The first day that your law firm is open is your Independence Day. This is the most exciting day in any lawyer’s career, but also the scariest. For the first time, you won’t have a paycheck waiting for you at the end of the week and your success will be decided by one thing, your ability to make a profit while running a law firm.
You try to convince yourself that you’re making the right decision, but that tiny imaginary elf perched on your shoulder insists this is a big mistake and urges you to re-consider. Life at an established law firm offers safety and security and you must be crazy to open your own firm. Instead, you ignore the imaginary elf (a/k/a, your doubts and fears), throw caution to the wind and move fearlessly ahead with your plan.
10 Tips for Opening Your Own Law Firm
You’ve never opened your own law firm and there wasn’t a single class on this topic in law school. You could just wing it, or you can learn from the mistakes and successes of others. Truth is, I’ve made more than my fair share of mistakes, but if I could go back in time, this is what I’d tell a young, starry-eyed lawyer about to take the big step.
Tip #1: Retain Your Clients
Before your employment ends with a law firm, you can inform your clients that you are leaving the firm. Your clients should be told that they will have the right to either remain with their current law firm or join your new law firm. This is the client’s choice and no one can tell them what to do.
Once you are no longer employed at your former law firm, you can solicit your clients, either by asking them to join your firm or reminding them that they have the right to change attorneys. You can solicit any clients for whom you actively worked at your former law firm. However, if you were not actively involved in their case, you cannot solicit clients.
When soliciting clients from your former law firm, you are not stealing them. In fact, you have an ethical obligation to inform your clients that they have the right to select the lawyer of their choice. If you do not inform your clients of their right to join your new firm, you are denying them of the ability to make an independent selection of the right lawyer.
Let’s face it, without clients your new law firm will quickly become extinct. Make sure you have new retainer agreements ready for signing by your clients and when you leave your former law firm, get the retainers signed ASAP. Send a letter to your former law firm informing them that your clients are substituting law firms and advise your clients that they should only speak with you.
Tip #2: Secure a Line of Credit with a Local Bank
A line of credit is a safety valve for cash flow issues. Your new law firm will have plenty of financial peaks and valleys and you must be ready for them. Find a local community bank (e.g., Main Street Bank)—ideally a bank where you’re friendly with a member of the board of trustees—to secure a $300k line of credit.
Bankers don’t like the sporadic income of a plaintiffs’ personal injury law firm, so getting the line of credit from a local bank where you have a friend will make the approval process easier.
Tip #3: Hire a Bookkeeper
A bookkeeper will be your trusted advisor and keep you on a path to profit. A bookkeeper pays the bills and will prepare your firm’s weekly Profit & Loss Statement and Balance Sheet.
Meet with your bookkeeper every 4-6 weeks to review your firm’s income and expenses. Ask your bookkeeper to identify expenses that are not absolutely essential and ruthlessly eliminate them. Know the exact number that it takes to run your law firm on a weekly basis (a/k/a, operating, marketing and case expenses).
Tip #4: Hire a Lender to Pay Case Expenses
Use a third-party lender to pay case expenses. At the end of the lawsuit, your clients will pay the principal and accrued interest for the loan. While the interest rate is above 10%, most case expenses are incurred near the end of the lawsuit and hence, the accrued interest will be reasonable. This is a no-brainer for a plaintiffs’ lawyer and as long as you educate your clients why you are doing this, they won’t object.
This will free up cash for your firm’s operating account and might even give you a marketing budget for the growth of your firm. Start with a line of credit for case expenses of $200k-$300k.
BTW, Advocate Capital is my third-party lender of choice for case expenses. Mike Swanson and his team at Advocate Capital have become a partner for our firm’s success and they’ve taken an active role in promoting our firm (e.g., 6-month full-page advertisement in AAJ’s TRIAL magazine) as well as our webinars and masterminds.
Tip #5: Hire a World-Class Paralegal
You didn’t open your own law firm, so you could be a slave to your practice. If you’re drafting discovery responses, scheduling depositions and answering mail, you’ll regret the day you decided to leave the established law firm.
Hire a world-class paralegal from another law firm, even if only on a part-time basis at first. Ideally, your first employee should be a known commodity, i.e., someone you’ve worked with before. Once you have a superstar paralegal, pay him as much as you can, enough that he would never considering leaving you. Building your team with superstars is crucial to your success.
Tip #6: Project Your Income
Trial dates are the currency of a plaintiffs’ law firm. If you have 5 confirmed trial dates over the next 12 months, determine your income based upon the settlement value (e.g., lowest monetary figure you’d recommend for settlement) for each case. This will be your income for the next 12 months.
Next, compare the income to your operating, marketing and case expenses and you’ll have a decent idea whether your firm will be profitable. If you have no trial dates, cut your expenses to the bone until you get to your first pay-day.
Tip #7: Tell the World You’re Open for Business
Create a print announcement of the opening of your new law firm. Schedule lunch dates with your current and prospective referral partners.
Send announcements of your new law firm in the newsletters of the county and state bar associations. Have an open house inviting lawyers to share some laughs and cocktails at your new office.
Tip #8: Build Your Database & Feed Your Herd
Nothing is more important than having a database containing the names and addresses of your friends, current and former clients and referral partners. Use an Excel spreadsheet to get started or consider a customer relationship management (“CRM”) software, e.g., Infusionsoft, once your database grows.
Once you’ve created the database, you’ve got to nurture and cultivate your relationships (a/k/a, feed the herd). Newsletters are the best way to stay top of mind with your friends and referral sources. Mail a quarterly print update to your referral partners with updates about appellate decisions and a print monthly newsletter to your current and former clients with photos of your family and informative tidbits about their rights.
Tip #9: Create an Educational Website
Create a WordPress website for as little as $1k. Getting leads from your website is as simple as adding informative articles once a day for 45 days—that’s all it takes. Your website should be an information powerhouse.
Talk to LightSwitchAdvisors.com for a WordPress website. Brendan Ruane, owner of LightSwitch Advisors, creates powerful websites at a reasonable cost.
Tip #10: Join a Mastermind
Although it might seem lonely running your own law firm, it doesn’t have to be this way. You must tap into the collective wisdom of other lawyers who are doing things bigger and better. There are high achieving lawyers willing to help you, but only if you ask.
Join a mastermind of lawyers—even if it’s only 3-5 lawyers in your town–to align yourself with lawyers who will guide you through the dangers and traps of solo practice. Failing to join a mastermind is a mistake for lawyers, young and old.
If you don’t have a mastermind in your community, join our tribe, the Mastermind Experience (www.MastermindExperience.com).
The Moment You’ll Realize You Did the Right Thing
There will be plenty of sleepless nights and more than your share of stress and anxiety in those first 2-3 years of running your own law firm. But eventually the day will come that you receive your first 7-figure check and realize you don’t have to share it with anyone.
When that day comes, you’ll realize that the stress and anxiety was worth it. No one is telling you what to do—you’ve created the law firm and life that you’ve always wanted. And when that day comes, take a few moments to relish it. You’ve done something few lawyers will ever do.