Clarify Your Law Firm’s Purpose and Direction
In the crucible of a new law firm, it is critical for the founders to establish a clear vision and mission. This is crucial so that each member of your new law firm understands where your firm is going, and how you plan to get there. In fact, a clear understanding of your vision and mission is the first step of developing a strategic plan. To be effective, your vision and mission need to be aligned with each other. Your firm’s vision is an image of the future that the founders of your firm would like to see. A mission statement answers the question "Why does our firm exist?" In the minds of many, the words "vision" and "mission" are inextricably intertwined. In other words , if you have a good vision, it is also your mission. But coming up with a clear vision and mission is not as simple as it might sound. It is important that each founder of your new law firm is on the same page when it comes to your firm’s vision and mission. Otherwise, there could be disagreements down the road that could tear your new law firm apart. Once you’ve developed your mission and vision statements, they will serve as a compass for your new law firm. The statements themselves don’t need to be fancy or required by law, but they should cover your firm’s purpose, values, and goals. Above all else, they should reflect how you want to be perceived by the legal community and those whom you serve.
Select Your Law Firm’s Business Structure
A "sole proprietorship" is the most common form of business organization for those who are just starting out. The sole proprietorship is the easiest and least expensive to form. You support the entire load on your shoulders anyway being a solo law firm (or one of a few) so why add a lot of work and cost to get started.
A partnership is another option and used by two or more attorneys who are in practice together, but not as an incorporated entity. It’s usually easier to form than a corporation, but it also is more difficult to dissolve than a corporation and may expose you to more personal liability.
A limited liability company (LLC) is a relatively new type of business organization. There is some debate about whether or not a service-type business, such as a law firm, can operate as an LLC. It might be appropriate for your firm in some states, if you desire to combine the benefits provided by both a corporation and a partnership. An LLC combines the greatest advantages of a partnership with the limited personal liability of a corporation into a single, unincorporated business structure that provides the limited liability benefit of a corporation but with greater flexibility in managing the business. Although an LLC is usually owned by its members, ownership can also be held by trustees for the LLC or by the managers of the LLC for the benefit of the members. Although there are many compelling reasons to form an LLC, the downside is that it’s relatively untested in court, and thus, its application and benefits have yet to be fully defined.
While an LLC is the newest trend in the law business organization world, the corporation has long been the most traditional method for establishing a law firm. Generally, the company is a closely held corporation and each shareholder is usually involved in the day-to-day operations of the practice. As with an LLC, the limited liability protection is a major factor in forming the corporation to minimize the owner’s exposure to professional liability, personal debts, and employment-related liabilities. A corporation or LLC can engage in other permissible activities that a professional corporation cannot. One major disadvantage in forming a corporation is that there may be some initial difficulties in gaining the approval of a local bar association to do so.
If you intend to serve the public, you may want to look into forming a "professional corporation." This is a regular corporation that has filed paperwork to become a professional corporation within the meaning of applicable state statutes. A professional corporation can only provide professional services pertaining to the profession for which it is organized, such as law, medicine, or accounting.
Whatever your decision, the most important thing is to get started. You can pick the right legal entity type later.
Prepare a Business Plan for Success
In building a successful law firm, you need to have a solid plan before you start. That plan needs to be broken down into major segments – in this case, setting goals, identifying your target market, creating your marketing budget, understanding the industry’s economy, customizing your strategy and projections. Your business plan needs to be thorough and cover every conceivable avenue of your new firm. This is a starter guide – your business plan may evolve or change over time and you need to be flexible to adapt to those changes. Whether your business plan is 1, 50 or 500 pages long, it needs to be detailed to avoid pitfalls down the road.
Address Legal and Regulatory Requirements
The final piece of the operational puzzle is to handle the legal and regulatory requirements of opening a law firm. This is going to vary by state and practice area, but it’s important to get this right from the outset. You need to make sure you have the proper licenses and registrations.
Starting your own solo practice comes with a long list of steps to undertake, but these tasks can be completed in a timely fashion with a little due diligence. After receiving your license and completing a couple of "dances with the bar," be sure to open up your new law firm’s IOLTA account. This is going to be in your state bar’s trust program, so be alert to these steps so you can meet your bar’s rules.
You should also obtain your Employer Identification Number (EIN) from the IRS as well as a state identification number if you will be hiring or paying W2 employees. If you will operate as a corporation or LLC, you’ll need to file the appropriate adoption documents, but this task does not apply to lawyers using a solo practice or general partnership as a business entity.
Completing these steps, while wearing out a few pairs of shoes running around the courthouse, will put you in a favorable position to be a success in your new practice. I cannot emphasize enough to follow these steps to the letter as your state bar will be monitoring compliance with their licensure requirements and penalize lawyers who fail to comply.
We are happy to field any other questions you have about your newly licensed practice.
Obtain Financing and Fuel Financial Management
For an exciting and challenging new business, a law firm is often short on cash. Most law school graduates do not come from families of means and capital investment from family and friends is often minimal. For new attorneys with limited resources and unlimited ambitions, financing is often the most difficult hurdle to starting a new law firm. It’s important to understand that there are three general routes to funding a startup: (1) use your own funds, (2) partner with a more established firm, or (3) use a banker or investor. Each option has its benefits and drawbacks and is unique to each landscape, thus leaving the new attorney with a host of options. The intent here is to give you a snapshot of just a few of those various options as well as the benefits and pitfalls in the hope that you will be better equipped to take on the challenge of financing your new firm. The most obvious route in funding a startup is to use your own funds. This means pulling from your savings or possibly even borrowing from your parents (parents, you should know that this is an option). Taking the obvious route here means not having to make a monthly payment to a bank, associated interest and other related costs. There will be no loss of equity in the business and no partners to fight with except yourself. However, many new attorney’s are not fortunate enough to be able to finance a start-up on their own and may need to find partners willing to enter into a business venture together. Dissolutions of various partnerships are littered throughout the industry. It is important to consider what type of relationship you would like to start when looking for financing from either a bank, family and friends, or another law firm. Any lawyer that has run a successful practice knows that good partnership is as close to a marriage as you can get. Things that seem small at the onset can grow into large issues as time moves on. Before signing on with a new partner or investor, it is important to fully understand how much of your firm you are willing to give up. For larger firms, this will include a percentage of the profits, a potential monthly payment, and possibly a share of the equity interest. For an investor, ask what they are providing in return and what they expect in the balance of the company. No matter who you meet with, the attorney should always be cautious when it comes to any third party financing a new law firm. Loan money is often advertised with low interest rates and no fees, but remember that the bottom line is the amount of interest that you must pay back. Having a low monthly payment does not necessarily mean that the fees and interest associated with the loan are low. Make sure you read the fine print and understand exactly how much cash you will be sending out each month. Additionally, be sure to calculate how much you will pay when the loan is due. For example, if you agree to a balloon payment in one lump sum once a year then those payments will be large and you want to be ready to make that payment. Equally important is how that payment will affect your cash flow. A good lawyer takes on account receivable payments that need to be calculated into the firm’s balance sheet. An attorney taking on debt must do the same. Once you have secured your financing method, it is important to develop a budget to stay ahead of your expenses. This may mean forgoing some luxuries during the initial months. It is also important to manage your own personal finances to mimic the success of the firm as a business.
Develop Office Infrastructure and Capabilities
You’ve now completed most of the important law firm start up tasks, and you’re now faced with the challenge of setting up your infrastructure and getting your practice running smoothly. While a robust office infrastructure is not essential for a new law firm, it can help you be more professional in dealing with your clients, and it can assist you in setting up a workflow process that your staff will appreciate.
Bandwidth – For contemporary law firms, high-speed Internet access is essential for doing business today, especially in Texas. I recommend a T1 or its equivalent.
Legal Software – Will you need comprehensive law practice management software , or just a few select software tools? (See post) If you will practice in a single area, such as personal injury, you could use software for that area alone (for example BlawgSoft’s Injured Texas or other personal injury packages), but if you will touch several areas you will need comprehensive law practice management software, and the best options at present are Clio, RocketMatter or Practice Panther.
Technology – Will you use a flat screen monitor for your desktop computer or a laptop? Do you want a multi-function printer, or keep those functions separate? (In my experience, a big mistake, as separate machines are more likely to be operationally reliable, and cheaper to purchase and maintain).
Assemble and Manage The Right Team
It’s important to reach out to your professional network when looking for the best resources to hire. Referral sources include: other business professionals, happy clients, current and former colleagues and employees, bar association referrals, vendors, mentors and other lawyers you know. As you reach out to these people, keep these questions in mind: Remember that diversity in your team is beneficial. It brings fresh ideas, different perspectives and can help your firm stand out from your competitors. It’s not enough to just recruit talented individuals to join your firm, you must retain them too. Offering health care, retirement and flexible hours are some of the ways to show firm commitment and consideration. Create a list of additional benefits you can offer. Fostering a positive work environment is crucial to ensuring a productive law firm. To create a good culture, lawyers and staff members must share the same vision and commitment to achieving your law firm’s business goals. Create an environment where every employee feels valued and empowered.
Implement a Legal PR and Branding Plan
Your law firm marketing and branding strategies should address both the online and offline aspects of your law practice. While the actual legal services you provide are the most important factors, how your potential and existing clients find you is equally important to the growth of your law practice.
Modern legal website design, search engine optimization, social media branding, testimonials, and online reputation management are critical to your law firm’s business development.
The marketing strategy you create will be developed primarily by you, but you may wish to bring outside support into the mix to help round out your efforts. The important factor is that you have a good combination of online and offline efforts driving traffic and client inquiries to your doorstep. While there are many other factors involved, you should also consider the following at this stage:
Set Up Client Relationship Management
A law firm will want to retain its clients for a long period of time to maximize their worth, however, this starts from the very beginning. By setting the standard of excellent communication, service and follow-up you will be creating a positive experience from the start. It is important to have a system in place for managing these aspects from day one including tracking and following up on each lead. Lead tracking software helps firms keep on top of their leads by helping insulate them from losing potential clients due to missed opportunities to nurture leads. The needs of your clients can and will change over time, so it is important to develop a system for staying on top of client satisfaction and changes in client needs over time . A tool like client satisfaction metrics software can help firms get an accurate picture of how their clients feel about the service they are receiving. Whether your firm tends toward retainer clients or hourly clients, developing a client satisfaction program can ensure that your efforts to build your practice are focused on delivering what your clients want. One of the biggest costs for any law firm is acquiring a new client. A communication and relationship management system can help minimize these costs by working to retain existing clients and also encourage them to refer clients to your firm. Each client can set the tone for future clients, so it is important that feedback is properly sorted to take the pulse of every client in a formal way.