Note: A team contributed to this post.
“By failing to prepare, you are preparing to fail.” — Benjamin Franklin
Those words, however simply stated, couldn’t ring more true especially for attorneys who want to hang their own shingle. There’s something undoubtedly noble about wanting to start a law firm, but the truth is, those who don’t plan accordingly, are most likely destined to fail.
Now add a fiercely competitive legal market to that equation and that uphill climb just got steeper. The good news is, most attorneys who are brave enough to step into these unchartered waters, are generally up for a good challenge.
If proper planning is the silver bullet to success, then it sounds like understanding the playing field, is a step in the right direction. Who better to explain how the playing field works, then attorneys who have walked a mile in the same proverbial shoes.
Here are the 10 commandments to live by – from attorneys who have hung their own shingles:
1. Thou Shalt Invest Money to Make Money
Starting your own law firm doesn’t have to break the bank. In fact, there are some very successful law firms that have started out of a home office, but there are some non-negotiable investments that all attorneys who want to hang their own shingle will need almost immediately.
- A law license
- A computer
- A cell phone and/or smart phone
- Specialty software to manage the business (legal matters, cases, invoices, etc.)
- Malpractice insurance, because you can never be too careful
Once a law office is established, there will be other expenses to factor in, including: Office rent, office supplies (e.g. printer, scanner, toner, paper, etc.), cell phone bill, utility bill, etc.)
2. Thou Shalt Develop a Business Plan
Whether looking for financing to get a law firm off the ground, or if you’re planning to foot the bill yourself, it’s a good idea to have a business plan in place. First, lenders will need to be reassured that you know how to make good use of the money they are providing and, that you have a plan in place to pay it back. Second, the time you spend developing on the plan can provide valuable insight as to where the business stands. Also, it can be used as a great tool in the future to see if goals were met or exceeded. This insight can help get the firm back on track if it goes off the rails, at any time. Some good resources for developing professional business plans include: Bplans, Business Plan Pro or LivePlan.
3. Thou Shalt Develop a Marketing Plan
Take the time to understand who your target market is and how you intend to reach them. The best way to do this is by developing a marketing plan. A well-executed marketing plan generally includes the following components:
- A detailed client and prospects list
- Tactics for how you plan to reach these targets
- An outline of key the firm’s differentiators (e.g. what is the firm’s niche and/or specialty, or why are you different, etc.)
- A list of top competitors
There’s certainly more to add to the list, but these are some fundamentals building blocks to work off of. A good resource to start with is the Small Business Association. Another option is hiring a marketing professional to develop the plan. This lets attorneys focus on what they do best–lawyering.
4. Remember Good Technology Should Be Treasured
Like it or not, law firms have record keeping responsibilities that would give most people a headache and that just accounts for the practice management side of the firm. Never mind the business side of things which includes invoicing, billing and time keeping. With the pace of communications today, it’s nearly humanly impossible to manage all those moving parts without some type of law firm practice management software in place. Now going back to the first commandment, about investing in the firm to make money. This his is a prime example of an investment that is well worth it. Not only does it take the burden off of the attorney to be bogged down in time timely administrative work, but it also allows lawyers to focus on billable work.
5. Thou Shalt Be Aware of Business Entities Available and Consult an Expert
There are a myriad of business entities available for attorneys looking to start their own law firms. Each of these entities have pros and cons. The best way to choose an entity that is right for the firm, involves speaking with experts who understand how they work. Typically a financial analyst or a business attorney can provide great insight about these entities and help inform the decision making process. In the meantime, here is a brief overview of the business entities currently available:
A limited partnership (LP) is created by filing a certificate of formation with the secretary of state. An LP has two distinct groups of owners: general partners and limited partners. Limited partners are not personally responsible for the liabilities of the partnership. General partners are. As passive investors, limited partners do not have control of the partnership.
A limited liability partnership (LLP) is created from a pre-existing partnership or limited partnership and is formed by registering with your Secretary of State. LLPs provide personal liability protection to the general partners, but the partners are still liable for their own malpractice. A limited liability company is formed by filing articles of organization. The owners of the LLC are called members, and are not personally responsible for the liabilities of the LLC.
In member-managed LLCs, all the members share in the management of the entity. A member-managed LLC looks like a partnership. In manager-managed LLCs, specific managers are designated to make the day-to-day decisions of the LLC. A manager-managed LLC looks like a corporation. Profits and losses are split equally or based on contribution, depending on your state and prior member agreements.
It is important to note that each of these different corporations have their own rules and tax implications, which can vary, from state to state. Based on this, it is advisable to understand the laws of the state in which you plan to open a practice. In some states law firms can classify as corporations, but in others they do not.
6. Thou Shalt Find a Niche, But Understand the Realities of the Market
There’s an old saying, “if you love what you do, then it won’t feel like work.” In other words, if you have a natural affinity for a certain type law, then, by all means follow your heart. Another good rule of thumb when starting a firm, is to look at the local market to see where the biggest business need is. Then see if your legal expertise can add value. Also, it’s important to think about whether the firm’s specialty will be in demand or, whether the firm will be fighting for the same clients in an overly saturated market. The best bet is to do your homework first to make a well informed decision.
7. Thou Shalt Focus on Your Craft and Hire Others to do the Rest
When starting a firm, the ultimate goal is to begin representing as many clients as possible and building a good book of business. It’s easy to fall into a trap thinking the firm will save money by taking on do-it-yourself projects (e.g. building your own website or doing all the accounting billing work yourself, etc.) To the contrary, there are numerous studies that show these tasks take attorneys away from their actual billable work and end up costing the firm more money in the end. A better bet is to hire professionals such as accountants or web designers to do that type or work. Also, investing in legal practice management tools that can handle time consuming administrative tasks, can also be extremely helpful. In other words, rather than falling into the DIY trap, any free time that is left over would be much better spent networking in the community or working on business develop for the firm.
8. Remember, Trust Your Instincts When Prospecting New Clients
It’s been said there’s nothing less valuable than services already rendered. When it comes to prospecting new clients, trust your gut instinct at the outset of the relationship. This exercise, however simple, can ward off future issues like bad debt, etc. Surprisingly, bad client relationships can reveal themselves very early on. Whether it is an inappropriate comment or overly controlling behavior during a meeting, you can never go wrong by trusting your inner instinct. There’s nothing worse than signing a bad client because, in the end, it is the attorney who is left with the headache.
9. Thou Shalt Purchase Malpractice Insurance
No attorney goes into law intending to commit malpractice, but the truth is, it happens more often than you think. Any attorney planning to start their own firm needs to buy malpractice insurance, it’s that simple. While some attorneys may not want to pay the high cost of malpractice insurance at the outset of starting a firm, it only takes one law suit, or even the threat of a lawsuit, to put that cost into perspective. In other words, it’s a non-negotiable expense. If you never make use of it, at least you are prepared for the rainy day. However, if you do ever happen to need it, it could very well save your practice. There’s no price tag that can be placed on having peace of mind.
10. Remember to Enjoy the Ride, but don’t let it Run You Over
Starting a law firm can be both a rewarding and challenging venture. In the beginning, there will be many decisions to be made. One of the biggest pitfalls an attorney can run into is thinking they are going to do everything perfectly, all the time. That is simply not a realistic proposition. Hanging your own shingle is about trial and error. If something isn’t working, there are resources to help get things back on track. Whether it is collaborating with other attorneys to build a better business pipeline or leveraging technology to help solve a business problem, there are resources out there that can help. Finally, it is important to give yourself a break when things go awry and learn from your mistakes.
Or, perhaps a better way to approach business hurdles goes back to Mr. Franklin’s words of wisdom: “To succeed, jump as quickly at opportunities as you do at conclusions.”
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A version of this post was first published as sponsored content on Law Technology Today.
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