Many lawyers dream of running their own practices and being their own bosses. Many think that opening a law practice is somehow different from opening a dry-cleaning business or a bakery, or becoming a general contractor to build houses. Even though a lawyer offers a professional service—albeit one that requires years of training—the lawyer is still opening a business. And just as every business needs start-up capital, a lawyer needs money to fund start-up costs and to pay for ongoing expenses.
A solo law practice has three principal sources of funding: (1) money that the sole practitioner can personally invest, (2) funds that can be borrowed from family, friends, or banks, and (3) revenue from work for clients. Graduating from law school and passing the bar exam may give someone the right to open a law practice, but it doesn’t provide the means to do so.
The only way for a lawyer to determine the capital requirements for starting a law practice is to prepare a business plan. The business plan should include one-time costs (start-up expenses such as office equipment and computer hardware and software), as well as ongoing operating costs (such as rent, office supplies, and salaries). The problem for lawyers who are just starting is that both start-up expenses and the first month’s operating expenses must be paid long before the first fee check arrives. Even someone starting a practice with a few financially solvent clients and hourly fee-based cases will have to cover expenses for a couple months. Someone starting with only contingent-fee-based cases may have to cover expenses for six months to a year before collecting a fee. Likewise, if someone is starting with no clients, then it will be an equally long time before any revenue is produced.
The difference between your success and failure as a solo may well be in having access to capital that will carry you through this initial period when you need funds for start-up expenses as well as ongoing operating expenses. Although there are many sources of capital, they may not all be available to you.
If you are just out of law school, you may not have any money, or any property to sell to raise money. In fact, you may have no money and a lot of debt from student loans. Worse yet, you may have no money, a lot of debt, and not qualify for a loan from a bank or other financial institution. If that is the case, and if you are lucky enough, you may be able to turn to family and friends to borrow the money you need to start your practice. This is something most people want to avoid because there are so many emotional issues associated with borrowing from family and friends. Will you be putting those relationships at risk if you add an economic component to the mix? How soon will these people expect to be repaid? Will this put extra pressure on you to find the funds to repay these loans? How will you feel if you can’t meet the payment schedule?
Even if you decide not to seek loans from friends and family, there are still interpersonal issues involved in starting a practice. If you have a spouse or significant other, that person must be willing to risk the family’s financial future to support your new business venture. Your new practice might obligate your partner to get an outside job just to cover your family’s day-to-day living expenses and obligations, such as car payments and student loan payments. Even if your partner is as committed to the new venture as you are, it can still create a high level of stress. The financial pressure could affect your performance on the job or put a strain on your relationship with your partner.
If you are going to ask your family and friends to make sacrifices by lending you money, or if you are going to ask your partner to make sacrifices by helping you start a law practice, you must first be sure that all the sacrifice is worthwhile. Many lawyers who enjoy practicing law do not enjoy the day-to-day duties of running a law practice. You should know—before you ask everyone around you to make sacrifices—whether you really want to run your own practice. The big question is this: Are you committed? Once you are truly committed, it can be amazing what resources will become available to you.
If you are starting on a shoestring, your main task will be to keep expenses as low as possible until the cash starts to flow. You must be creative. If you find that you don’t have enough cash to fund your initial plan, look to see if there are noncash methods of obtaining the same results. Though you may have to pay for the phone, it’s possible that a friend has an extra space in her office that you can use for free. You may already own some of the equipment and software that you need. Also, remember that when you start, you don’t need the best available. You only need something that is functional. So, instead of buying printed stationery, create stationery on your computer; instead of using high-quality envelopes, buy the least-expensive envelopes available; and instead of incurring high costs for deliveries and express mailing, send as many documents as possible by e-mail messaging.
If you read the chapters in the book that address capital, cash-flow issues, and obtaining loans, you will have an understanding of the financial aspects of your practice. The chapters that discuss setting your fees, using alternative billing arrangements, and collecting fees will help you evaluate the amount of revenue you might expect from your practice during its first six to twelve months.
As the old saying goes, where there is a will, there is a way. This doesn’t mean that everyone can start a business today, but it does mean that everyone who wants to be a sole practitioner can begin planning and taking steps that will permit him or her to achieve that goal.
If you want to read more, you can order the book at http://tinyurl.com/yqa3bk or purchased selected chapters at http://tinyurl.com/6f5b7n. If you have questions, drop me an e-mail: firstname.lastname@example.org