Differences in the Financial Risks for Employees, Contractors and Entrepreneurs
Financial Risks of Being an Employed Therapist
Choosing to work as an employed therapist comes with many benefits, such as stability, benefits, and administrative support. However, it’s important to recognize the financial risks that come with this career path. Unlike self-employment, where your income can grow based on the number of clients you take on, being an employee means your earning potential is largely determined by your employer. Understanding these financial limitations can help you make informed decisions about your career and financial future.
Limited Earning Potential
One of the biggest financial risks of being an employed therapist is limited earning potential. While self-employed therapists can increase their rates, take on more clients, or expand their services, employees are typically paid a set salary or hourly wage. Even if you work more hours, your income is restricted by your contract and company policies. Over time, this can become frustrating, especially if you feel that your skills and experience warrant higher pay.
Dependence on Employer Decisions
As an employee, your salary increases and job security are in your employer’s hands. Raises and promotions are often tied to budgets, performance reviews, and organizational policies. Even if you excel in your role, you may not have much control over when or how your salary increases. Some organizations offer annual cost-of-living raises, while others may freeze wages due to financial constraints.
Vulnerability to Budget Cuts and Restructuring
Another financial risk of employment is job instability due to budget cuts or restructuring. Many therapy positions are funded by grants, insurance reimbursements, or government programs, which can change over time. If an organization experiences financial difficulties, they may reduce hours, cut benefits, or even lay off staff. Even in a secure job, there’s always the possibility that your employer could make changes that affect your income or workload. This unpredictability can create stress.
Financial Risks of Being a Contract Therapist
Working as a contract therapist offers flexibility and higher earning potential, but it also comes with financial risks that employees don’t have to worry about. Unlike salaried positions, contract work doesn’t come with a guaranteed salary, employer benefits, or job security. If you’re considering becoming a contractor, it’s essential to understand these financial risks.
No Guaranteed Pay: Income Fluctuates Based on Client Load
One of the biggest financial risks of contracting is that your income is entirely dependent on your client load. Since you’re only paid for the sessions you complete, slow periods—whether due to seasonal trends, cancellations, or lower demand—can significantly impact your earnings. Unlike an employee who receives a salary, you must prepare for fluctuations in income. Some months may be highly profitable, while others may fall short of your financial needs. To manage this uncertainty, having a financial cushion and budgeting carefully are crucial.
Responsible for Self-Employment Taxes and Business Expenses
As a contractor, you’re also responsible for self-employment taxes, which are higher than those of traditional employees. While employees have taxes automatically deducted from their pay, contractors must set aside money for taxes, which can be around 15% or more of your earnings. If you don’t plan properly, tax season can be a stressful financial burden.
In addition to taxes, you must cover all business-related expenses. This includes liability insurance, continuing education, professional memberships, office supplies, and even rent if you work in a physical office. Many contractors also invest in marketing and administrative tools to manage their practice efficiently. These costs add up quickly, so keeping track of expenses and planning for deductions is essential for financial success.
Potential for Contract Termination Without Long-Term Job Security
Another major financial risk of contract work is the lack of long-term job security. Most contract positions do not guarantee steady work, and an organization can terminate your contract with little notice. If an agency or private practice you work with experiences financial difficulties, shifts its focus, or restructures its team, you may suddenly find yourself without income. This unpredictability can make it challenging to plan for long-term financial stability.
To mitigate this risk, many contractors diversify their income sources by working with multiple agencies, private practices, or telehealth platforms. Having different revenue streams reduces the impact of losing one contract. Building a strong professional network and maintaining a steady client base can also help you stay financially secure even if one opportunity disappears.
Financial Risks of Running a Private Therapy Practice
Owning a private therapy practice can be incredibly rewarding, offering full autonomy and the highest earning potential in the long run. However, with that freedom come financial risks that employees and contractors don’t face. As a private practice owner, you are responsible for generating your own income, managing business expenses, and navigating financial fluctuations. Understanding these risks and preparing for them can help you build a stable and sustainable practice.
No Guaranteed Income: You Must Generate Your Own Clients
Private practice owners must consistently attract clients to maintain income. In the early stages, this can be particularly challenging as you work to build a reputation and client base. There may be months when your schedule is full and others when referrals slow down. If you don’t have a solid marketing plan or referral network, financial instability can become a major concern.
Responsible for Business Expenses: Rent, Software, and Marketing
Running a private practice means covering all business expenses yourself, including office rent, therapy software, website maintenance, and marketing costs. These expenses can add up quickly, especially if you operate out of a physical office rather than a home-based or virtual setting. Even online practices require investment in scheduling software, telehealth platforms, and advertising to attract clients. Unlike an employee who benefits from an employer’s resources, you must budget carefully to ensure your practice remains financially sustainable.
Risk of Client Cancellations and Seasonal Income Fluctuations
Another financial risk is client cancellations and seasonal slowdowns. Some months, particularly during holidays or summer, may see fewer clients booking sessions, leading to a drop in income. Additionally, last-minute cancellations and no-shows can disrupt cash flow, especially if you don’t have a clear cancellation policy in place. To protect yourself financially, consider diversifying your income streams through workshops, group therapy, or digital products. Having a financial reserve can also help you weather slow periods.
The Reward: Full Autonomy Over Your Practice
Despite these financial risks, one of the greatest advantages of private practice ownership is full autonomy. You have the freedom to set your own fees, choose your ideal clients, and design your therapeutic approach without restrictions from an employer. You have the power to shape your practice in a way that aligns with your values and passions. This level of control allows for deep professional fulfillment and the opportunity to create a business that reflects your vision.
Managing Financial Risks and Thriving in Private Practice
While private practice carries financial risks, there are strategies to make it more secure. Learning basic business skills, tracking expenses, and seeking mentorship from experienced private practice owners can provide valuable insights. By taking proactive steps, you can minimize financial stress and focus on growing a fulfilling and profitable practice.
Free 30-Minute Workshop for Private Practice Therapists!
- Discover the three biggest website mistakes made by private practice therapists
- Walk away with an understanding of the changes you need to make to your website
- Feel confident about being an entrepreneur, finally having a vision for a strategic website that will help you build your therapy practice
"After this workshop, I finally started thinking about the FUNCTION of my website, not just the look."
More of...
- Referrals
- Confidence
- Ease & Balance
Less of...
- Inefficiency
- Frustration
- Low Income
Therapy Contractor Pros and Cons: Flexibility, Earnings, and Independence
If you’re a therapist looking for more control over your career without taking on the full responsibility of running a private practice, working as an independent contractor might be the perfect middle ground. As a contractor, you provide therapy services to an organization, such as a private practice group, a mental health clinic, or an online therapy platform, but you’re not a traditional employee. This means you have more freedom to choose your work settings and caseload while still benefiting from some level of administrative support. However, contracting also comes with financial and business-related challenges that require careful consideration.
Advantages of Being a Contract Therapist
One of the biggest benefits of working as a contractor is the greater flexibility it offers. Unlike employees, who have set schedules determined by their employer, contractors often have more control over their hours, caseload, and even the type of clients they work with. This can be especially appealing if you want to create a work schedule that fits your lifestyle or balance multiple professional opportunities. You may also have the option to work in different settings, such as private practices, telehealth platforms, or wellness centers, allowing you to diversify your experience.
Another key advantage is the potential for higher earnings compared to salaried positions. As a contractor, you’re typically paid per session rather than receiving a fixed salary, which means your income can increase based on the number of clients you see. While you won’t have access to the same benefits as an employee, the ability to set higher fees or take on more clients can lead to greater financial growth over time. This makes contracting an attractive option for therapists who want more earning potential without the full burden of private practice ownership.
Contracting also provides a balance between independence and support. While you have more control over your professional decisions, you often still receive some administrative assistance from the organization you contract with. Many agencies handle marketing, client referrals, and billing, which can reduce the amount of business management you need to do. This allows you to develop professional independence while avoiding some of the more time-consuming tasks that come with running a fully independent practice.
Challenges of Being a Contract Therapist
Despite its advantages, working as a contractor comes with significant financial responsibilities, including managing your own taxes, health insurance, and retirement savings. Unlike employees, contractors do not receive benefits such as paid time off, medical insurance, or employer-sponsored retirement plans. This means you must budget carefully, set aside money for taxes, and secure your own healthcare and financial planning options. If you’re not prepared for these responsibilities, the financial uncertainty of contracting can be stressful.
Another challenge is that contracting requires strong business and organizational skills. Since you are technically self-employed, you must keep track of your income, expenses, and client load while ensuring you comply with legal and ethical requirements. Some therapists thrive in this environment, while others may find the additional administrative work overwhelming. If you’re considering contracting, developing strong time management and financial planning skills is essential.
Lastly, job security is lower compared to full-time employment. Since you are not an employee, your contract could be ended at any time, and client referrals are not always guaranteed. Your income may fluctuate depending on client demand, seasonal trends, or changes within the organization you work with. If you prefer a steady paycheck and guaranteed hours, contracting may feel too unpredictable.
Is Contracting the Right Choice for You?
Deciding to become a contract therapist depends on your career priorities. If you value flexibility, higher earning potential, and professional independence, contracting can be a rewarding path. However, if you prefer job security, stable benefits, and a structured work environment, employment may be a better fit. Understanding both the advantages and challenges will help you make the best decision for your professional growth and personal needs.
Free 30-Minute Workshop for Private Practice Therapists!
- Discover the three biggest website mistakes made by private practice therapists
- Walk away with an understanding of the changes you need to make to your website
- Feel confident about being an entrepreneur, finally having a vision for a strategic website that will help you build your therapy practice
"After this workshop, I finally started thinking about the FUNCTION of my website, not just the look."
More of...
- Referrals
- Confidence
- Ease & Balance
Less of...
- Inefficiency
- Frustration
- Low Income
Therapy Entrepreneur Pros and Cons: Freedom, Growth, and Challenges
If you’ve ever dreamed of being an entrepreneur, becoming a private practice owner might be the perfect career path for you. Owning a practice gives you full control over your work, from setting your fees to choosing your clients and designing your services. It also offers the highest earning potential in the long run, making it an attractive option for therapists who want financial independence. However, with great freedom comes great responsibility—private practice ownership requires business skills, marketing strategies, and a willingness to take financial risks.
Advantages of Private Practice Ownership
One of the biggest advantages of owning a private practice is full control over your policies, fees, and client base. Unlike employed therapists, who must follow an organization’s guidelines, you get to shape your practice the way you want. You decide how many clients to see, which populations to serve, and what therapeutic approaches to use. This level of autonomy allows you to build a career that aligns with your values and passions.
Another key benefit is the highest earning potential in the long run. While it takes time to build a profitable practice, successful private practice owners can earn significantly more than salaried employees or contractors. Since you set your rates and control your caseload, you have the potential to maximize your income without limits imposed by an employer. Over time, as your client base grows and your reputation strengthens, your financial rewards can increase substantially.
Owning a practice also gives you the flexibility to implement unique therapeutic approaches and specialized services. If you have a passion for a niche area—such as trauma therapy, couples counseling, or mindfulness-based therapy—you have the freedom to structure your services around your expertise. You can also create workshops, group therapy sessions, or online programs to expand your reach and impact. This creative freedom is a major draw for therapists who want to practice in a way that feels authentic and fulfilling.
Additionally, private practice offers the opportunity for business growth. Once you establish a solid client base, you can expand your practice by hiring other therapists, offering supervision, or adding new services. Some therapists grow their practice into a full mental health clinic, increasing both their impact and revenue. If you’re entrepreneurial, private practice ownership can open the door to exciting business opportunities beyond one-on-one therapy.
Challenges of Private Practice Ownership
While private practice ownership is rewarding, it comes with significant upfront investment and financial risk. Starting a practice requires money for office space, licensing, insurance, marketing, and administrative software. It may take months or even years to build a steady client base, meaning you must be financially prepared for fluctuations in income. Unlike employees, who receive a stable paycheck, private practice owners must manage both their revenue and expenses carefully.
Another challenge is that running a practice requires business acumen, marketing strategies, and administrative skills. You’re not just a therapist—you’re also a business owner, responsible for attracting clients, managing finances, and keeping up with legal and ethical regulations. Many therapists find the business side of private practice overwhelming, especially if they lack training in entrepreneurship. Learning how to market yourself, handle bookkeeping, and manage administrative tasks is crucial for long-term success.
Finally, work-life balance can be difficult, especially in the early stages of private practice. Since you are responsible for every aspect of your business, it’s easy to work long hours trying to grow your client base and manage operations. Without proper boundaries, private practice owners risk burnout. However, with time and experience, you can create a schedule that supports both your professional and personal well-being.
Is Private Practice the Right Choice for You?
If you’re passionate about building something of your own and willing to navigate the challenges of entrepreneurship, private practice can be an incredibly rewarding career path. The key is to plan carefully, seek support, and develop both your clinical and business skills to create a practice that thrives.
Free 30-Minute Workshop for Private Practice Therapists!
- Discover the three biggest website mistakes made by private practice therapists
- Walk away with an understanding of the changes you need to make to your website
- Feel confident about being an entrepreneur, finally having a vision for a strategic website that will help you build your therapy practice
"After this workshop, I finally started thinking about the FUNCTION of my website, not just the look."
More of...
- Referrals
- Confidence
- Ease & Balance
Less of...
- Inefficiency
- Frustration
- Low Income
