Financial Planning: Tips When Opening a Law Firm

Good financial planning is key to success for all law firms, but perhaps incrementally important for those planning on opening a new law firm. Getting off on the right foot is critical. As with all things, the devil is in the details. Careful and thoughtful financial planning  from the start, with an eye toward growth and perhaps periods of less growth, gives your firm the flexibility needed to carefully manage through the ebbs and flows of legal demand.

Initial Budget and Start Up Costs

There are several necessary cash outflows when starting a law firm. Below are some of the items to review, prioritize, and develop options around:

• Legal Entity Formation: To create the legal structure of the organization, legal fees are required. Whether the firm can prepare these or perhaps requesting help from a law school associate, these fees can be actively managed.
• Malpractice and Business Insurance: Be sure to review requirements for your firm given your jurisdiction as a start. But consider needs beyond that. Depending on the area of law you intend to practice, it may be beneficial to think outside the box as it were. Contact your bar association for additional guidance or recommendation on providers. 
• Licensing and Compliance: Business permits and licenses requirements vary by jurisdiction. Your local bar association can be very helpful in this area as well. 
• CLE requirements: Not only do you ned to plan to start the firm but maintain it. At the time of opening your firm, you must be up to date with all CLE requirements. This is not only a start up cost but ongoing. 
• Professional Services: Will the firm hire a professional accountant? How about tax planning? Finding, vetting, and planning for these costs at start up ensures you are not blind sided.
• Domain name and email address: Don't skimp on this. Potential clients responding to a non-domain specific email, like Gmail or Outlook, may not feel very comfortable with confidentiality or professionalism. Search for available domain names online at Name.com or from your DIY website provider. Which bring us to the next step.
• Website: This really is not optional. Every law firm must be available to be found online. DIY website offerings like Wix or SquareSpace are so simple to use and all the coding is done - responsive design if viewed on a phone or tablet, and more. 
• Estimated Pre-Revenue Expenses: Whether it's a monthly stipend or fixed overhead costs, consider how many months the firm will be open prior to meeting and exceeding planned cash outflow. Always best to plan for the worst but hope for the best. There are many factors to consider here: Are you starting a firm after years of practice with another firm? Will any clients follow you? How crowded is the market in your geographic area for the services you offer? And of course, keeping your fixed costs low, at least to start, is key.

Before you start the process of opening a firm, it's imperative you plan for these expenses. You may have others that you consider vital - subscriptions, office space whether dedicated or shared, printing and graphic design costs, and more. Consider some less expensive options. Graphic designer out of your budget? Canva has some great templates that also assists you with developing your brand color scheme, etc. Consider some more budget friendly options to get started and budget. 

Operating Expenses and Monthly Budget

This directly relates to planning for those opening costs. Among the items to consider:

• Salaries & Payroll: Consider your monthly needs and that of any staff. Like all things, start with the required amount, not the optimal amount. As the firm grows, you can pay yourself a more reasonable sum as well as hiring on additional staff members. Be sure to include costs to run Payroll or the services of an accountant.
• Marketing, Promotional, and Client Acquisition Costs: Publishing a website isn't all that is needed to bring clients to your door. Plan for initial marketing and promotional outlays as well. We discussed the types of promotional activities in last week's blog.
• Research and Publications: Online research tools and staying up-to-date in your area of law is critical. If there is one area to kind of skimp out on, it isn't this one. 
• Software: Using Google Sheets and Docs is simple and very reasonably priced, particularly if you have a domain email through Google Workspace. This is sufficient to get started. Just remember, it will take you more time to do all the administrative tasks. Consider a reasonably priced case management software, like SimpleLaw, for under $50/month. That includes a free account for a paralegal or legal secretary.
• Outsourced Services: From a notary to a paralegal, accountant, or others, don't overlook these costs. 
• Meeting Space: Easy enough to work from home. However, if meeting clients in person, it's a good idea to have access to a shared workspace. Meeting in coffee shops isn't a good idea - the discussion with potential clients needs to be protected and private. Using an online meeting tool, like Google Meet or the like, can be a good option but this skips the in-person connection. 

Consider your starting budget when the firm is just getting started. As the firm grows, whether in clients or staff or both, you will need to review the existing plan and budget. Be sure you plan ahead in case some of the increases in expenses will begin prior to seeing a growth in revenue.

Expansion Plan

The best outcome is the firm grows faster than you anticipated. This is great but can also bring challenges. Consider your options if the firm beats financial targets and demand faster than anticipated. Do you have some ideas on additional staff? Where will you source them, what are typical rates, and is there any flexibility? SimpleLaw offers subscribers access to on-demand paralegals right through the platform. The firm needs to pay their paralegal, naturally, but these individuals are pre-vetted and can gain access to your account, with the permission set you require, without an additional fee. 

Monitoring

An often missed step, it's critical to have visibility to the original plan and how it is being met. Are you hitting targets faster than anticipated? Better start looking for related additional needs. Not meeting the target? Time to consider expanding your areas of service, be more proactive with client acquisition and marketing, or considering cutting expenses. Attorneys can offer their services to law firms who may be in a crunch. Do you know who may be good contacts for this? 

Preparation and monitoring is critical to avoid tense situations. While it may not be great fun to track all expenses and income against your original plan, it is a critical step. Temporary downturns, and upturns, happen. Try not to overreact to market swings but always be prepared with a plan. 

Opening a law firm that is your own is incredibly exciting and scary in equal parts. Very rarely has an attorney regretted doing so, but they all have some stories of tough times and good times. Planning ahead, monitoring, and putting alternate options into action helps the firm ride those ebbs and flows with a bit more comfort. 

This concludes our short series on how to open a law firm. Do you have other questions or topics to consider? Contact us. Our team is highly responsive to requests.