There are many reasons why a lawyer decides to start their own law firm. Some grow weary of working for demanding bosses. Others want to focus on a particular type of case or have more flexibility with their schedule. Some lawyers lose their jobs due to termination or downsizing and are left in a lurch during unanticipated downtime. Whatever the reason, starting your own law firm is an exciting and important undertaking that can and will feel overwhelming at times.
As a lawyer and business consultant, I have both started my own firm and helped hundreds of other attorneys navigate career changes, entity adjustments and other professional transitions. One of the more exciting and fulfilling parts of my consulting practice is helping lawyers go solo or strike out on their own. Since so many attorneys and soon-to-be attorneys ask me for advice about how to start their own firms, the topic deserves thorough addressing.
Six Steps To Start Your Own Law Firm
Even if you aren’t sure if and when you’ll be leaving your current job, there are several steps you can take to prepare for your inevitable exit. As with any momentous undertaking, if you look at every single task that needs accomplishing all at once, you can be deterred from even starting. That’s why it’s important to break down the tasks of starting a law practice into phases or segments, starting with the necessary basics:
1. Entity Formation
Consult with both a business lawyer and an accountant on what type of entity you should form. Your entity selection will affect many business functions, including taxes and your own individual exposure for business debts and other liabilities. Some of the more common entity types for small to medium-sized law firms are sole proprietorship, limited liability partnership, professional corporation and limited liability company. Once you form your entity, file for a federal Employer Identification Number (EIN).
2. Financial Accounts
Lawyers must handle client funds according to specific regulatory guidelines. Make sure you start off your financial future right by setting up all of the accounts your law firm will need, including:
• Checking Account(s): Lawyers are prohibited from commingling client funds with their own money. A law firm needs to maintain its own checking or operating account to cover monthly overhead expenses and any other costs attributable to the business itself.
• Client Trust Account: If a client pays a retainer or provides other property or funds to secure the services of your law firm for their case, you are typically required to keep the money in a client trust account.
• IOLTA: IOLTA is a common legal industry acronym that stands for the Interest on Lawyers’ Trust Accounts. The funds lawyers store in client trust accounts can stay there for varying lengths of time, potentially earning interest. Lawyers must keep any interest earned on client trust account funds in a separate IOLTA account.
• Credit Card: Law firms often have cash flow issues (especially new firms); therefore, having a business credit card is imperative. Many lawyers also like to use their business credit cards as their primary payment method to amass points or otherwise gain increased levels of status on various rewards programs.
3. Professional Liability Insurance
No business entity type can provide the legal or financial protection that having malpractice insurance can. Professional liability insurance for lawyers provides coverage in the event of a financial loss arising out of errors in the provision of legal services. Each state has its own laws that you should consult regarding whether or not this type of coverage is mandatory for lawyers and how much coverage is required.
Your entity needs to have a professionally designed logo that renders the same across all media. This includes knowing the Pantone color numbers used in the logo and the name of the font(s) used. You should also have your logo in multiple file formats (most importantly, a vector file, which usually has an .eps or .ai extension). The logo, along with its colors and font, determines the tone of your marketing materials and is therefore the starting point for all marketing decisions for your law firm. This is why your law firm logo has to be designed very early in the process of creating your new entity.
5. Office Space
While many solos have moved toward virtual offices or office share arrangements, having your own dedicated physical office space remains important for a variety of reasons. For one, you will need a professional setting in which to meet with clients and run your business. Additionally, it is necessary to have a physical location with a unique address or suite number in order to rank well organically in search engine results (and virtual offices or office share arrangements don’t work) — a reason many lawyers don’t consider.
6. Hardware And Software
Your law firm will need hardware like phones, computers and printers, as well as software like Microsoft Office Suite and an email client. While you may not have the budget to start off with the case management software of your dreams, take note of your dream IT setup and work toward it over time.
Once your entity is formed and you have the basics completed, you can begin using your logo to flesh out the rest of your core marketing channels, such as a website, social media accounts and online directory listings. Next, set attainable goals for your practice in the areas of budgeting, marketing, hiring, revenue forecasting and more; and then work toward achieving them. While the legal industry has changed significantly since I first started practicing 20 years ago, regardless of the decade, the fundamentals needed to open your law firm doors remain largely the same as they’ve always been.