How To Start A Mental Health Practice In California

You will need to take seven steps in order to properly relocate your practice from one state to another. This article covers the bare essentials required to get your therapy practice up and operating in the Golden State.

1. Local Zoning Laws and Regulations in California

There are 58 counties and 482 municipalities in the state of California. You need to be sure that the local zoning permits you to conduct business in the place you choose for your therapy practice before you commit to that location, even if that location is your own residence.

You have the option of submitting a zoning variance request in situations in which it is not customarily permitted for you to run a business in a particular region, such as running a home-based enterprise in a neighborhood zoned for residential use. A variance is an exception to the rules that govern zoning in a particular area.

If you want to know if a variance is required, what kind of businesses are allowed in your area, and what types of zoning regulations apply, you should contact the local government and check California property and zoning laws.

2. Business Name Search in California

In California, business names are registered and managed at the county level. If you want to run your therapy practice as a sole proprietorship under your own name (for example, “Jane Smith”), you can do so without registering a business name.

You must register a doing business as name (DBA), also known as a fictitious business name (FBN), if you want to operate under a name other than your own (such as “Jane Smith Counseling”) or if you decide to convert to a different business structure (such as a professional corporation). Keep in mind that the word “fictitious” can be misleading. Your DBA/FBN is the name your firm may legally use after it has been registered. A California DBA primer is provided below.

To get a DBA for your therapy practice, you will need to:

1. Do a name search. Make sure that the name you want to use is not already taken by another business. You can do a name search online or by contacting your county clerk’s office to learn more about principles of choosing business name in California.
2. File a fictitious business name (FBN) statement. This is a document that you will file with your county clerk’s office. The statement will include your personal name, the DBA name you want to use, your business address, and your state ID number.
3. Publish your Business name. Within 30 days of filing your DBA statement, you must publish it in a local newspaper. The ad must run for four consecutive weeks. You can get a list of authorized publications from your county clerk’s office. Within 30 days of the announcement airing, they will additionally sign an affidavit attesting to your publication of their name.
4. Pay the filing fee. A DBA’s filing fee may vary from one county to the other.
5. Renew your DBA every five years. You must renew your FBN statement every five years. It is not necessary to republish it in most cases.

A business name reservation at the state level is an additional step that can be taken before registering a professional corporation. Your chosen business name will be held for 60 days at no cost to you. Therapists in California must follow certain naming conventions.

3. Business Structure in California

Different organizational structures (also known as “entity types”) are recognized and registered by each state. Your practice’s business structure affects how its income is taxed and who may own shares of the practice.
California places restrictions on the types of business structures that licensed mental health providers may select for their private practices. There are two choices available to you:

1. Sole proprietorship
2. Professional Corporation

‍ Remember that in California, therapists are not permitted to practice as LLCs or PLLCs. This is only a brief introduction. Consult with your accountant and, if necessary, a lawyer before deciding on a business structure to get advice on the best option.
Sole proprietorship
Going into business for yourself automatically labels you as a “sole proprietor.” Profits and losses in a sole proprietorship are directly attributable to the business owner. The simplest type of business structure is a sole proprietorship, but it provides neither financial nor legal protection.
Professional Corporation
Similarly to a regular firm, a professional corporation can exist independently of its shareholders. Corporations can either be “C” or “S” types. In order to convert to S business status, C corporations must file IRS Form 2553.

C corporations’ income is taxed differently from shareholders’ income. The tax responsibility of a S corporation is passed on to its shareholders. Belongly typically advises its customers to establish S corporations at the federal level.

C corporations’ income is taxed differently from shareholders’ income. The tax responsibility of an S corporation is passed on to its shareholders. Belongly typically advises its customers to establish S corporations at the federal level.

‍Each shareholder in a professional corporation bears individual responsibility for any malpractice claims made against them, while the corporation itself is shielded from such claims by law.

4. Register Your Business in California

There are two steps involved in registering a business in the Golden State:

1. Submit the required paperwork to the state
2. Cover the fees and expenses of filing

Each of the aforementioned structures of businesses is described in detail below:
Register a sole proprietorship in California
Filing fees: $26 for one registrant/name

Starting a business as a sole proprietor in California entails no formalities beyond creating a DBA/FBN.
Incorporate in California
Filing fees: $200 to incorporate and $800 yearly (franchise tax).

• Pick a name for your business.
• Set up a registered representative. This person must also be at least 18 years old and a state resident. They are in charge of receiving all State correspondence and official communications.
• You need to prepare and file the Articles of Incorporation.

5. Business Licenses & Permits in California

To conduct therapy in California, it may be necessary to obtain various licenses or permits, which are managed by federal, state, and local authorities.

Fortunately, therapy practices in California do not require any specific federal permits or licenses. In addition, they generally do not need to obtain additional permits or licenses at the state level, apart from the standard licensure required for individual therapists.

However, at the local level, which refers to your county or municipality (such as a town or city), it may be necessary to obtain a business license in order to operate. It is advisable to consult the relevant local government bodies to determine the specific requirements.

The cost of a county or municipal business license can range from $15 to $30 at the lower end. On the higher end, the cost may amount to several hundred dollars. It is worth noting that some counties or municipalities may charge a percentage of your business income instead of a fixed fee, but this is usually applicable to larger businesses.

6. Business Insurance in California

For therapy practices operating in California, it is strongly recommended to have the following types of business insurance:

1. General liability insurance
2. Commercial property insurance
3. Business income insurance
4. California worker’s compensation insurance

When searching for insurance options, consider obtaining a business owner’s policy (BOP), which typically includes coverage for general liability, commercial property, and business income.

• General liability insurance: provides protection in the event that you cause damage to someone else’s property or cause harm to another person. It is crucial to ensure sufficient coverage since California does not impose a limit on liability lawsuit rewards. Aim for a minimum coverage of $1 million.
• Commercial property insurance: safeguards the property owned by your therapy practice, such as computers, business phones, or office furniture. It also extends coverage to the building you operate in, regardless of whether it is owned or rented.
• Business income insurance: covers you for loss of income resulting from specific circumstances, including natural disasters like fires or storms, as well as man-made disasters such as theft.
• California worker’s compensation insurance: is a legal requirement If you have employees. California worker’s compensation insurance covers medical expenses, lost wages, and ongoing care if an employee sustains an injury while on the job.

7. Business Taxes in California

All businesses that generate income in California are obligated to fulfill their state tax responsibilities. If your state tax liability exceeds $500, it is necessary to make quarterly installment payments for that amount.

It is advisable to review the guide titled “How to Pay Income Tax in Every State as a Therapist” before commencing your business activities.

Learn how to pay taxes in multiple states
If you have established your therapy practice in a state other than California and you are relocating to California, or if you currently operate in California and are intending to move to another state, it is essential to understand the process of paying taxes in multiple states.

The tax requirements differ based on the states where you conduct business throughout the year and the duration of your presence in each state. It is recommended referring to the resource to learn How the Relocation to a Different State Affects Tax Obligations for Therapists for further information.

This article shouldn’t be taken as legal, business, or tax advice; it should only be used for informational purposes. Regarding the topics mentioned in this essay, each person should consult their own attorney, business counsel, or tax advisor.

Additionally, it’s important to consider other aspects such as creating a business plan, setting up accounting systems, obtaining necessary equipment and supplies, developing marketing strategies, and establishing client intake procedures. Consulting with professionals in the field of business, law, and therapy can provide further guidance tailored to your specific circumstances and goals.