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Psychiatric Business Plan Template

Hundreds of new psychiatric private practices are started each year, yet I repeatedly hear from graduating psychiatry residents and psychiatric private practice colleagues that they have not had adequate preparation in the business of running a private practice. Off the shelf business plan templates were helpful but did not quite hit the mark for me when I started my practice in 2002. So, I modified them over time to come up with a system that worked well for me and am sharing it here.

Legal Framework

The three basic choices for your psychiatric business entity are: sole proprietorship, LLC, or S corporation. The choice is based mainly on relative costs, tax implications, and general business liability (rather than professional liability). I recommend consulting with a local accountant and lawyer with experience working for other health care providers before deciding. I have not been convinced of clear advantages to one versus another, with one exception: for those that think that they have a high likelihood of creating a group practice, you might as well fork over the extra money to set up an LLC or S corporation so that you have the option of continuing under the same tax ID #.

Service Delivery Model

I am referring here to questions that you probably have already answered before deciding to start your practice. What kinds of patients do you want to see, including age range and presenting problems? How many hours per week do you wish to work and on what days? What types of services will you provide (i.e. therapy versus medication management)?

Generating Patient Flow

The two most common means for finding new patients are to utilize and nurture a referral network and to be on insurance contracts. Depending on the supply and demand characteristics in your area, being on insurance contracts is sometimes all that is needed. But, in most cases, you will need to develop referral sources to generate patient flow and to build the kind of practice that you want. Your referral sources will know your strengths and weaknesses and will refer accordingly. Developing referral sources is all about networking, which I will cover in more depth in another post.

Another very powerful, but still underutilized method for generating patient flow, is through internet marketing. This could be as simple as putting up a practice website and including information about your skills and expertise. If you have unique skills that would stand out in a keyword search, then simply having a website might be enough to generate patient flow. But, in the competitive world of internet marketing, there are many, many additional things that you can do to generate traffic to your site. The common buzzwords are search engine optimization (SEO), search engine marketing (SEM), and social media marketing. Most private practices that use internet marketing will stop with SEO. If you do not yet have a website and plan to build one with the intention of driving traffic to your site, I recommend getting professional help before you start. That way, you can design the site with an eye towards SEO. In the Seattle area, experienced internet marketing professionals cost between $80 to $200 per hour or work on retainer. You could start by putting an ad in craigslist and shopping until you find one that has experience working with small practice health care providers.

Operations Model

I break up operating processes into four categories: facilities, front office, back office, and insurance.

Facilities refer to your plan for the location, furniture, phone, internet, hardware, and any other tangible item or service that enables you to provide your clinical services.

Front office refers to your plan for handling non-clinical patient-facing interactions such as your intake process, administrative phone calls, reception and scheduling, eligibility and verification checking, handling of patient payments, no-show and cancellation policies, and prescription management policies and procedures. Some of these functions can be carried out by front office staff or even by an Electronic Health Record (EHR).

Back-office functions are dominated by medical billing but could also include transcription services and handling of documents.

Insurance refers to the package of insurance that you’ll need including general liability, professional liability, or any other insurance you might want for you or your staff including medical, dental, and long and short-term disability insurance.

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Continue reading: Psychiatric Business Plan Template


Team refers to internal staff and outside consultants such as a lawyer, accountant, bookkeeper and medical biller. If you have an Electronic Health Record (EHR), you might consider your account manager or vendor as part of your team, since they will have such an important role in helping you organize your workflow.

Financial Model

It is not necessary to have fancy financial projections to start and successfully operate a small psychiatric private practice. However, it is important to understand the basics of how you generate net income and understand concepts such as opportunity cost. While some readers will consider these concepts insultingly simplistic, I find that it is often helpful to deeply review the obvious in a formula. Formula number one is below:

  • Net Income = Revenue – expenses

By itself, this is not especially enlightening or profound. But it then tells us which variables we’ll need to further break down. See below:

  • Revenue = Average Fee per face to face hour x hours worked

In my experience, the typical starting psychiatrist will overestimate this number. This comes from overestimating collections rates, fees paid by insurance for a unit of service, show rate, and patient flow. So I’d budget for 20% less than whatever you come up with in your plan, at least until you get validation from real revenue.

A basic rule of thumb for expenses is that they represent anywhere from 15-30% of total revenue for a solo practice. If you employ staff or outside services for front office and back-office work, they tend to be divided pretty equally between the three. If you do not employ staff, then these expenses are more heavily loaded on facilities. Make no mistake, you are paying for those front office and back-office functions with your time. This is where the concept of opportunity cost applies. The cost of your time is dependent upon either the value you place on your time or the revenue you could generate by seeing patients during that time. However, opportunity cost does not explicitly appear in your financial statements.

  • Expenses = Facilities + Front Office + Back Office + Insurance


1. Don’t sweat excessively about location. You will probably move within 2 years. At that point, you’ll better understand your needs

2. Networking always pays off in terms of building the type of practice you want. Start early since that is when you will have the most time.

3. Start with a behavioral health care focused Electronic Health Record. It’s easier to build it into the fabric of your practice from the beginning rather than switching later.

4. Most small business owners overestimate revenue, especially during transitions. Make sure that you have other sources of cash during your ramp-up including other part-time work, savings, or a line of credit.

5. Understand Opportunity Cost. There are many things in life that you love and do well. If you don’t love medical billing, don’t do it.