Realistically Evaluate Your Situation
First, you need to
understand yourself. Are you an entrepreneur? Are you willing to take a
risk? Have you considered what it will take to run your own office by
thinking about your budget, equipment, marketing, and keeping your doors
open while you build your practice? Can you balance a checkbook and
deal with demands on your available funds? Do you see yourself as a
self-starter, comfortable with managing competing demands, multiple
deadlines, and doing it all yourself? Or are you more of a social
animal, feeding off the energy of others and most effective where you
have a team approach to various tasks? Your personal attributes will
help direct you into the right type of practice and setting. Think about
the type of environment that will make you most effective. Will you
function best as a true solo with no support staff, or would you benefit
from a less solitary office with someone to assist you from the first
day?
You must be realistic and honest with yourself. Critically
evaluate your strengths and weaknesses. It isn’t enough simply to know
the law and have the desire to share your knowledge. To run a successful
law practice, you must have, or at least be willing to learn, strong
business skills. You will need to possess the ability to take the
appropriate actions, on a day-to-day basis, to initiate and sustain the
progress of your business. You need to be prepared to forgo regular
paychecks, work harder than you ever have before, and not only be a
lawyer but also be a person. You need to recognize that solo or small
firm practice is not for everyone.
Develop a Plan and Get Some Advice
If
you are still undeterred and are satisfied that you have the necessary
business acumen, you will need a clear vision of what you want your
practice to be and an idea of how you are going to get there. Is this a
temporary solution to a current situation? Are you hoping to grow your
firm to include multiple support staff persons and, perhaps, other
attorneys over time? Or possibly start a series of satellite offices? Do
you eventually hope to join another existing practice? Do you intend to
run a general practice or specialize in only a specific area? Are you
an innovator, dreaming of revolutionizing the practice of law?
Next,
think about the types of clients you want to attract. Who are your
ideal clients? What are the attributes they possess that make them
likely prospects for your assistance? Think of identifying your ideal
prospect as being able to spot a zebra in a herd of horses: When you
know what you are looking for in prospective clients, they will stand
out from others.
If you believe that solo practice is the right
choice, then you need to decide what this practice will look like and
develop a plan to build it. The plan doesn’t have to be 30 pages with
subsections and appendices; it can be as simple as a single piece of
paper at this point. If you take the time to write down your
vision—where you want to be in six months, one year, and five years—it
will help you focus your ideas. Knowing where you want to end up makes
reaching your destination easier.
Now you need to develop a solid
business plan that will drive many of the other decisions that you make
in starting up. Having an idea of the area of law you intend to
practice, the nature of the work that will entail, and who are your
target clients will help complete other sections of the plan as you
write it. Identifying your ideal client will also help you develop a
marketing strategy to attract that business and form the basis of your
financial plan. Things you will need to consider when drafting your
business plan include:
1. What type of entity will you use for your practice?
Today, you have a number of choices when it comes to how you structure
your law firm. The two primary considerations when determining an
operating structure are (1) what is the best structure to shield
yourself from personal liability (not including malpractice) and (2)
which structure best addresses the foreseeable tax consequences of your
practice? Think through the liability and business implications of the
various entity types that are suitable for your practice, whether a sole
proprietorship, partnership (if you are going into practice with
another attorney), PC, SC, Law Corp., P.A., LLC, or some other
recognized form of limited liability incorporated entity.
Take the
time to get some accounting advice to help you determine the operating
structure to select. Talking to an accountant before you select the
entity type can save you money as your practice becomes successful.
Determine
whether there are any restrictions on the type of structure that you
choose. For example, there may be statutory restrictions in your
governing rules that prevent you from partnering with non-lawyers or
using an LLC or other form of limited liability entity as a way to avoid
personal liability.
2. What will you need for an office?
Most start-up businesses are faced with financial choices to make when
getting off the ground. One of the major decisions is whether or not you
can practice initially out of your home or if you will need dedicated
office space. While having dedicated office space is nice if you meet
regularly with clients, being able to forgo this expense when you start
can make a huge difference to your bottom line and the start-up capital
you will require. Working from your home is a good way to keep your
overhead low in the start-up phase. This also allows you to focus your
budget on critical items such as a marketing plan and acquiring the
necessary technology to make you effective and efficient.
Consider whether you want to work from home, at least initially, or develop more of a “virtual” office. (For more, see “Launching a Virtual Law Firm.”) You may want to lease space from an executive office suite provider such as Regus (regus.com), Premier Business Centers (pbcenters.com), or Instant (instantoffices.com);
establish a more traditional office in a commercial building; or share
an office with another attorney or firm. Ask yourself whether you need a
dedicated office in the traditional sense or whether other options may
work while you build your client base. Obviously, it is less expensive
to work from home, but security or professional isolation may be a
concern for you. Some lawyers arrange to meet clients at the courthouse,
at the client’s home or business, or at a local coffee shop
(confidentiality is obviously a concern with this approach). Others make
arrangements with attorneys or other businesses to rent conference
rooms from these established offices on an as-needed basis. The reality
is that there are many creative solutions to this and no single right
answer.
If you do decide that you need a physical office, how much
space do you need? Where do you want to be located? Different areas of
practice may also impact where you want to be. With a litigation
practice, you may want to be close to the courthouse or near public
transit to make access easier for you or your clients. If you are
focusing on transactional legal work, perhaps you want to be located in
the suburbs or other areas so as to be more accessible to where your
clients work or live.
Determining how much space you need is not
an exact science. If you are working from your home, your space needs
are different than if you are renting space elsewhere, and where you
will be meeting with clients will influence this decision as well. If
practicing from your home, you need dedicated “work” space as
differentiated from your “living” space—not only to preserve your mental
health but also to meet the ethical requirements of safeguarding client
information. The differentiation is also important for tax purposes. To
claim a home office deduction, the Internal Revenue Service (IRS)
requires that you must regularly and exclusively use a part of your home
as your principal place of business. (For more, see 1.usa.gov/1duAA6i.)
If
you determine that your practice needs distinct office space outside
your home, you need to determine if there will be a meeting room
available, kitchen or break room, storage space, and room for an
assistant if you need one. Think in terms of square feet when
considering office space. If you will meet with clients in your office,
it should be larger than if you will meet with clients in a conference
room or other location. If you plan to have an assistant, how many
square feet should be reserved for this person? You also need to
remember that your costs will generally be based on the amount of space
you use, so the larger the space, the higher your rent will be. (About.com has a number of useful articles to help you plan for your office space needs: abt.cm/1duBcZJ and abt.cm/1duBkbw. A helpful worksheet created by Guidance Corporate Realty Advisors can be found at bit.ly/1duBnUP. Another useful resource can be found on the How Stuff Works website: bit.ly/1duBz6l.)
Check
your code of professional conduct to understand your obligations with
respect to protecting client confidentiality and space-sharing
arrangements.
3. What will you need for technology?
Think about what you really want to accomplish and what your comfort
level is with technology. The possibilities in terms of equipment and
applications are virtually endless. As with everything else, know your
objectives and your limitations. Unless you are very tech savvy, you
should get some advice from an expert. Think about how much you want to
do yourself and how much you are capable of maintaining. At the very
least, you need a telephone, Internet access, computer, something to
back it up, and probably a printer. Key programs for word processing,
timekeeping, billing and accounting, e-mail, contact, and calendar
management would also form a simple foundation. Beyond that, your
decisions will again be influenced by your practice objectives and your
budget. Consider whether you want to develop a paperless (or less paper)
system—start-up is an excellent time to consider entrenching a digital
backup system for all files and documents that come into your
possession. (For more, see “Start-Up Tech for Any Budget” and “How to Start and Run a Paperless Office.”)
Creating Your Financial Plan and Your Budget
Next
you need to develop a cash flow plan and budget. You will use your cash
flow plan and budget to help adjust your operations as you grow your
practice. They will serve as your road map for getting to a successful
practice and provide benchmarks to monitor your progress. It is
critically important to understand your cash flow requirements, your
regular monthly expenses, your potential sources of revenue, and what
will you live on until you begin to generate a reliable income. Do you
have an existing client base that will generate immediate income for
you, or will you need to draw on funds from other sources?
Many
lawyers hear the words “financial plan” or “business plan” and envision
lengthy documents with pages and pages of details. This often results in
paralysis as they feel overwhelmed trying to create the plan. A key
thing to remember is that a business plan doesn’t need to be complex and
cover everything in extreme detail. This is an instance where following
the KISS principle (“keep it simple, stupid”) is a benefit. Generally, a
business plan will consist of a number of parts such as:
- Executive summary
- Firm description
- Scope of services
- Market analysis
- Marketing plan
- Financial projections
- Operating plan
One
recommendation is to break the different segments of your business plan
into a number of mini-plans (e.g., your marketing plan will be a
mini-plan that can stand on its own). Fortunately, you do not have to
recreate the wheel to draft a business plan: There are numerous
resources online and in print that can make this process easier. The
U.S. Small Business Administration (SBA) has a number of articles and
resources, including a step-by-step tool to write a business plan (tinyurl.com/9x83dkk). Inc. magazine has posted an online “Business Plan Checklist” (tinyurl.com/knw4z6t), and you can find sample law office business plans on sites such as bit.ly/1a7hxaO, bit.ly/1a7hID3, and bit.ly/1a7hKL4.
Whether
your initial capital investment comes from your own personal savings,
loans from family and friends, credit cards, or a line of credit, you
will need to establish a budget for your initial start-up. Obviously,
the size of your budget will dictate the complexity of your initial
set-up. Capital expenditures such as furniture, equipment (computer,
software, scanner, copier, printer, telephone, fax, filing cabinets,
postage scale and meter), and potentially tenant improvements will
depend on your practice setting. (See “Start-Up Tech for Any Budget”
for more.) Consider to what extent your smartphone or tablet can
substitute for a landline, laptop, copier, or scanner—at least for a
while. Consider whether you will purchase, lease, or rent your office
equipment (this is probably something to discuss with your accountant).
Other operating expenses associated with start-up will continue on a
regular, recurring schedule: office supplies, license, membership and
insurance dues, utility expenses for heating, cooling, water, garbage
disposal, insurance, taxes, etc. They need to be included in your
budgeting process.
The information in Table 1 (Sample Expense
Calculation) is needed to help you determine what you are going to
charge for an hourly rate, if that’s how you will bill.

When
you’ve established your hourly rate, you need to divide your monthly
fixed expenses by this hourly rate to determine the minimum number of
hours you will need to bill simply to cover your fixed expenses. Using
Table 1’s monthly total of $1,200 and dividing it by an hourly rate of
$150 per hour would result in the calculation shown in Table 2 (Number
of Billable Hours to Cover Fixed Expenses).

Therefore,
you would need to bill a minimum of eight hours each month just to
cover your fixed expenses. If you’re not sure what an expense will be,
you can often discover approximate amounts easily by talking to fellow
attorneys, getting price quotes from service providers, and making an
educated guess in some circumstances. This number is not meant to be
exact but to give you an idea of what you’ll need to make just to cover
your fixed expenses. You will have expenses above these for such things
as office supplies, mailing, and copy expenses, and no amount was
included for equipment or other purchases. These will also have to be
taken into consideration. Generally, for such things as office equipment
and technology purchases, you will create a budget and spread it over
two to five years.
With a view to the image that you want to
create, decide how you want to convey that image to your target
audience. You also will want to spend some time developing a
website—this doesn’t have to be extensive at first, but it is a very
important element in your marketing plan and requires time to design.
There
are a number of resources to assist you in creating a marketing plan
for your firm. Your initial plan can be as simple as a single page with
the marketing efforts you will make daily, weekly, monthly, and
annually. If you are starting a new practice and do not have an existing
base of clients, marketing your firm will be critical to early success.
You may want to include hiring a legal marketing provider in your
budget. Firms such as AttorneySync (bit.ly/1a7iik9) provide manuals for creating a marketing plan. You can also see a number of sample marketing plans for lawyers at bit.ly/1a7ipwe. Stephanie Francis Ward’s helpful ABA Journal article “50 Simple Ways You Can Market Your Practice” (July 1, 2013, bit.ly/1a7iAYa) provides some great tips for marketing your practice.
Regulatory Requirements
Check with your local bar association to determine the licensing requirements that have to be met.
Depending
on your location, you may or may not be required to belong to your
state bar association or legal society. However, all jurisdictions
require that you maintain your license with the regulatory arm of the
U.S. Supreme Court. States such as Wisconsin, Oregon, and others make
membership in the state bar association a mandatory requirement to
practice law there. This is also true for Canada and their law societies
(their equivalent of our state bar associations). You need to ensure
that you comply with the regulatory requirements for the jurisdiction(s)
where you will practice. If you are going to use a limited liability
entity such as an LLC, you may also need to register the entity as well
as yourself. It is these same regulations that will determine
whether or not you must maintain errors and omissions (E&O)
insurance. In the United States, we commonly refer to this as
malpractice insurance.
The majority of states in the United States
do not require mandatory malpractice insurance, but a growing number do
require that lawyers disclose whether or not they have malpractice
insurance. In many states, to limit malpractice liability between
lawyers in a firm operating as a limited liability entity, the firm must
maintain malpractice in the amounts set forth in the rules of the
jurisdiction. For example, Wisconsin Supreme Court Rule 20:5.7 (bit.ly/18WeKVJ)
requires a firm of one to three lawyers to maintain a combined
indemnity and defense cost coverage of $100,000 per claim and $300,000
aggregate combined indemnity and defense cost coverage per policy
period. So make sure to check with your local rules to ensure that you
are in compliance. (For more, see “Attorney Malpractice Insurance: Who’s Got Your Back?")
It
is also important to understand the qualifications you have to meet if
you want to operate a trust account. If you are going to accept funds
for advanced fees or costs or funds that belong to someone else other
than yourself, you will need to establish a trust account. This is often
referred to as an IOLTA (Interest on Lawyers Trust Account) account.
You will find the requirements in your rules and may have a state
organization that operates these accounts, such as the Wisconsin Trust
Account Foundation, Inc. (wistaf.org), or the Florida Bar Foundation (flabarfndn.org/iota).
Determine whether your municipality requires you to obtain a separate business license.
You
will also need to consider whether there are any rules that restrict
you in terms of business/mailing address requirements or obligations
with respect to how you name your firm and whether you need to register a
trade name. Review your code of professional conduct in terms of
advertising guidelines. (For more, see “Ethics Perils of Opening a Law Office.”)
In
addition to professional liability coverage, there are many other types
of insurance that can protect you and your practice in various
circumstances. Depending on your personal situation, consider the
applicability of the following:
- Public liability and/or tenants liability coverage
- Property insurance (all perils)
- Auto and home (business use)
- Business interruption, valuable papers
- Life and short- and long-term disability insurance
- Fraud coverage
You
will also need to obtain your Employer Identification Number (EIN),
sometimes referred to as a Taxpayer Identification Number (TIN), whether
you operate as a sole proprietorship or a PC, LLC, or other limited
liability entity. In the United States, you can apply for your EIN
online on the IRS website at 1.usa.gov/18WhpPa.
Solo, but Not Alone
Starting
up a new business is an exciting and also somewhat daunting
process—like everything else in life, being your own boss has its
rewards and its headaches. It is important to develop a network of other
professionals to whom you can turn for support. And probably most
important of all, find a friend, a mentor, or a sounding board that you
can rely on for objective feedback—or just a shoulder to cry on. There
is also a great wealth of information available through the ABA and your
state bar association or law society. Be sure to leverage the resources
available to you at your local law practice management program or
practice advisors.