Editor’s note: This post is sponsored content.
By Chris Stock
Recently I have read many articles discussing how to start a solo law practice. They have all been very good in that they give lots of advice on how to set up a firm cheaply and quickly. The biggest problem is that they all gloss over cash flow. Having a budget is not the same as having a cash flow forecast. Over the last 15 years, I have worked with hundreds of attorneys who have started their own businesses. Underestimating cash flow is the biggest trap for these young players.
Having a law degree is a massive advantage for a person looking to start their own business. They can effectively start a business with a piece of paper and a computer… If, that is, they don’t have to worry about making money…
Let’s examine how you can go out on your own, but this time with cash flow in mind.
- What are your expenses?
Every business needs to generate cash to pay salaries and other expenses. A law firm is no different.
a. Your salary
To begin with, most attorneys are paying off student debt and everyone has basic living expenses, so the first thing to figure out is how much to pay yourself. You need to pay yourself enough to cover:
Your mortgage or rent
Any other usual living expenses
As most people live off what they earn and save a little for a rainy day, it is fair to assume you will need to pay yourself at least what you were earning before you decided to go out on your own.
If you do not pay yourself properly, you will find your business will quickly fail.
When starting out, it is a good idea to be allergic to fixed costs. This includes an office lease. If your business takes longer to generate cash than you had expected, you don’t want to be stuck with a lease you cannot afford.
- Work from home
In today’s world, it is very easy to start a business from home. Many solos use their home address as their business address when they first start out. This is a very cost effective option, however, not great for meeting with clients. This should be a last resort. In fact, if this is your only option, you probably do not have enough start-up capital to begin your firm.
- Virtual office space
A virtual office space is an option that generally provides you the following:
A physical mailing address
A place to sit and work for a set number of days per month
A rentable meeting room that you can pay for by the hour to meet clients
This is generally the absolute minimum you would want to begin your practice. It allows for a professional look, without the overhead of a full lease.
- Serviced office space
A serviced office space is a little different than a virtual office space. You are usually required to sign a short term lease agreement, but in return, you are provided your own workspace. This can be upgraded to your own office, where you can meet clients. It also comes with all the furniture you need.
If you can afford a little more overhead in the beginning, this is a great option.
It is becoming more and more common for established businesses to sublease a room on a month to month basis. This allows you to:
Team up with a business operating in a vertical market, such as an accountant
Team up with a law firm operating in a different area of law from you
In both instances, these can quickly help you find clients and generate cash.
This option will add additional start-up overhead as you are likely to need to purchase your own furniture.
c. Hardware, Computers, Infrastructure and Stationary
In today’s world, hardware is cheap. You can start your business with:
Practice Management Software
Microsoft Office 365
A multi-function printer
A cell phone
There is no need to spend exorbitant fees on graphic design for your business cards and letterhead. You can easily do this yourself. In fact, many smaller law firms no longer have their letterhead or business cards printed. They simply create and print what they need as they need it. If you want a corporate logo designed, there are lots of free websites where you can do this.
You can very easily set up a Google phone number on your personal cell phone. That will allow you to run your personal phone as a business phone as well.
Hardware might be cheap, but it can also be depreciated. Check with your accountant. Spending a little more money might not be a bad option from a tax perspective.
Software is important. You should always look for an all-encompassing solution. It is easy to get trapped using a patchwork of software for which you are making multiple payments to multiple companies every month. Remember, there are multiple facets to running a law practice. When acquiring software, try to find a provider that offers:
An automated library of commonly used legal forms
Fixed fee billing
A client payments portal
The ability to work on any device at any time
You will at a minimum need to take out the following insurances:
Should something go wrong, not being protected can be a huge risk. It could spell the end of your business venture and even legal career if you are left in a position where you cannot pay your personal bills, or worse, a client negligence claim.
Build your business fast
The faster you find clients and start billing them, the easier starting your business becomes. This will begin generating your cash flow.
How do you a build a business?
a. Start with some clients
If you are leaving another firm and are lucky enough not to have a non-compete agreement, take some of your favorite clients with you. You will be able to have their retainers transferred to you and begin billing right away.
b. Network, network, network
Solo and small firms generally find that the majority of their work comes from people in their local area.
One big challenge for a new practice is that they are often competing against long established businesses with strong community links. How do you overcome this?
It is important to meet as many people in the community as possible. It is a good idea to start this by:
Taking local business leaders out to lunch and discussing reciprocal referrals. Real Estate Agents are a great place to start as they are usually well connected to the community.
Meet with owners of other law practices. If they do not practice in the same areas of law as you, set up a referral system.
Attend community business events and Bar Association events.
A strong referral network in your local area will help create a regular stream of work.
c. Build a great website
Optimize your website for your local area. There is no use having a person getting a divorce in California finding you on Google if you practice in Manhattan or New Brunswick, NJ.
Most people looking for legal assistance start with a Google search. Being optimized to be found by people in your county, town and state is very important.
- How to not go broke
Before you start your business, create a cash flow forecast incorporating all of the above. I have created a very basic example that you can download for free at http://bit.ly/2adA2HA. By simply changing dates and figures, you should be able to:
Estimate how much startup capital you need.
Estimate how much you need to bill to make enough to survive.
Predict when you will run out of cash if things don’t go well.
I have seen a number of articles recently claiming you can start a firm for $3,000 to $10,000. The reality is that these estimates do not take into account personal circumstances and can be dangerous if young players take them literally.
Think carefully about cash flow and you can be successful fast. Ignore cash flow and you can fail before you begin.
Chris Stock is the CEO of LEAP, USA and has been involved in developing software for small law firms for more than seven years. He may be contacted at [email protected] or 917-565-6067.