Are YOU Ready to Fly Solo?
Are YOU Ready to Fly Solo?
Mar 24 2011, 04:16 PM
Joined: 17-July 09
Member No.: 125
The Great Recession has created a new phenomenon: young lawyers who want to start solo practices after either being laid off from big law firms, or deciding as soon as law school graduation that the big firm life isn’t worth it for them.
Some lawyers who reject the 2,000-2,500-plus billable hours that are the rule at many big firms may see solo practice as a means to better work/life balance. But this is not a typical motivation. Few lawyers are adverse to hard work. Successful big firm lawyers work long hours and are focused about what they do. If they pursue a small firm setting, it is not that they want a life of leisure – it reflects a greater desire to pursue their passion. Lawyers contemplating such a change should ask themselves why they went to law school and became a lawyer? Do they still love the law and enjoy helping people? The answer determines success in solo practice.
By contrast, the issue for law school graduates looking to go solo is different. Students come out of law school with little practical understanding of how a practice works, whether that includes training in effective client service and law practice management techniques, or basic knowledge about the operation of the firm as a business (budget, collections, profit, loss). There is also the issue of technical competence at the law: in highly personal, difficult issues like bankruptcy or divorce or tax problems, what kind of representation will their clients receive from young lawyers who are getting their on-the-job training by hanging out their shingles?
Practice: Why and What
In truth, the solo lawyer at any level of experience needs all the traits of an entrepreneur: motivation, acceptance of risk, resiliency, commitment, and persistence. To decide if you have what it takes, do a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) of yourself to make certain that you’re ready to operate your own firm. Any such analysis will to some extent be subjective, but it helps you decide if opening your own practice is right for you
The decision makes sense more for some practice areas than others. It’s easiest to start a new solo practice for specialties where capital requirements are less, and where it’s easier to reach prospective clients who have more urgent, immediate and personal needs. Practice areas that meet these parameters are where “the rubber meets the road,” areas such as personal injury, family law, bankruptcy, immigration, personal real estate and the like.
Finances: Tips and Traps
In any practice, managing money is your number one consideration for success. The new solo should have a personal/professional expense hierarchy with these levels: practice needs, personal needs, savings for slow periods or emergencies, and a bonus after all other expenses are met. Practice needs always come first, and personal needs should be the most flexible category. Personal needs, as covered by the lawyer’s “draw,” should initially be the minimum expense necessary to maintain a basic (not lavish) standard of living. Avoid committing to extensive obligations that cannot be reduced. The conservative rule of thumb is to have an adequate cash reserve covering a minimum six months of living expenses if no draws or salaries can be taken out of the firm. While this may be ideal, it’s clear in today’s world that few maintain such a cushion.
A new and growing law firm often seeks a bank loan when cash needs exceed cash generation ability through client receipts and personal capital. An unexpected tax liability, a new equipment purchase, unanticipated operating expenses – any of these can require an immediate cash infusion to offset them. In such instances, lawyers typically use a line of credit through a bank where they have established a strong working relationship. The lawyer borrows and repays at will up to the amount of the credit line, which is reviewed annually and extended, increased or terminated as the bank deems that circumstances warrant. If you get a credit line (not a sure thing these days), never use it to pay staff payroll or the lawyer’s personal draw. If you borrow for these purposes in anticipation of collecting on accounts receivable and then fail to collect enough to cover the loan, the result will be major problems with the lender – and potential civil or criminal penalties.
Facilities: Wants and Needs
Your office space will speak loudly and clearly to clients and lawyers about what kind of firm you are. A startup entrepreneur might prefer going to a strip mall location with ample free parking. A large office with conference rooms speaks to the potential for team meetings and collaboration; small and simple offices suggest simpler, less adversarial approaches. Lawyers’ personal taste and professional style are also reflected in office space. Some small firm or sole practitioners may find it feasible to share space with accountants, brokers and other non-lawyers, or share common areas, clerical staff and office equipment with other independent lawyers.
In fact, real estate costs that are lower than average make a statement about the law firm itself – that it is sensitive to the cost structure for the benefit of not only its equity partners, but also its clients (since lower overhead could well translate into a lower fee structure). This raises marketing issues that should be addressed in a strategic plan by asking these questions.
The answers lead to conscious choices consistent with the goals of your practice.
Technology: Frugal and Expensive
Particularly for new solo practices, substantial spending on new computer hardware and software may simply not be possible, since it may take up to five years for a new practice to be profitable. Certain tactics can provide a high ROI on very modest technology spending, while still offering adequate capabilities from the standard of care viewpoint. A beginning practice can start with a refurbished laptop or PC, rather than a new one. Another possibility is to skip Microsoft Office and Outlook, and go with open source software and a free email management program. Use an email fax service rather than a fax machine, and go to a nearby quick-print shop rather than buying a laser printer. For online research, visit the library at the most convenient courthouse or law school. For a web site, use the simple options available from Internet service providers.
Any such tactics can give the benefits of technology to a lawyer newly in practice without the big initial expense. But they are at best stopgap measures. Ultimately a real investment in new technology will be necessary. Determining the optimum ROI for this investment depends on the source of funds or financing used. Paying cash eliminates finance charges, but means a big up-front expense. Leasing equipment provides tax advantages, but typically only covers hardware. A third alternative is to borrow money from a bank, usually through an equipment loan no longer than the several year depreciable life of the equipment and software. And because computers and software become obsolete so quickly, banks are reluctant to take it on as collateral. There is no one right answer – the needs and resources of the firm determine the choice.
Marketing: It’s About the Clients
You have money, offices and a computer. Now how can you manage the inevitable (and often steep) time curve that it takes to build up the business? The best business development strategies are common sense ones:
The best business development strategies are common sense ones:
A marketing plan doesn’t have to be complicated. The real definition is simple: Identify the people most likely to hire you for the work you want to do, communicate with them to let them know who you are, and then develop close relationships with these people to help them achieve their goals. Develop a profile of your ideal client and develop a marketing strategy that focuses on this target, not everyone. You can increase your revenue dramatically by focusing on clients who will give you the work that you want.
And remember the most important law of marketing. Without clients there is no reason to be a lawyer. Lawyers don’t just practice law, they serve clients. Lawyers help people’s lives improve, and wanting to do that ultimately is the best reason for starting your own law practice. How successful you are for your clients ultimately determines your success as a lawyer. To have a successful new firm, view your practice as a business as well as a profession, and take a businesslike perspective to provide your clients with value. Taking that approach will ensure that your new firm has a long-term future.
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