04 Jul Starting Your Own Law Firm? 3 Things You Need To Know To Succeed
When you start your own law firm, you’ll need to prepare for the eventual negativity, disbelief, and downright lack of support from many of your peers and colleagues. You’ll also need to prepare for the inevitability that you’re going to be your own source of funding for the first couple of months—if not years. However, if you can power through the rocky beginnings, the payoff is well worth the heartache. Starting your own law firm is a venture that’s not for the faint of heart, but it’s a venture worth undertaking.
That being said, it’s not something you can just blindly jump in to. There are several things to take into account if you want your law firm to eventually succeed. For instance:
You Need to Consider Your Capital
Starting your own law firm, as with any business, will require a good deal of cash from your end. Unless you’ve got investors backing you up, you’ll need to pay for all the necessaries out-of-pocket. Things like couriers, bank fees, organizational fees, employee benefits, office supplies, and office lease/rent will need to be covered. And you’ll be doing the covering.
And while a bit of positive thinking always goes a long way, it’s naïve to think that you’ll be getting that cash back almost immediately. It could take you anywhere from six months to six years to break even, depending on how much you actually sink into your law firm and how well you do. Ergo, when starting your own law firm, consider the cash you have on-hand and how long you’re willing to wait to earn it all back.
You Should Choose a Business Structure
As a lawyer, you probably already know that there are different types of legal structures for businesses. A law firm may not necessarily be a conventional or traditional business, but it still needs to be categorized depending on how it operates.
There are a number of structures you can choose from, but the four most common are Sole Proprietorship, Partnership, Limited Liability Company (LLC), and Corporation.
- Sole Proprietorship—simple, low-cost structure that relies on and is operated by just one person. There is no need to file business forms or business tax (income is reported through personal tax instead). Basic tax structure, unlimited liability.
- Partnership—relies on two people governed by a contract (signed by both parties) that detail the individual responsibilities of each partner. Also low-cost, relatively simple, and offers basic tax structure. Very straightforward to manage.
- Limited Liability Company (LLC)—treated and protected from personal liability, like a corporation. However, you can choose to be taxed as a partnership (basic tax structure). Paperwork needs to be filed with the state, as well as an operating agreement outlining responsibilities of the members and how the firm will run.
- Corporation—limited liability and owned by shareholders. Complicated tax structure, but also the most protected in terms of liability and finances. Paperwork must be filed, bylaws must be written, and income and revenue must be properly reported to avoid taxation issues.
You Should Understand the Particulars
Before starting your own law firm, you should have a highly detailed business and marketing plan in place—and we mean detailed. Think of every question people could ask you regarding your firm. Write it down, and then answer it with as many specifics you can manage. For instance:
- What do you specialize in? Criminal Law? Corporate? Divorce? Family Law?
- What are your plans for expansion? Are you going to stay a sole proprietor forever? Do you want to eventually take on partners or shareholders?
- What are your plans for the financial aspect of your firm? Will you invite investors and shareholders to help negate some of the funds? Or do you plan for your firm to be self-sufficient? Do you know how much your initial capital is, and do you have an idea of how long it will take for you to break even?
- Are you going to extend your services beyond your city or state, or do you want to remain purely local?
- What are your plans for marketing your law firm? Will you be outsourcing sales and marketing or will you be hiring an in-house team to handle it?
The questions may seem long and tedious to answer, but doing so will help you get a good idea of your scope and capabilities.
The last thing you want to do is generalize. As that can be difficult to manage and even harder to pull off.
Overall, starting your own law firm is a reputable and admirable venture to undertake. Just understand—intimately—that trials, challenges, and frustrations will be a visceral part of the process. However, with proper planning, a decent amount of business smarts, and maybe a bit of good fortune, starting your own law firm is undoubtedly something that will serve you well.