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Podcast Episode 6: Start-Up Costs

Enlightened Practice Podcast

In today’s episode, Dr. Ken Braslow and Dr. Kari Kagan discuss the myriad costs of starting a private practice. From office space and technology to furniture and financials, the tandem tackles some of the costs that you should consider as you wade into private practice.

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Transcript of the podcast


Ken: Hi Kari, welcome back. 


Kari: Hi Ken, thanks.


Ken: Today, we’re going to talk about startup costs, something that is useful to know because you need to have some cash in the bank in order to start a practice, but maybe not as much as you would expect and certainly not as much as you need in fields of medicine or maybe in other industries, relatively speaking. When I started out, I was like, well, what do you need a couch? I thought, how hard could this be? So, it’s a little more complex than that, but not tremendously. So, what I figured we would do today is, I went back in my old QuickBooks ledgers and just teased out what are some of the costs that I had to deal with when I was starting out. Granted, it was quite some time ago but I think the actual costs themselves have gone up because of inflation, but the concepts are the same. And so today we’ll just talk about the concepts. Obviously, the amount of money will be different geographically speaking. What kind of couch do you like? If you were subletting or leasing? We’re not going to put a specific order on it per se, but we just want those of us who are going into practice to be knowing what they’re getting into and feeling confident about it.


Kari: Yeah. I’m excited about this topic because I think it would have been helpful for me to have listened to something like this when I was first getting into it as well. 


Ken: Yeah. Okay, sounds good. All right, so first on the list, I broke it up into different buckets. So, one is just, you got to have an office, although I will say with the pandemic the concept of the office has changed. But whether you are going to see clients and patients in the office or not, you need some space to do your thing. So, let’s just assume that you’re going to have your own office. You certainly could have a home office if you’re going to work virtually. There are still some clinicians who see patients and clients in their home office. But then I would treat that just as any other office in terms of what you need to get it ready for patients. So, rent, I think would be pretty clear as one of the key expenses, unless it’s going to be a home office, but then you need to factor that into your mortgage, I assume, or your house rental payment that could be more expensive to have the space to do that at home. And then a security deposit typically is required, maybe first and last month’s rent in a more typical commercial lease arrangement. Kari, any thoughts on subletting versus having your own lease? I know that could be a whole other conversation between us, but just from a startup cost. 


Kari: Yeah, from a startup cost perspective. I definitely think subleasing is a more inexpensive way to go because usually that means that you’re getting a package deal. So, everything already in the office, including furniture and internet and all of the stuff, I’m sure we’ll talk about today. Of course, you know, it’s all included as opposed to, if you’re getting your own lease, there’s a good chance you’re going to have to subsidize everything on your own, including buying furniture and all that stuff. So it is a more expensive way to start. Although, there are ways to offset the costs as well, such as subletting to someone else. And there are pros and cons to each, which we could potentially talk about in a different conversation.


Ken: I think you’ve just given us our next podcast when we only got through a few minutes here. I recall, I started out subletting and that was great, except the couch was horrible. And you know, those things are really meaningful to patients and clients, if they walk in and it’s a floral couch and the carpet’s dirty or it’s a mess in there, it really says a lot about your practice to them and they don’t know you’re subletting, and they don’t care. So, you have to really be careful about who you’re going to sublet from.


Kari: Yeah. And I will add that when you are considering costs when you’re getting started, I do think it’s definitely worth thinking through. The office is a pretty high priority thing to potentially put money in for that reason, because it does reflect who you are and not just what the clients thought, but I remember a really not so nice office that I subletted early on and I didn’t feel like myself in it. I truly felt different. I was subletting two offices at that time, which is something to be factored in as well as far as cost goes. And I remember feeling different as a therapist in one versus the other. So, I actually do think it’s an expense that should be considered a higher priority or something. If you were going to pick and choose what to spend money on I think the office is a pretty important one in terms of your practice.


Ken: Okay. All right, let’s move on. Good thoughts. And the next bucket that I thought about was technology. I was just visualizing what goes in the office. And so you need a computer most likely, unless you were somehow able to practice in the 20th century. 


Kari: A Computer or tablet.


Ken: Yeah. I mean, that’s all maybe on another podcast on the pros and cons of a paper practice versus electronic. But you have the core equipment costs, monthly internet bill, thinking about cost for your cell phone, and costs for your EMR or EHR, and then things that might go along with that like insurance claims submission, if you are contracting with insurance companies and you want to submit electronically, there’s usually a cost that goes along with that. If you want to accept credit cards and the convenience of it, there’s a cost that comes along with that. Hopefully those are integrated into the EMR. So I’m kind of bundling that under EMR, although, they could be put in other categories. Any other technology expenses that you can think of?


Kari: Yeah, just expanding on the, the, phone expense. Something to consider are certain services that you would use through the phone, like there are confidential services that you can pay to be able to call clients confidentially, and for them to leave voicemails confidentially. So, it’s just like a service that you would pay a monthly fee for.


Ken: That’s a good point. It makes me also think about e-fax services if you want to go that route. And then some clinicians, more common in groups, but occasionally individuals will have an answering service that acts as a buffer after hours between them and their clientele. Talk about that in a different time. But yeah, good thoughts. And then there’s always new technology coming out and reinvesting in new phones and computers and stuff, but hopefully you just have one set of those expenses of. I would say some clinicians have a tablet for their clients and patients, if they’re going to do rating scales in the waiting room or things like that. Let’s move on to other kinds of non-technology stuff in the office, just property in general. So, you need a couch and you need a chair and if you’re not subletting, you might want to keep your costs low in that area, because those can add up on the flip side, it’s like a good mattress you’re spending much of your life in your chair, whether you’re doing therapy all day or meds and therapy, or just admin time. We spent a lot of time in our chair, so, I highly recommend it and take a comfortable chair and then for the couch, any thoughts on furniture arrangements or furniture purchasing decisions?


Kari: Yeah, I guess it’s a personal choice in terms of what people decide is worth, like, splurge versus saving. I agree with you that I do think that there, the chair, the therapist chair is a particular place to splurge. I think you can still get a decent couch that fits your style and is comfortable without, like, breaking the bank. So, that’s a place that I would probably find some kind of middle ground since really clients are sitting in it for usually less than an hour. But yeah, and other things to factor in just when you’re thinking about cost or just like decorative things around the office. I know it seems kind of silly, but it actually does really add to the vibe. So, just something to think about like what you would want to put on the wall and stuff like that.

And those are the things that I would personally try to save a little bit. We have so much access now to decent things like a reasonable price. So, those are areas that I would save in. But the bigger picture is these are things that probably you would have for a long time, whether it’s for your office or you could always bring it into your home. So it’s something that it’s hopefully things that will have a long lifespan. So it’s something that might be worth spending a decent amount of your startup money on.


Ken: Okay, good thoughts. One thing that goes back in the technology list but it’s stuff in your office would be if you’re going to have a separate monitor. And what about a desk and for some people with a laptop, and if everything’s electronic, the need for a desk has been reduced and it could take up a good amount of space in your office on the flip side, it’s really nice not to have your chair be your desk, so, another thing to think about. And then who’s going to keep it clean? So do you do that yourself? Do you hire a cleaning crew on a regular routine basis or maybe for a spring cleaning or that’s a cost that should be factored in. 


Kari: Yeah, which actually might be more important now than ever before because with the Coronavirus it’s something that people have become much more aware of. So it actually is something worth thinking about in terms of putting aside money for that each month or whatever frequency feels right to you. Some offices come with cleaning automatically. It’s included in the package depending where you run an office from.


Ken: Right. Others, you got to take out your own trash. So, moving on to other kinds of professional services that you might need moving on from office stuff. I was thinking about just the general financial operations of the practice. So, you may want a bookkeeper if you don’t want to spend your time, or you’re not confident about your skills and doing your own bookkeeping. I use QuickBooks in my own practice. So I guess, I realized software is a category that we didn’t touch on before, but we can include that now. So, a bookkeeper can do your books for you. I’ll tell you what I did was I just hired a bookkeeper from the first month like I had no idea what I was doing. And I just said, walk me through this.

And then the second month I did it and I sent it to them and they said, here’s what you’re screwed up and here’s where you did okay. And then that was it from that point on. But then the first time I had taxes due, then I generated the reports that I thought I needed. I ran it by them. And I said, did I do this right? So I had kind of a QuickBooks mentor help me with that. So, a bookkeeper is somebody who just helps you with the day to day financial accounting, but then typically you’d have an accountant to do your taxes at the end of the year, unless you want to do them on your own, which you could do and is much less expensive, but it also takes more time. And if it’s going to take you three hours to do your taxes, especially if you were a corporation or an LLC, or any kind of entity, other than a solo proprietorship, do you want to spend three hours doing your taxes or spend three hours seeing clients and patients, and that pays for the hour and then you don’t have to think.

And then of course accountants are, if you’re doing more complex financial stuff like if you own the office building or something, I highly recommend an accountant, but that doesn’t seem like how most people start out. So, a second about a bank you need someplace to have the money go. And I don’t think that’s a significant fee for most people, but it’s out there. And then a payroll service, if you have any employees, you’ll need to pay them and withhold payroll taxes. And again, you can do that on your own. And it’s often a matter of time versus money. So, it’s far more efficient to have an automated service where you can enter the amount that you want to pay. And then all the taxes are withheld automatically and all the paperwork sent to all the different government agencies, so that that’s a cost. Any other financial operations costs will come to mind.


Kari: I think you touched on all the ones that I can think of, except for payroll, all the ones that I have to manage on a month-to-month. I can add to the bookkeeper and they count in these, usually those are one time fees depending on how often you use them. But usually it’s like around gearing up for tax season that you use those two services. So that’s not a month to month thing. Although, once you get a sense of how much it costs at the one-time fee, you could potentially be putting money aside for that each month. But other than what you already mentioned, I don’t have anything to add in that category.

Oh, there is actually one thing. And we might cover this later, but is the fees associated with processing credit cards, that is usually just taken out of whatever you charge someone. So, if you charge them a hundred dollars and there’s a 3% processing fee, you’re not actually going to get a hundred dollars, you’re going to get a little bit, a hundred dollars less 3%. So, it’s just something to keep in mind, as you’re trying to figure out how many clients you have to take in order to not only just maintain your monthly expenses, but of course earn an income on top of that.


Ken: Okay, that’s good. Good point. All right, legal, hopefully, you don’t need legal support too much. But in the beginning if you want to incorporate or depending on your state, if they let you become an LLC. You’re going to need paperwork for that, you could do that online, but you get what you pay for. So, you can use generic documents and hope that they’re a good fit for your practice, or you can hire a lawyer who helps clinicians and has done a hundred of these, and you can customize it just for you and know really what you need to be worrying about. And then just general questions you may have about running a practice. Sometimes, your malpractice company is good at answering these questions. But sometimes it’s not clinical care related. And so they’re not going to be able to help you with the other kinds of questions like negotiating a lease, for example, they’re not going to help you with that. So, you can do it on your own, take your chances or you can pay for advice. So, that’s what comes to mind in the legal category. Any other thoughts?


Kari: No, I have nothing to add to that other than it probably won’t be a regular expense, hopefully. 


Ken: Hopefully, okay, that’s a good point. Let’s move on to marketing your practice. So, just like all these other categories, lots of different ways you can do that. There’s free ways and there’s paid ways. I think we could certainly talk on at least one or more podcasts about how to market your practice, but let’s try and stay focused on paid ways here. They’re going to want to have a website, and you need somebody to host that. You might want to advertise either in Google ads or on some other forum or website that is geared for that kind of service. And then I’m thinking kind of non electronic. If you want to take people out to lunch, if you want to network, join the country club, then you probably want to put aside money for that. Other thoughts on paid marketing expenses you might want to save for?


Kari: Not off the top of my head. I can just expand though on the website, that’s usually an annual cost, like a one a once a year cost. So, just not something that you would necessarily have to be putting money aside every month, although that’s one way to make sure you have the money by the end of the year. And it’s usually not a huge cost. I only have experience with the hosts that I’ve hosted my website on. So, I don’t know if that’s true for all of them. So, I just think it’s a good important category because a little can go a long way because marketing is pretty important for getting referrals.


Ken: Yeah, usually with your own website, you just have to factor in the cost of the host, of the domain name, like my and an SSL certificate if one isn’t included in your hosting plan. Okay, I think that’s fine for now. And we’ll come back to this maybe in a different podcast. Let’s talk about insurance, a must-have, malpractice insurance, for sure anybody you’re going to work for is going to require you to have that policy if they don’t provide it themselves. But you really don’t want to be in private practice without a malpractice policy and then your own health insurance and being in private practice you sometimes get it through your partner or spouse. Sometimes, you get it on your own through a marketplace, and then disability insurance comes to mind, very useful especially if you don’t have a big pot of savings set aside in case of an emergency and that you can usually get through your malpractice carrier for additional or you can seek it out through other professional associations. Any other insurance expenses that come to mind?


Kari: Yeah. Then there’s also, I’m probably going to be saying this wrong, but there’s something like renter’s insurance that you usually need to get, where basically it covers if there’s like an injury at your office, it covers you there. Well, I guess it might vary depending on where you live. In my experience, it was not a huge cost, but it is a monthly cost, but that’s another kind of insurance.


Ken: Yeah, that’s a good point. Sometimes it’s under a general liability policy, not a malpractice policy, but a separate policy. Sometimes, malpractice companies include, they call it a banana peel policy, a slip and fall policy within your malpractice. But you shouldn’t assume that, and you should be really clear on that. Your landlord may require a separate renter’s insurance policy or general liability policy. They may not accept a malpractice policy. The other thing that actually came to mind while you were saying that is if you have an employee, you need to have workers’ comp insurance on their behalf. And this is why a lot of people like to have independent contractors work for them because this can get expensive. On the flip side, if you want to encourage your employees to stay with you, long-term, you should treat them well and take care of them. And so that’s a whole another discussion though, but just something to think about.

Okay, moving on. I have a different kind of miscellaneous category under a regulatory and government. So, what comes to mind there is your own professional license and a business license, if that’s required where you’re practicing and any building permits or location, or zoning, or any other kind of fees that go along with that. And then maybe, maybe it’s not governmental, but like a professional other quasi regulatory bodies, like in psychiatry, there’s the American board of psychiatry and neurology and you want to stay in their good graces and you want to be board certified. So, those are the regulatory, annual fees that I can think of. Can you think of any more?


Kari: Nope. Those are the ones that I’m most familiar with. I do just want to say for anyone who might be starting to have a small panic attack about all the different things we have to pay for it, and we still have some more to go, that a lot, all of these are deductible as part of your business. And so it’s, yeah, it might not feel as overwhelming as it sounds, hearing all of them listed out in a row.


Ken: If you’re listening at home, you might want to have a spreadsheet. We’ll post this list of expenses on our website. So, that way you don’t have to be, like, furiously writing these down at home and you start a spreadsheet and you can see how much they add up to kind of a monthly and an annual. Yeah. Okay, moving on, I have a miscellaneous category. Although, it seems early for miscellaneous, but I was losing focus at this point. So I decided to do some simple ones. So postage, I don’t know if anybody buys stamps anymore. You have to mail stuff, pens, papers, whiteout, erasers, whiteboard markers. 


Kari: Yeah, office supplies.


Ken: Yeah, office supplies. That’s a much better way to put it. Yes, magazines for your waiting room.


Kari: Yeah. I know office supplies, and I guess, I would actually add to that also, amenities for clients, right? So coffee, tea, water, those are real expenses that are nice to have as a client is waiting in the waiting room to be able to get a comforting cup of tea or to have access to clean drinking water. Those are things that are nice to be able to offer and, you know, something to consider when you’re thinking about expenses.


Ken: I like the tea. And I guess cups to go along with that. 


Kari: Sure, creamer, the whole lot. 


Ken: Yeah, you can have a little fridge. I made the mistake of having a very yummy Indian lunch one time, and my next patient immediately commented on the aroma in the office. So, be careful about where you’re going to eat. It goes down to, are you going to have a kitchen, a different room?


Kari: Yep, or getting an oil diffuser that has a lavender scent. 


Ken: I should have had this conversation with you 10 years ago. Okay. All right, moving on, travel expenses. So, unless you’re going to work from home, you need to get where you’re going. If you can walk, how nice that is, but if you can’t, you’re either going to use public transit and have to pay for that or you’re going to have to drive and pay for parking potentially, maybe tolls, gas, maintenance on your car.


Kari: Yeah, all of that. And I guess just to expand on parking. There could also be parking permits that you get for wherever your office is located. And that I believe is an annual fee that you just keep renewing. And that would be more cost-effective than paying for parking in a parking lot every day, which I’ve done both. And I can speak from experience when I say the more cost effective thing is to get a permit usually than paying a parking toll every single day or whatever days you’re at the office.


Ken: Yep, makes sense. Okay, professional development is one of our few remaining categories. And under that, I put, if you want to pay to go to conferences, whether in person or online course, if you’re going to a conference, you have to think about the revenue that you’re not bringing in. So you may or may not want to consider that part of the cost. Then there’s the cost of the conference. And if you’re traveling, there’s airfare, hotel, food, those sorts of things. Continuing education, whether it’s online or at the conference, I guess if it’s at the conference that’s included, but very efficient to do CME or CEUs use online, they can come at a cost, books, good old fashion reading expanding your horizons, doing a professional consultation. 

So, if it’s peer consultation, that’s typically free, but if you’re working with somebody who is more senior than you, and they’re giving you your time and usually pay for their time, and then one’s own psychotherapy. If you didn’t have that as part of your training and you’re going to be doing psychotherapy, then there’s a lot of value in going through your own psychotherapy, being on the other side of the couch. So, I consider that professional development with the bonus of it being your own psychological development too. Other professional development you can think of Kari?


Kari: Not that I can think of, but I would just add to what you already have here, just to say that when you zooming out and you take into consideration, all of the things that we’ve talked about so far, I think professional development is one of, I guess it’s personal opinion, but in my experience, it’s a high priority me in terms of where I’m wanting to put my money and because I think investment in yourself. And for example, a conference would get very pricey. I don’t think you can do it multiple times a year, but every once in a while for, you know, improving your, your clinical expertise, I think it’s an investment that’s well worth it because even if it takes away from some clients and the moment, I think you’re adding to your knowledge base and expertise that will contribute to a more, hopefully successful practice in the long-term. So this is an area that I think is important.


Ken: Yes. That’s a great point. So refreshing to actually get out of the office and be amongst colleagues, you feel part of a community and your brain is just in learning mode and that’s a really nice way to absorb new material. Okay, last category. This is if you’re going to have an assistant or employees, if you’re in a clinic or a group, are benefits for them, health insurance, other flexible spending plans, pre-tax plans, commuter plans, things like that. Probably don’t need to worry about that on the first day, but we’ll include that in the list. So, Kari I think you had a really good point halfway through about the panic attack that you might be feeling here. This is why some people don’t go into private practice. They don’t want to have to think about the stuff they just want to show up and see patients and clients and do their thing.

And that’s understandable. And that’s typically if you’re joining a group or a clinic or you’re an employee, all of these expenses are still there, but the group or the clinic or the employer is absorbing them and doing all the thinking for you. However, on the flip side, if you break these down just one at a time and set up, prioritize for yourself what needs to be done and realize that you don’t have to have it all done on the first day. Some things you have to have done before you see your first patient or client, but not all of this. And setting up a budget could be really useful. And you do have to make sure that the economics of private practice work for you. You have to think about how much money is coming in and how much is going out. And so, it’s very doable if you break it down and you go slow and judiciously. 


Kari: Yeah, like any business it takes some time to get started, but I agree with you of all the different kinds of businesses. I feel like this one, starting your own private practice, is that it is on the more manageable side, despite all the expenses we just talked about.


Ken: Right. You’re not opening a complex industrial factory. Well, thank you so much for your thoughts, Kari. This is great. And if any of our listeners want to chime in with any questions or thoughts, or things we left out, we’re always happy to hear about them and we’ll either post this list or even maybe a spreadsheet of these for you to play around with at home. And we’ll look forward to chatting soon, and continuing to talk about life in private practice and making it work. Thanks Kari.


Kari: Sounds good. Thanks Ken.


Ken: Take care, bye, bye.


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