Whether you’re fresh out of law school or thinking of leaving a large firm, the thought of starting your own law firm may seem daunting. Here’s a brief outline that will make branching out on your own a little easier.
Don’t start your law firm without a business plan. The plan outlines the first three to five years of your firm’s growth and will serve as a roadmap for your firm’s future.
The most effective business plans contain four key sections. The first is the executive summary, which is considered the most important section of the plan. This section will summarize your business plan by including a general description of your firm and the area(s) of law you plan to practice, where you plan to take your firm and why your firm will be successful. See: Practical Business Planning For The Solo Practitioner.
The second section is the marketing plan. Here, you focus on the demographics of your clients, the current market climate, the strengths and weaknesses of your competitors, and the marketing tools you will use to gain a competitive advantage.
The third section is the management plan. Describe who will run the firm and how the firm ownership is structured. If there are multiple partners, a brief bio will be required for each lawyer. Those bios must contain the educational backgrounds, past employment, skills and accomplishments.
The fourth section of your plan will be the financial plan. This section will determine whether or not your firm is capable of surviving. There are three financial statements that should be included. Those statements are the income statement, the cash flow projection and the balance sheet.
If you’re stuck on a certain section of your business plan or have no idea where to start, I recommend purchasing “Creating a Business Plan” available from the ABA. Also, check out the Florida Bar’s Sample Law Firm Business Plan.
Entity Setup, EIN and Licenses
Now that you’ve successfully completed your business plan, setup your entity. For law firms, the types of business entities often used are Sole Proprietorship, General Partnership, Limited Liability Partnership, Professional Association and Professional Limited Liability Company. The requirements for these entities are different depending on the location of your practice, so check your state and local statutes.
Your practice will need to obtain a federal Employer ID Number (EIN) and apply for permits and licenses, which also varies by location.
It may not be required by law but having malpractice insurance is highly recommended. According to the ABA, “it is estimated that five to six percent of all private attorneys face legal malpractice charges each year. The cost of litigation is often greater than the cost of legal malpractice insurance; therefore many attorneys seek this type of protection.”
There are other types of insurance that should be purchased as well, including property insurance and health and life insurance if you plan to hire staff members.
As is the case with any new business, you will need to establish a relationship with a bank. Set up a line of credit for a firm credit card or to take out a loan if needed.
To handle any client funds, such as trust payments, firms are also required to open IOLTA (Interest on Lawyers Trust Accounts).
You’ve determined the demographics of your target clients but how do you draw them in? This is where the marketing plan from your business plan comes in handy. There are many effective marketing techniques and tools that are available for today’s lawyer.
With the emergence of social media, businesses are now able to market their services to a broader audience. Lawyers can create profiles and generate leads through sites such as Avvo, Facebook and LinkedIn.
Blogging has also become a major advantage for lawyers to not only to establish expertise and recruit new clients but to also book podcasts, webinars and speaking engagements, which will in turn increase their visibility. It’s also a great way to create and nurture relationships.
That’s not to say that the traditional marketing tools aren’t as effective. Sending weekly or monthly newsletters to a carefully crafted mailing list is still considered a powerful marketing tool. You can also attend local and state conferences and networking events to interact with colleagues and get the word out about your new firm.
Whether you’re starting a new firm as a solo or entering with a partner, running a law firm without any additional staff members is a tough task. The least that is required is a receptionist or secretary who will be able to answer calls and maintain the firm’s calendar. To keep your expenses low, it’s best to look into outsourcing virtual assistants. To handle additional legal work, consider hiring freelance attorneys.
Now that you’ve gotten the legalities out of the way, it’s time to get your firm up and running. You’re now faced with the decision of keeping paper files or going paperless.
If you’re looking for a cost effective solution that will allow you to track time and get bills out while managing your calendar and documents, a cloud-based practice management software is your best bet. Using Rocket Matter as an example, users can securely access case information from any location and collaborate more effectively. The ease of use and low cost of the software also allows newer firms to operate on the same level of larger firms on a small firm budget.
While every lawyer’s experience differs when it comes to starting a law firm, the material included in the guide above is a great starting point to getting you on the right track.
Have you recently opened a firm? Or are you currently in the process? Share your thoughts below!