Whether you have just graduated from law school or have been working at a law firm for decades, starting your own practice is always an option. Although it is scary to consider putting on the pilot's hat and flying your own plane, if you follow some of these guidelines, there is no reason why you cannot learn to fly successfully.
Have a Plan
When pursuing any dream, patience and persistence are necessary. Instead of diving straight into the deep end, you must come up with a well-thought-out plan that will carry you through the first year, the "hardship year."
According to Donald W. Patrick, managing director of Integrated Financial Group in Atlanta, "Having enough capital to get through the start-up phase is number one. That's why most businesses fail.
"Cut projected revenues by 25 percent. Then increase projected expenses by 25 percent. That's pretty much the way it happens," Patrick explained.
"Before start-up, at least six months of working capital should be set aside. If it's a scratch practice with no clientele, in an ideal world, you'd want to see more than that."
Upon graduation from law school, Stephanie L. Friese took the "entrepreneurial route" and started her own law firm. With the guidance of her father, who is also an attorney, she launched a commercial real estate firm. Although the first year was tough, soon afterwards, the money began coming in.
"Cash flow is the hardest thing, and the line of credit helps tremendously with that," said Friese.
How Much Cash Did I Need?
In order to evaluate how much cash you'll need, financial adviser Michael Tankersley of Investment Management Advisors, Inc., said, "Research. Talk to someone already in that business doing what you want to do. Estimate start-up costs such as office space rental, stationery, and marketing and billing rates, and the number of billable hours you want to have, as well as how many, if any, employees you want."
"There's a lot of uncertainty when starting your own business," said Tankersley. "If you run out and rent the most expensive space and buy the most expensive furniture, you could be setting yourself up for cash-flow problems down the road if things don't work out."
Create a Budget
Creating a long-term budget for your business is the next big step in starting your own law firm. Business consultant Art Italo advises developing a budget for the next three years.
"There are two types of costs you need to assess: start-up costs and operating costs. Start-up costs include costs for furniture and fixtures, office equipment, computers, software, law library, malpractice insurance, deposits, initial inventory of office supplies, telephone equipment, stationery, and numerous odds and ends that you will need to open the doors," said Italo.
According to Italo, below is a list of some common expense categories:
- Answering Service
- Bank Charges
- Bar and Other Organizational Dues
- Continuing Legal Education
- Interest Expense
- Investigators and Process Servers
- Employee Benefits
- Equipment Maintenance
- Law Books and Periodicals
- Office Lease
- Office Supplies
- Online Services
- Staff Salaries
- Social Security and Medicare Matching
- Unemployment Tax
- Reducing costs by renting a fully furnished office space in an executive suite or sharing a space with other lawyers are some alternatives.
"When I decided to go out on my own, I knew I needed some basis for business, so I contacted several criminal defense lawyers for advice and to see if they had office space to share with overflow work," said criminal defense attorney Brenda J. Bernstein. "I then borrowed about $10,000 for the basics—computer, furniture, letterhead, online research materials—and shared space with another established attorney who allowed me to work for my office space rental. That way, I was able to pay the bills."
Saving for a Rainy Day
Having a bundle of "safety cash" in the bank is important for those rainy days. Italo suggests applying for the largest home equity line you can get if you are currently employed and own a home. "This allows you to deduct the interest on some of the money you may have to lend yourself," said Italo. Waiting until after you leave your current job may make it more difficult to qualify for a loan because you are self-employed.
"Shop around, and look for credit cards that offer a lower rate of interest and no annual fee," said Italo. "Apply for these cards; and when you get them, put them in a drawer for an emergency. I don't normally encourage taking on consumer debt, but these cards save your bacon when you reach nail-biting time."
Along with being a business person as well as a lawyer, flying solo also means being a one-person administrative team. Most surprising to lawyers when they launch their own firms is the amount of time they spend on administrative duties.
"You will become the billing clerk, the receivables clerk, the payables clerk, the office manager, the bookkeeper, and the payroll clerk, just to mention a few," explained Italo.
After dealing with the short- and long-term cost-related crises, it is time to take into account some post-launch issues including marketing. Marketing is key in attracting clientele, which is why getting the word out is so important. Mailing announcements to everyone you know, joining at least two organizations that lead you to business, and scheduling at least three lunches per week with potential referral sources are definite musts, according to Italo.
The slow takeoff is difficult. However, if you can stick it out, eventually getting off the runway is inevitable; and within a year, you will be smoothly flying solo.