How to create a budget for your private practice

psychotherapy provider planning a budget that scales

Therapists in private practice wear many hats. One of those hats is the hat for managing the finances. We get the privilege of having more control over our careers and our earnings.

However, in order to maintain a viable business we must become comfortable with a crucial business practice—budgeting.

And, while you may be budgeting your personal expenses already, a business budget is more complex than a personal one. 

Whether you’re just starting your private practice or you want to make sure the budget you have now will need to change as you grow your practice this year, there are several factors to take into account at different stages in your practice’s growth.

How to create a budget plan for a new private practice

When you’re just starting your career in private practice, it’s normal to have visions of a bustling practice that serves clients with ease and comfort.

To achieve that dream, you need to make sure you have a solid foundation in place that can grow as you do. 

Startup costs for a private practice can vary widely depending on your personal choices and the kind of practice you want to run.

To determine what that looks like for you, you first have to list out the essential business needs and non-essential business wants that you might encounter in your first year. 

Essential business needs can include: 

These costs are some of the must-haves for a new business, so you’ll need to make sure you allocate for them accordingly.

Non-essential business wants can still have a place in your budget, however, if finances are tight in the first year, distinguishing between wants and needs is helpful as you set your priorities. 

Determining what your first year of private practice will cost you is the first step in creating a solid budget. You’ll need to sit down and do some research to get exact numbers for those essential items, but you’ll feel more prepared knowing you have accurate numbers rather than estimates. 

Once you have your first year costs determined, you know you’ll need to make at least that much just to stay in business—and more than that if you intend to pay yourself, which you should.

Now, you can start to determine how many hours you want to work and the fees you’ll need to charge clients to meet those numbers.

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Determine your workload and session fee

You’ll need to determine how many hours in a week you can work while avoiding burnout.

Remember that sessions aren’t the only hours you’ll be working.

You’ll have more hours of admin work, including scheduling, billing, client paperwork, and marketing efforts, which you need to factor into your total hours. 

So, let’s say you want to see a maximum of ten clients each week.

Based on your area and expertise, let’s also say you decide to set your rate at $120 per session.

Before you can calculate how much you’ll earn, you have to account for taxes.

As the owner of your own business, you’re responsible for doing your own tax withholding.

Your tax expenses should absolutely be included in your budget, and it’s important to remember that they’re not a static expense. 

Your taxes will vary depending on your state, your income that year, your expenses, and your specific type of filing.

Much like budgets themselves, businesses taxes are handled somewhat differently from a salaried employee’s personal income taxes. Therefore, I recommend working with an accountant to make sure you file correctly the first time, and avoid costly mistakes. (And remember to add CPA fees to your list of expenses.) 

Calculate your take-home pay

To calculate your pay for a week, take the amount of sessions you wish to do per week and multiply that by the amount you want to charge per session.

Then, multiply your weekly salary by 52 (minus the number of weeks of vacation you wish to take during the year) to determine how much you’ll earn annually before taxes and expenses. 

To calculate your income after taxes, multiply your yearly income by your tax rate. (For example, if your tax rate is 30 percent, multiply your yearly income by .30). Subtract that number from your yearly income to see your income after taxes.

Finally, subtract your yearly expenses, which you calculated by listing your essential expenses, and the resulting number is your actual take-home income.

example budget plan for calculating take home pay


Plan for savings

When you’re determining your essential needs, you should allocate part of your budget for savings as well. You’ll need to decide a number that makes sense for you and your business, but you should plan on putting aside some portion of your monthly income into a business savings account for emergencies.

You should also save for your taxes throughout the year. That way, if you get surprised with a larger tax bill after filing, you’re able to recover. 

How to maintain a private practice budget

Just as your practice won’t remain static, neither will your budget. It’ll need managing and updating throughout the year to make sure you’re working off the most accurate information. 

Every month you should track your income and expenses. Compare what you budgeted with what you actually earned and spent.

If your budget was correct, you estimated take-home pay and your actual take-home pay should be the same.

If something doesn’t match, that tells you there’s something that needs attention, and you may need to adjust your budget or your schedule. 

It’s important to do these check-ins monthly to keep your finger on the financial pulse of your practice.

If you can catch potential issues early on, it’ll be easier for you to make the adjustments you need without overworking yourself or taking on debt.

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Scaling your budget as you grow

One of the goals of creating—and then sticking to—a budget is so you can create a thriving private practice. If your practice is ready to grow, how does your budget keep up? 

Luckily, you’ve already done the hard part.

If you’ve been diligent with keeping your budget up-to-date with your income and expenses, all you need to do as you grow is add new line items to your budget spreadsheet for new expenses as they occur.

These line items might include things like salaries for new clinicians or administrative staff, expenses for new corporation filings, tax preparation fees, upgraded office space or technology, and continuing education courses.

Creating a business budget seems like a lot of work in the beginning, and you will need to spend some time doing the math and the research.

But, once you set your budget in motion, it becomes a plan.

An afternoon spent managing and planning your budget can show you where you need to increase revenue, decrease costs, or change your priorities based on your desired work-life balance.

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How SimplePractice streamlines running your practice 

SimplePractice is HIPAA-compliant practice management software with booking, billing, and everything you need built into the platform.

If you’ve been considering switching to an EHR system, SimplePractice empowers you to run a fully paperless practice—so you get more time for the things that matter most to you.

Try SimplePractice free for 30 days. No credit card required.
READ NEXT: Private Practice Bookkeeping Mistakes to Avoid

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