I took the scenic route to starting my own law firm. I began my career at a large law firm. I knew every week how much my paycheck would be—down to the penny. After a decade of consistent paychecks, I moved in-house. For three more years, I continued to know how much my paycheck would be. Although certain aspects were subject to changes in corporate rules, stock fluctuation, and bonus determinations, the risk of non-payment was virtually non-existent.
During my in-house stint, I realized that my heart was in private practice, and decided to go back to a firm. At that same time, during the recession, I saw dozens of great attorneys terminated throughout the legal industry. That opened my eyes to the fact that my perceived “safe” in-house route actually was full of risk—a risk over which I held little control as an in-house attorney.
After a few discussions with a handful of favorite (then-former and now current) clients, “we” decided that it made the most sense for me to go out on my own. The benefits were obvious: complete flexibility, the ability to manage rates, and the ability to work from both Florida and Minnesota. And there was only one downside—the ever-looming risk of utter failure and bankruptcy. Yet, having seen that the risk of job elimination is present in any job, I decided that my goal was not to eliminate that risk, but rather to be sure that the mitigation of risk remained squarely in my own hands.
I was blessed with some wonderful advice and guidance from friends and colleagues during my months of planning. I will share with you the top six things that made me successful and able to sleep at night.
1) Clearly State Your Focus
A dear friend told me to decide who my ideal clients are, and write down three to five defining characteristics on a 3×5 note card, and hang it on the wall over my desk. When a new prospective client or referral calls, check them against the list. If they don’t fit, find an attorney who will serve them better and refer them along. “Ha ha ha, that’s funny,” I thought. One characteristic mattered: They would need to pay me.
But of course, we have all had that really difficult client who isn’t worth any amount of money, or that matter so far out of our comfort zone it kept us awake at night. And what we fail to appreciate is that those clients take away our ability to productively and joyfully serve the right clients. So it was with a lot of skepticism that I wrote down my five characteristics. Yes, the ability to pay was (and still is) on the list, but so was my specific practice area (only commercial real estate or non-profit corporate work), as well as personality traits, which for me are key to enjoying my work. With much trepidation, I sent away several prospective clients who were buying houses—while my firm had only about one-third of the revenue needed to survive.
That decision paid off in spades. I was able to focus on doing a tremendous job serving the right clients, and word of mouth about my customer service quickly resulted in new commercial real estate clients. Had I been distracted with $750 residential closings, my focus on new clients would have been diminished. In addition, the attorneys to whom I sent those residential clients sent me back small businesses that were buying or leasing commercial properties. And when a new client embarked on a five-year growth plan, I had the capacity to jump right in—and the reputation for attentiveness that allowed them to trust that they would be well cared for.
Determining your focus also allows you to start networking and marketing early. If you are a “jack of all trades,” your ability to give and get referrals from other attorneys will be limited, because you are always viewed as competition. Instead, decide what you love to do and find others who don’t love it. Build those relationships before you start your own firm—send a family law matter to a great family law attorney, or talk to another estate planner about a specific area they focus on that perhaps you don’t want to do. Symbiotic relationships grow, whereas a relationship that is all about getting clients for yourself will quickly die out. Having clients to “give away” is a wonderful thing, and makes people want to reciprocate.
2) Prepare a Solid Budget
As with any company, your budget needs to be two-sided—revenue AND expenses.
Expenses. From the expense side, you have to focus on two calculations: company expenses and personal expenses. First, determine what you absolutely need to run your firm on a day-to-day basis. Rent, administrative support, phone and internet service, and malpractice insurance may be your most significant expenses, but don’t forget the ongoing costs, such as CLEs, bar dues, and law practice management or billing software. Second, determine what it takes to pay yourself. Figure out what you want to make, but also what you truly need to live on. Track your actual expenses closely for at least a couple of months to get an actual sense of your budget and needs.
- Talk to other solo/smalls about options for expenses, including alternatives to the traditional model. For instance, can you office-share, or work from a home office or a shared “drop-in” workspace? Can you hire a part-time, as-needed or virtual legal assistant (or do you need one at all)? But don’t just pick the cheapest option. If you have two toddlers and four dogs, or if your primary focus is criminal defense, a home office is not a solution.
- I work from a home office, but do not meet with clients in my home. I have relationships with other firms to use offices and conference rooms as needed. Chambers of Commerce are also great options for as-needed office space.
- I have secretaries who are otherwise employed, but work for me on an as-needed basis. It gives them extra spending money, and I don’t have the pressure of keeping them busy.
- I do have a regular bookkeeper, but did the books myself for the first year. Your practice area may dictate a bookkeeper, secretary, and/or paralegal as a necessity.
- Before you start your firm, think about what happens if work is slow. Are there items you would be able or willing to cut back on to get to a lower minimum budget? Know what you and your family are willing to sacrifice—cleaning person, vacations, moving to a smaller home, public instead of private school, etc. Those are decisions that you should make before you embrace solo life (or any other entrepreneurial venture). At some point in your career, it is likely you will be faced with hard decisions. Those decisions are less difficult if they are merely one pre-considered path, rather than a drastic fail.
- Talk to a financial planner. Most people are under-saving or over-saving for retirement. Understand what you have and what you need to retire, no matter your age. Set up a SEP or other retirement plan, and talk to your planner about other tax saving measures. Good financial planners will also have tools to help you with appropriately budgeting.
Revenue. Once you know what you need to earn in order to survive, start planning the revenue budget. Work from your minimum budget—the one that it takes to maintain your status quo—and determine how many hours and at what rate you need to work to meet those expenses. And then run the same formula for your goal/ideal budget. The big firm standard of 160 to 200 hours per month isn’t feasible for most solo practitioners (who are running a business in addition to practicing law). Determine how many hours you will need to bill to meet both your minimum budget and your ideal budget, then look at how many clients you will need to reach those hours. Compare that to how many clients you will have on your opening day, and make a plan to get to where you need to be. It may mean building your client base on the side as you continue your current job, or freelancing with other attorneys (all within the applicable ethical guidelines and rules!). Or it may mean delaying the date that you plan to go out on your own until you have a more comfortable level of savings.
- Talk with other solo/smalls who you view as successful in work/life balance, and discuss their hours. You may be surprised by how little they bill. For me, 90 to 100 hours per month is comfortable, and 120 feels comfortably busy. But I am also very involved in community organizations and volunteer work, which take a lot of my time. I feel a bit overwhelmed in the months when I bill 160 hours (which was my standard minimum at the large firm).
- Build in time for fires. If you decide 150 hours per month is feasible for you on a regular basis, does that give you enough flexibility in your schedule if a long-time client needs some immediate assistance, or if an “easy” deal turns complex? You need some wiggle room.
- Don’t forget days off and vacations! I build my budget around a 45-week year. That seems light, but when you factor in half-days off for board meetings and volunteer work, standard holidays, long client lunches, CLE days, and vacations, it actually turns out to be fairly realistic for me.
- Convert fixed budgets to working budgets. I prepared a monthly budget, starting at what I realistically thought I would have on opening day—about one-third of what I needed to hit my minimum survival amount. The budgeted revenue increased a bit each month for the first six months until I was at my minimum budget amount (which, according to budget, was the same time the “seed money” in my savings account was going to be depleted). The gradually increasing monthly budget continued for 18 months, until I was at the ideal budget amount. This allowed me to feel successful, even when I was only making half of what I needed to pay my mortgage. Plan conservatively, and remember that law is a “feast or famine” business, so a bad month doesn’t mean failure.
3) Start-Up Costs
It takes very little to practice law. An old computer and a cell phone (and bar dues) are enough to get you started. However, practicing the kind of law you want in the environment you want may take more than that. You have to decide where to spend and where to save—a decision that differs for each of us based on practice area and personal priorities.
Office Space. For a few, a home office is sufficient, but for many, either the home situation (kids, dogs, insufficient space) or the practice area (family, estate planning, criminal defense) results in the need for a “real” office. Consider whether you need your own full office, with a receptionist and secretary, or if you can make a go of it with an office-sharing arrangement, a virtual office, or one of the newer “work hubs” or office cooperatives that provide shared open space with the option for private space on an as-needed basis. Keep in mind the need for privacy and confidentiality. Clients do not want to, and should not have to, tell you the story of their now-defunct marriage over a cup of coffee at Starbucks, where unbeknownst to you the soon-to-be ex-spouse’s boss may be sitting at an adjacent table.
Office Equipment. There are five must-haves: computer, printer, scanner, desk, and chair. Don’t skimp on the computer or printer. You need to be able to work quickly and efficiently, without spending a ton of time waiting for the computer to load something or waiting for the printer. Costco is still my go-to place for computers and printers (thanks to my IT guy; see below). My office computer was under $1500, and my printer (which includes fax and a fabulous scanner) was under $1000, and still works beautifully after five years. You don’t have to spend a ton, but you need to make sure the memory and processing speed are sufficient. You also need to have the right software. Adobe Acrobat Pro is a necessity, as is the full Microsoft Office Suite (Word, Excel, etc.). And a color laser printer is a requirement. I still have a super-old desk and a cruddy $100 office chair. Each of us has to decide where to spend and where to save—and some great legal work has been done at kitchen tables.
Marketing. Everyone—no matter the practice area or how well-established you think you are— needs a marketing budget. At the very least, you need business cards, and preferably an announcement of some sort letting people know that you have a new firm and where to find you. And you need a professional presence, both online and in person. In addition, lawyers working in those practice areas that need “ongoing client replenishment,” such as family law and estate planning, need to have their name out on a consistent basis. That may mean hosting seminars, meeting with referral sources, advertising, spending more on IT needs, or a whole host of other options for building your practice. You can’t just wait for clients to find you, especially in the first years.
Website and IT. In addition to the IT equipment and basic operating software noted above, you need a website, a professional email address, and some form of accounting / billing system. Yes, there are some attorneys (some very good attorneys, in fact) still working from a gmail address (or hotmail, for that matter), but it sends a message. When I have a new opposing counsel or am considering sending a client to another attorney, the first thing I do is look them up online. No website or a hotmail address tells me that this attorney is not willing to invest in themselves or their firm. Imagine the message it sends to prospective clients and referral sources.
- You don’t have to spend a ton to get started. I hired another attorney who had just started his own practice to help me figure out how to create an email address and website, and I designed my own website using a Yahoo platform that was super user-friendly. I have since had my website professionally done, but waited until I had revenue to justify that expense. That said, my clients do not find me on the internet—they are exclusively referrals—and so, while I needed a presence, things like search engine optimization and mobile-friendly pages were not critical. For other practice areas, the website is not a place to save money, but should instead be the main expense for your start-up.
- A lot of IT professionals have their own shops, and will help out as needed on an hourly basis. Find a good IT person before you need one, and pay well, even just for start-up purchasing guidance. When your internet goes down on a Monday morning (which will happen someday), you will be glad you have him or her on your side! They can also be great at finding “cheap” alternatives. My guy saves me a ton on anti-virus, networking systems, and software. Because I work with him often and he understands my business, he knows where to spend and where to save—and lets me know if I am skimping in the wrong place.
- Find the right law practice management software for your practice. There are a ton of options out there, some very expensive and some nearly free. I use Quickbooks (the desktop version) for time entry and accounting, and it works great for what I need. But litigators, or those with very large caseloads, may need a stronger platform. So think about what you need from your practice management software, and choose accordingly. Again, this is a great topic to discuss with other successful solo/smalls in your practice area to learn the pros and cons of the various options.
4) Have a Plan B
One of my long-term clients (and friends) is the president of a small community bank. When I told him my plan to start my own firm (and that I was quitting my job the next week), his immediately response was, “Come see me before your last day at work, so we can get you set up with credit cards and a home equity loan.” “Oh, no,” I said, “I don’t need that.” He laughed, and then graciously reminded me that banks don’t lend to people who need money. You will be able to obtain these back-up sources while you are still employed and have a work history and steady income. But six months after you quit your job and your revenue isn’t enough to pay your bills, the bankers aren’t going to look at you with the same twinkle in their eyes. You are likely to have slow months, and knowing that you can keep your lights on is a sure way to sleep better at night. And if things go fabulously well (as they surely will!), these additional resources may help you to expand, hire the right people, or attend some amazing conference or training. You don’t have to use these just-in-case resources, but if you ever need them, they will be available.
5) Save As You Go
You need some extra money in the bank for taxes, for periodic new equipment, for the client who isn’t able to pay you, and for the slow months that will eventually come. Self-employment, at least for me, comes in the form of a single-member LLC where no one is forcing me to save a penny for anything. That means that about April 1 every year, my bank account looks fabulous, and on April 16, I feel broke. But because I save throughout the year, April 15 doesn’t catch me by surprise, and I know the “fabulousness” of my bank account is temporary, and therefore don’t spend those funds. Plus, if you have a reserve, you can spend the slow times focused on marketing (which costs money) and spending time with family and friends. That reserve keeps the slow month a time of joy, and not a time to panic. Panic is really, really counter-productive when it comes to getting new clients!
- Keep a separate bank account for taxes, and contribute to it each month. You know it is “hands off,” and if you happen to over-save, it is like a tax refund.
- Build up a small reserve account. Most experts suggest six to 12 months of operating expenses (including your minimum budget to live on)—although I personally think that is more than necessary. Put these funds someplace fairly accessible, but hopefully where they are earning for you, and know that the money is there for the rainy day—thus not entirely hands-off.
- Contribute to your SEP or other retirement account on a monthly basis. Many of us wait until April 15 to contribute, which means that money has been sitting in a bank account earning zero interest, when it could have been working for us.
- Retain a great accountant or, if you do your own taxes, use a tax software program that allows you to calculate taxes and potential SEP contributions on an ongoing basis. Evaluate these at least quarterly, and adjust throughout the year to save the appropriate amount. Otherwise, a slow year will have you feeling more cash-strapped than necessary (because you are over-funding your tax reserves), and a banner year will leave you really short of funds on tax day.
- If you are at all able to do so, put away $20 per week into a separate account. With that money set aside, each year you will have $1040 for a vacation or some other splurge. Don’t forget to reward yourself.
6) Go Ahead and Jump
Not in the David Lee Roth way (surely you’re thanking me now for that little ear worm!). Sometimes the numbers don’t look ideal, and you don’t know where the clients are going to come from. But if you wait until everything lines up perfectly, you may waste a good part of your life just waiting. I subscribe to the theory that every day is a gift, and we shouldn’t waste a single one.
Shannon Hoagland is the owner of Hoagland Law, PLLC, a boutique real estate firm in Orlando, Florida. The firm focuses on complex commercial real estate transactions, including development, acquisition, disposition and leasing throughout Florida and Minnesota, with a strong emphasis on hospitality and non-profit law. Shannon is a Board Certified Real Property Specialist, certified by the Minnesota State Bar Association, and is admitted to practice in Minnesota, Wisconsin, and Florida.