articles | Starting a Private Practice Part One

Articles by Legal Department Staff

The Legal Department articles are not intended to serve as legal advice and are offered for educational purposes only. The information provided should not be used as a substitute for independent legal advice and it is not intended to address every situation that could potentially arise. Please be aware that laws, regulations and technical standards change over time. As a result, it is important to verify and update any reference or information that is provided in the article.

Starting a Private Practice Part One

This article discusses starting a private practice. It stresses the importance of planning and identifies key considerations before opening a practice. Practical needs are discussed, legal considerations are identified, and multiple resources are provided to assist in getting started.

Michael Griffin, JD, LCSW
Staff Attorney
The Therapist
November/December 2016

Is Private Practice Right For You?
For many therapists, private practice is the ultimate goal after years of study and training. But to be successful in private practice, it takes a plan, and a solid understanding of legal, ethical, financial, administrative, and technical aspects of running a therapy business.

A successful private practice is ultimately a successful business venture and there are many aspects of running a business that have nothing to do with one’s psychotherapy skills. A therapist who is considering private practice should, first of all, evaluate his or her professional goals and contemplate how they will be satisfied by working in a private practice setting. It isn’t for everyone. Therapists who have never worked in a private practice may want to begin on a limited basis, such as by sub-leasing an office. It is also a good idea to talk with experienced private practitioners about their experiences before starting out.

No job is perfect. Prior to “taking the plunge” and investing a substantial commitment of time and money, it is advisable to consider various advantages and drawbacks which are commonly associated with operating a private practice.

Advantages vs. Drawbacks Professional Freedom 
For many individuals, starting a private practice represents an opportunity to be one’s own boss and the freedom to pursue professional interests. In fact, private practitioners do enjoy a substantial degree of freedom. There is the freedom to set one’s own hours and to work as much, or as little, as desired. But as anyone who has operated his or her own business will tell you, there are trade-offs to consider: Being your own boss includes the responsibility for handling everything that happens in the business. When business is good, the experience can be exhilarating. But owning a business also means that there is no one else to “ pass the buck” to when problems arise.

Income Potential 
Private practice offers the potential to earn a higher income compared to other therapy jobs, particularly for individuals who are recently licensed. This needs to be carefully and realistically evaluated though, with consideration given to the value of benefits that may be available from an employer, such as paid vacation, sick time, health insurance, and contributions to a retirement plan. Being in private practice also means not having the security of a regular paycheck from your employer. In private practice, you are your employer.

There is a degree of stress involved with operating any business enterprise. There may be, for example, a downturn in income from time to time. In such a circumstance, there is a need to generate increased revenue and to exercise cost-cutting measures, if necessary. As every private practitioner knows, the potential vacillation in income, particularly for a newly established practitioner, is stressful. When times are good, the practitioner reaps the rewards. When they aren’t as good, the reality may be that action is necessary as a matter of survival. Yet, regardless of the risk that is associated with starting a new business, private practice continues to be a very common employment choice among California LMFT’s.1

Isolation For individuals who thrive on social/ professional interaction with other professionals, working in a private practice may be a poor fit due to the relative degree of isolation from colleagues. The reality is that, if a therapist intends to rely on his or her private practice income, he or she will need to see numerous patients, often in back-to-back sessions. Also, in contrast to other professional settings, such as a community clinic or agency, when a therapist exits his or her private office, there aren’t other therapists across the hall with whom to commiserate. This is not to suggest that life in private practice is the equivalent of solitary confinement. Typically, there are other therapists in a professional building. But keep in mind they are also busy earning a living, going from one session to the next.

To overcome (or pre-empt) isolation, clinicians in private practice should seek out opportunities for networking with peers, such as participation in a case consultation group, or by attending activities that are offered by CAMFT and CAMFT’s local chapters. It is also desirable to establish a network of trusted colleagues who are available for consultation when needed.

Anticipating Start-up Costs & Ongoing Expenses 
Like any business venture, the likelihood of success in private practice is highly dependent upon hard work and careful planning.

It is necessary to consider the initial costs of opening a practice as well as the ongoing expenses associated with maintaining the business. The amount of funds that are necessary will vary, depending upon the circumstances and the therapist’s needs, tastes and budget.

Business License 
In most instances, it is necessary for a business entity to obtain a business license, which is usually issued by the municipality that the business is located in. In some instances, such as in unincorporated areas, the county may also require a business license and it is prudent to check with both entities when opening a business.

The office should have a professional appearance, and be well-suited to a practitioner’s needs, taking into consideration the nature of his or her practice and the anticipated clientele (children, families, etc.).

When it comes to office furnishings, there are a number of standard items to consider, such as desks, chairs, couches, lamps, plants, tables, and decorative accessories. Don’t forget about waiting room furnishings, including chairs, tables, and lamps. While an attractive office is desirable, a degree of caution is called for when making initial expenditures, especially at the start, when there is no track record of earnings to rely upon.

Office Supplies & Equipment 
Typical items in this category include: Computer (laptop/tablet), telephone and voice mail, file folders/labels, business cards, brochures, pens, paper, staples, tape, paper clips, copy paper, note pads, professional letterhead and envelopes, file cabinets with locks, magazines, and materials for children such as books, games or art supplies, all depending on the preference of the therapist. You may also want to have a coffee maker, or hot water dispenser for coffee. Don’t forget to consider a source of music for the waiting area. Appropriate background music not only helps people to relax, it helps to mask any sounds that may inadvertently emerge from the therapy offices.

Professional Supplies 
Necessary professional supplies include: Client forms, such as release of information forms, disclosure forms to provide information about the practice, the therapist(s), office policies and procedures, and disclosure of privacy practices for HIPAA-covered entities, financial agreement forms, and consent forms for treating minors. It is recommended that therapists keep a supply of “Super-Bill” forms on hand to provide a receipt to patients who intend to seek reimbursement from their insurance companies.2 (Samples of many practice-related forms are available in the “ Resources” section of the CAMFT website, under “Practice Resources” at Therapists who intend to bill insurance, but do not plan to utilize electronic billing, will need a supply of CMS-1500 claim forms. Hard copies of such forms may be purchased from a variety of Internet vendors. Therapists can also purchase PDF versions of the CMS-1500 form online, which can then be printed for mailing. (Regardless of the source, be sure to use the current (2/12) version of the form). Other supplies may include self-report f orms or diagnostic materials, and educational materials for patients, etc., consistent with the needs of the therapist. And don’t forget to purchase a DSM-5 diagnostic manual. (Yes, every therapist needs one).

Rent/Lease Payments 
The cost of renting office space is usually the greatest expense associated with operating a private practice. Initial costs may include expenses for build-out of the office space, unless that is included in the lease, and a security deposit. There may also be provisions for “CAM charges,” where the tenant agrees to pay a share of costs incurred by the owner related to maintenance of common areas of the property. Before entering into any lease agreement, particularly when it is a new experience, think carefully about what is important to you, and don’t be afraid to ask questions. If possible, it is also advisable to seek consultation from someone who has familiarity with commercial leases.3 (Refer to the article by Catherine Atkins, JD, regarding commercial leases, in the March/April 2007 edition of The Therapist. It is available in the “ Resources” section of the CAMFT website, under “Legal Articles” at

Leasing vs. Subleasing 
Some therapists prefer to limit their financial responsibility associated with private practice because they are just starting out, or they may feel that leasing an office is unnecessary since they only want to work with a limited number of clients. In such circumstances, a sublease agreement is worth considering. In such an arrangement, a therapist enters into a contract with the existing tenant of the office, for a limited use of his or her office. Due to the fact that a sub-tenant enters into an agreement with the existing tenant, and not with the landlord of the property, it is important to clarify, in advance, whether the tenant has the right to sublet the office. Many lease agreements contain provisions which restrict the right of the tenant from subleasing his or her office and a therapist could find him or herself facing a sudden, unplanned need to relocate.

Subleasing has the benefit of operating at a lower cost, and avoids the need to fund the purchase of expensive furnishings. Once a therapist develops a caseload of clients and establishes a number of referral sources, he or she can begin to look for a place to practice which can accommodate a growing practice. (Of course, the therapist is expected to honor the terms of his or her sublease prior to moving). The disadvantages of subleasing may include feeling like an outsider in someone else’s office, not having control over the appearance of the office or its furnishings, not having one’s name on the building directory, not having space for office files and records, and perhaps most of all, limitations on the availability of the office space.

In the best of circumstances, subleases can be beneficial for both parties. The primary tenant earns extra income and the sub-tenant has the use of a furnished office for a limited cost. As in any relationship, however, there can be problems if the individuals involved prove to be incompatible, or when there is conflict over the terms of the agreement. Such arrangements seem to work best when both parties have carefully considered their needs in advance, and have taken the time to construct a thoughtful agreement. It is also desirable to be as clear and detailed as possible when constructing a sublease agreement. Agreements should include content which includes (but is not limited to): The amount of rent and when it is due; length of the agreement and any provisions for terminating the agreement; access to, and any limitations concerning, use of the office; utilization of the waiting area, control over the thermostat, use of office equipment and file cabinets; access to professional supplies and /or office supplies, and expectations concerning the general care and treatment of the office by the sub-tenant and his or her clients.

Home Offices 
Some therapists find that use of a home office is a workable solution to their office space needs. The primary benefit, obviously, is cost. Issues to consider include determining whether the presence of a therapy office in the home is compatible with the comings and goings of other occupants of the house, whether there is any problem in securing a private and confidential space in the home that is well-suited to one’s needs, and whether the therapist is comfortable with the potential impact on his or her privacy. Depending on the municipality, local zoning laws may prohibit the operation of such a business in a particular residential area.

Professional Services 
Self-employed professionals often require the advice or assistance of other professionals. Common expenses in this category include the cost of accounting services, legal consultation, billing services, marketing assistance, and consultation concerning the use of technology.

Every private practitioner should have professional liability (“malpractice”) insurance coverage. But there is more to consider here. Therapists who elect to employ other therapists in their practice must obtain workers compensation insurance for their employees. In addition, depending on the terms of a lease agreement, there is the possibility of having to obtain coverage for premises liability (“slip and fall” accidents), or damage to the premises. In some instances, lease agreements may also contain provisions requiring the tenant to purchase additional insurance for business interruption, and other circumstances, subject to the requirements ordinarily imposed upon tenants by the property owner. Before signing any lease, it is important to take the time to clarify each of these requirements. It is also advisable to seek one or more quotes from an insurance broker to obtain a reliable estimate of costs in this area.

License Renewal Fees /Association Dues 
This may sound like it is stating the obvious, but a licensee must ensure that his or her professional license is properly renewed. (When this seemingly mundane task is overlooked, the resulting aggravation can be considerable).

Who Are Your Clients and Where Will They Come From? 
Distinguish Your Practice & Develop Areas of Expertise
One cannot simply hang up a shingle and wait for paying clients to flow through the door. It is necessary for potential clients to find the therapist, and for referral sources to think of him or her as a good professional resource. A therapist who identifies him or herself as a “ generalist” who works with adults on a wide range of common issues such as depression, anxiety, relationship issues, etc., is unlikely to be distinguished from hundreds of other providers in a particular geographic area. A therapist must identify his or her strengths and areas of expertise. Having one or more identifiable areas of specialty helps other professionals to remember the therapist when it comes to services for a particular issue or to a specific client population. It is important to add, however, that a therapist must exercise care when stating that he or she “specializes” in a particular area. Any such claim should be based upon a realistic appraisal of one’s experience, education, training, and overall competence. By representing to the public that he or she “specializes” in a particular area or areas, the therapist is communicating to the public that he or she possesses a degree of expertise when working with such issues, which is likely to be greater than practitioners who are not specialists.

Make Yourself Available 
If you have all the clients you can handle and you are finished working by 5 PM, you are one of the lucky few. But if you are new to private practice, it is probably unreasonable to think that all of your clients will fall neatly into a limited, convenient timeframe. One way to build a practice is to provide some services at a time that is not commonly available, such as after 7 PM, or on Saturdays.

Evaluate Your Practice Location 
Most metropolitan areas are already congested with therapists. If you are going to practice in one of these locations, remember that there has to be a reason why a client would select your office as a desirable option compared to all of the other choices that he or she may have. It doesn’t hurt to explore the possibility of practicing in a location where the competition is not as intense.

The following questions are relevant when considering the issue of practice location: How much is the rent in one area versus another? What is the proximity of an office to one’s residence or existing place of employment? Is the practice location easily accessible to clients? What is the physical appearance of the office location? Is it attractive and inviting? Appearance is important and clients are interested in going to a place that helps them to feel calmer, not more agitated.

Develop a Marketing Plan 
It is a good idea to establish a marketing plan for your business, especially if it is a new private practice. For those who feel lost in this area, it may be helpful to seek the advice of successful colleagues, or a marketing professional who has familiarity with the needs of mental health professionals. It isn’t necessary to “break the budget” when getting started. A valuable resource is Counseling, a consumer-facing searchable directory of California therapists featuring profiles of CAMFT members.4

When constructing advertising in any form, whether it is a simple business card, a brochure or flyer promoting a professional service, or a professional profile in an online directory, it is important to be aware of the various advertising laws and regulations that apply. As a general rule, it isn’t difficult to comply with the rules and it is well worth the effort in order to avoid potential problems.5

Develop a System of Record-Keeping and Documentation 
Depending on where a therapist was trained before being licensed, he or she may have been required to complete elaborate and demanding clinical documentation for every client. Or, in some instances, the therapist’s experience prior to being licensed may have only required minimal or informal record keeping. The truth is, internships which required the therapist to produce clinical documentation which included psychosocial history, mental status examination, and a treatment plan with specified goals and objectives may have been arduous, to say the least, but it will make documentation requirements in private practice settings seem easy by comparison. Therapists who did not have such training need not despair; they simply need to be aware of fundamental documentation requirements, and maintain professional records that reflect the competent treatment that is provided to every client.

There is no single method of documentation that is required in every case. But fundamental standards do exist: Marriage and family therapists are required to keep records that are consistent with sound clinical judgment, the standards of the profession, and the nature of the services being rendered.6 7 Members of CAMFT may call to discuss the issue of documentation with one of the staff attorneys, and there are articles on the CAMFT website that discuss the topic, including standards for documentation which apply to therapists who are contracted with various insurance carriers.8

Develop Procedures and Forms For Intake 
Procedures must be established where every new client is given information that is required to be disclosed, such as information about the business type, if necessary, and HIPAA privacy practices (where applicable), fees, cancellation policies, therapist availability, and any other information about the therapist and his or her practice that may be requested. Examples of commonly used forms and other practice resources and information may be found on the CAMFT website, at, under “ Resources.”9

Identify Your Business Entity 
As a licensed mental health professional in California, you may organize your private practice as either a sole proprietorship or a professional corporation. In California, licensed professionals are not permitted to form a limited liability company (“LLC”) for the purpose of rendering professional services.10

Sole Proprietorships 
When a therapist opens a business by him or herself exclusively, the type of business entity is known as a sole proprietorship. A sole proprietor has total control of the business, receives all of the profits, and is responsible for the taxes and liabilities of the business.11

Professional Corporations 
California law defines a professional corporation as a corporation organized under the General Corporation Law that engages in rendering professional services.12 The term “professional services” is defined as any type of professional service that may be lawfully rendered only pursuant to a license, certification, or registration authorized by the Business and Professions Code, the Chiropractic Act, or the Osteopathic Act.13 Therefore, a licensed marriage and family therapist, licensed clinical social worker, licensed psychologist or licensed professional clinical counselor is permitted to form a professional corporation.14

California law limits who can be an owner, director, officer, or employee of a professional corporation.15A licensed marriage and family therapist is required to own at least 51 percent of the outstanding shares of a marriage and family therapy corporation and the remaining 49 percent may be owned by other licensed health care professionals.16 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.”17 MFTs are also required to disclose to clients that the business is conducted by a marriage and family therapy corporation at the outset of treatment.18

There are advantages and disadvantages associated with forming a professional corporation. A corporation shields owners, officers, and professional employees from personal liability which may arise from claims that are not related to the rendering of professional services (such as a contract dispute).19 By contrast, the corporation does not offer protection from potential liability due to professional negligence. Professional liability insurance is the source of protection to a therapist in the event of a malpractice lawsuit.

There are some formalities that must be followed when operating a corporation which do not exist in operating a sole proprietorship. As an example, financial recordkeeping is a bit more involved, and there is the need to hold meetings (complete with minutes), regarding the status of the corporation and its finances, the election of corporate officers and directors, and any major decisions that are made by the owners.

A professional corporation may offer a number of favorable tax benefits to an owner that would not apply to a sole proprietorship. But there is also the likelihood of a higher accounting bill, compared to sole proprietorship, because of the need to file a corporate return in addition to an individual tax return. In some instances, particularly with a new business that is not yet generating significant revenue, an owner could realize more expenses than benefits in operating a corporation. Because every circumstance is different, it is strongly recommended that any therapist who is interested in forming a professional corporation consult with a CPA or tax attorney about the financial implications of forming the entity.

Fictitious Business Names (“DBA”) 
In some instances, a therapist may want to attach a fictitious business name (also known as a “DBA,” or “doing business as”) to his or her practice, for advertising purposes. This is entirely up to the individual therapist and a DBA may be obtained for use by a sole practitioner or a corporation. Therapists are required to inform clients, at the start of treatment, of the name and license designation of the owner or owners of the business, when using a DBA.20

In order to operate a business under a name other than the name of the individual proprietor, a fictitious business statement must be filed with the county where the principal place of business is located. There is no provision in California for registration of a fictitious business name at the state level. It is necessary to contact the county clerk, and/or recorder where the principal place of business is located for information about filing or registering a DBA. The intended business name must not be one that is already registered in the county, and it must be renewed periodically, in accordance with local rules.21

Obtain a Federal Tax ID (“EIN”) 
It is advisable for a therapist to obtain a Federal Tax ID, also known as an Employer Identification Number (“EIN”) for use in relation to his or her business. A practitioner must include his or her Federal Tax ID when submitting a claim to an insurance company. In most instances, it is also necessary for a Federal Tax ID number to be included on a statement, or “Super-Bill” form that is provided to a client as a receipt for their use in seeking reimbursement. By obtaining an EIN from the IRS, the therapist is relieved from having to utilize his or her Social Security Number for such purposes. An EIN is issued by the IRS and may be applied-for on the IRS website. According to the IRS, it takes approximately 4-5 weeks to receive the EIN.22

Obtain a National Provider Identifier (“NPI”) 
A National Provider Identifier Number (“NPI”) is a 10-digit numeric identifier that is issued by the Centers for Medicare and Medicaid Services (CMS) National Plan and Provider Enumeration System.23 Individuals in private practice who must comply with HIPAA are required to obtain an NPI.24 An NPI number is required by insurance companies in order to process electronic claims. However, because insurance companies always ask for the provider’s NPI on insurance claims, and there is no downside to obtaining an NPI, it is generally recommended that every private practitioner obtain one to avoid potential delays in reimbursement.

Establish a Business Banking Account 
It is necessary for private practitioners to open a business banking account that will be used for the sole purpose of recording business income and business-related expenses. Income that is received as payment for services should always be deposited into the business banking account and not directly into a therapist’s personal accounts. Coincidentally, in the event that a client or other third-party issues a check in the name of a DBA, in order to accept the check, the bank must be provided with a copy of the fictitious business name statement that was issued to the therapist by the county clerk.

Reimbursement Issues 
There are a number of issues to consider on the topic of reimbursement, not the least of which is how much to charge. A therapist’s fees should take into account what other therapists charge in the geographic area, the therapist’s experience, special knowledge and expertise, and the particular market that the therapist is hoping to reach. There is also the issue of whether a therapist will agree to bill a client’s insurance, or simply provide the client with a “ Super-Bill” to submit for reimbursement. Here too, there are advantages and disadvantages to consider: Some clients may have difficulty waiting for reimbursement and would be more willing to work with a therapist who bills their insurance. The problem, of course, is that insurance companies can be difficult to work with and a provider is vulnerable to delays, or denials of his or her claims. There is much to be said about the entire topic of health insurance, and reimbursement in general, including the advantages and disadvantages of contracting with insurance carriers, the pros and cons of submitting claims electronically, and the ability to accept credit and debit cards for payment. These and other issues will be addressed in Part II of “Starting a Private Practice,” which will be forthcoming in a future issue.

Michael Griffin, JD, LCSW, is a staff attorney at CAMFT. Michael is available to answer member calls regarding legal, ethical, and licensure issues.

1 Babayan, Mariam, JD, “California 2015 Demographic Survey: A Snapshot of the Typical MFT,” The Therapist, Sept/October, 2015. In a survey of clinical members of CAMFT,78% of respondents indicated that they were in private practice, either full- or part-time.

2 “Super-Bill” is simply a name for a type of receipt that is provided to patients for use in seeking reimbursement from an insurance carrier. Unless the receipt contains specific information, the patient will usually not be reimbursed. Sample “Super-Bills” are available on the CAMFT website.

3 See, Atkins, Catherine, J.D., “Landlord-Tenant Commercial Leases: Frequently Asked Questions,” The Therapist, March/April, 2007

4 See, for a full description of the directory.

5 See, Tran-Lien, Ann, JD, “Ten Advertising Mistakes Made by Therapists,” The Therapist, March/April, 2013

6 Calif. Bus. & Prof. Code, §4982 (v). The identical requirements under California law apply to professional clinical counselors and clinical social workers.

7 Also see, CAMFT Code of Ethics, §1.15, Documenting Treatment Decisions, and, §3.3, Patient Records.

8 See, Jensen, David, JD, “Approaches to Recordkeeping: The Super Ego, The Ego, and The ID,” The Therapist, May/June, 2016

9 Numerous practice-related resources, including articles on relevant legal and ethical issues are available on the CAMFT website at:

10 Calif. Corp. Code, §17375

11 sole-proprietorship; bus_structures/soleprop.shtml

12 Cal. Corp. Code, §13401(b)

13 Cal. Corp. Code, §13401(a)

14 See, Tran-Lien, Ann, JD, “California Professional Corporations and the S Corporation,” The Therapist, March/April, 2009

15 Cal. Corp. Code, §13401.5(g); §13401.5(h)

16 Cal. Corp. Code, §13401.

17 Cal. Bus. & Prof. Code §4987.7.

18 Id.

19 Id.

20 Cal. Bus. & Prof. Code,§4980.46 21 FictitiousBusinessName.aspx

22 The IRS website is located at:

23 See, Johnson, Anastasia, JD, “Applying for your NPI,” The Therapist, Jan/Feb, 2016; Jensen, David, JD, “HIPAA and the National Provider Identifier: When Was the Last Time You Were Enumerated?”, The Therapist, July/August, 2010 24 Id.

This article is not intended to serve as legal advice and is offered for educational purposes only. The information provided should not be used as a substitute for independent legal advice and it is not intended to address every situation that could potentially arise. Please be aware that laws, regulations and technical standards change over time. As a result, it is important to verify and update any reference or information that is provided in this article.