There are many things to consider when starting private practice, which I’ve been doing since 2008. From starting off small, in a home office in Somerville, MA, while working in a hospital, to building a full-time practice relocating to downtown Boston and later subletting space to other practitioners in the Boston financial district, I’ve learned a lot.
Unfortunately, everything it takes to run a successful private practice, I didn’t learn in graduate school or therapy professional training programs. It wasn’t being taught, and to my knowledge, it still isn’t. I’ve learned what I’ve learned from experience, trial and error, other therapists who’ve been willing to collaborate and from friends, family members and business professionals.
So, if you’re a therapist considering opening a private practice and feeling overwhelmed with how to start, trust me, you’re far from alone and there are many resources out there to help – including coaches, consultants and books. I’ve personally enjoyed supporting many clinicians launch and build their practices successfully along the way.
On to the topic:
I’ve been asked the question many times, “Do I need to set up an LLC business entity to start my private practice.” I was asked this again recently, which inspired me to write a nuts and bolts post that might help those of you who are thinking about starting private practice and wondering about this question yourself. The short answer is, “no.”
Since my practice is based in Massachusetts, I will reference MA. But, the information can be generalized to other states. Also, an important disclaimer: I’m not a lawyer or an accountant – so any information in this post should not be taken as anything more than what I’ve learned from experience. And, it’s always wise to verify with professional legal and tax experts.
So, what is a business entity?
It is a legal organization that is created by one or more natural/living persons (you) to carry out a trade or service (therapy/ counseling/ coaching). There are several types of entities that serve different needs.
The most simple and basic for a sole proprietor (you being the sole proprietor), is called a DBA – which stands for “Doing Business As.” It gets filed as a business certificate at the city level and essentially registers you as a business owner with the city where you operate.
Then, there is the LLC: a Limited Liability Corporation (LLC). And there are other types of corporations such as C and S Corps and the non profit. These get filed at the state level, have annual fees and excise taxes and for the purposes of starting a small private practice, are typically unnecessary. For the purposes of this blog, we’ll focus on the DBA which is an ideal first step entity for starting your private practice.
In the beginning, it’s most common for therapists to begin by doing part-time private practice at about 3-8 clinical hours a week while typically maintaining a job in system such as a hospital, school or counseling center that often provides health insurance and financial security/stability. This helps build confidence and lowers risk. At this level of practice, there is really no need to do more than a DBA as your business entity. Even if you begin by doing more clinical hours that 3-8, the advice I’ve received says and my experience shows that there is no need when just starting out to file an entity more than a DBA.
To file a DBA is simple and affordable. It will require having a current license and a location for your practice. And, if you’re working from home, in that case, your home address is fine.
A DBA simply declares to the city that you are operating a business. First, you decide on the name you’ll use, and you can use your name, for example, Maria Mellano and simply add your license, such as Maria Mellano, LICSW, DBA. Or, if you want a special name, you can have that be the name you choose, “name,” DBA. Once you know that, if you go in person, in Boston, you literally go to the 6th floor of 1 City Hall Square (Room 602) in downtown, Government Center, tell them you want to file a DBA and ask to fill out a “Business Certificate Form.” It will cost you $65 which you pay for there. It will be good for 5 years. You can pay by cash, check or card. (You can also do it online.)
What you’ll need to file your DBA:
- verification of your license to practice as a therapist, counselor, psychologist, etc. (They can look it up, but it’s easiest to have it on hand.),
- verification such as the lease for the space your business will be located – so, you will need to know where you’re practice will be located prior to filing,
- your license or other ID to prove your identity,
- in Boston, $65 – paid by check or debit.
Once you’ve filed your DBA and have started seeing clients, and generating income and expenses, it’s wise for tax purposes to keep your business income & expenses separate from personal income & expenses. I suggest doing this from the get-go which I learned the hard way. This means, opening a business bank account. In order to do this, you will to need a business entity (and a DBA would be this.) You will also need a tax number – which you associate with your DBA. To get the tax ID number, you can call the IRS for Tax ID customer service information at 1 800 829 1040 or do it online at www.irs.ustreas.gov.
What you’ll need to start a business bank account:
- supporting documents to verify your business (in the case of filing your DBA, this would be the certificate you will receive once you file it.),
- business tax ID (called an EIN),
- Date your business was formed, which would be the day you filed your DBA and would be on your business certificate,
- country and state of legal formation – again on your business certificate,
- legal business name – on your business certificate, and
- personal information: SS# and DOB (bring your driver’s license or other form of ID.)
There a many other important aspects to launching and sustaining a successful private practice. Stay tuned for future Nuts and Bolts posts or reach out and schedule a consultation by contacting me directly.