The Startup Law Firm: Part 1

Starting a law firm is likely the most ambitious undertaking a lawyer can manage.  Lawyers are taught and developed to practice substantive law, not to run a company.  For many attorneys with a desire to build their own businesses, the entire process is a mystery.  Much of law firm building is trial and error.  But, when you’re trying to run a business, trial and error costs money.  Being taken by surprise (and consistently reinventing the wheel) will slow, stall or stop the growth of your new law firm — which may be the difference between staying in business and going out of business.

Of course,  it’s one thing to say that it’s difficult to start a law firm — I bet you already knew that — and, it’s another thing entirely to acknowledge how hard it is to find current information about the subject, and to provide useful tips to fill that gap.

This legal guide will provide 25 practical pointers for starting your law firm.

These are answers to all of the questions you were afraid to ask, or that the person you asked was afraid to tell you.

(1) You Still Have to Pay (More) Taxes

When you work for someone else, they pay your taxes for you, through paycheck withholding.  When you work for yourself, you’re responsible to pay your own taxes — even as a sole proprietor, as solo lawyers are.  Not only that, you’ll have to cover tax payments that are usually made by employers, specifically those for Social Security and Medicare — this is called the ‘self-employment’ tax.  That’s on top of the regular tax payments you will make to the federal government and your state based on your income bracket.  Business owners pay ‘estimated taxes’ on a quarterly basis — though, electronic payment options make it possible to pay at more regular intervals, if you wish.  The IRS provides a comprehensive worksheet for figuring out your estimated tax payments, which includes the list of quarterly payment dates.  While it’s true that death and taxes are the only certainties in life, there is only one of those that you can skip out on.  So, just be sure to start (and to continue) paying your estimated taxes regularly, because the penalties and interest piled on for non-compliance are no joke; and, the IRS has at its disposal myriad ways to gets its money.  On the bright side, there are lots of business expense deductions available!

(2) ‘Hanging a Shingle’ is Not Enough

The traditional term for starting a law practice is ‘hanging a shingle’ — even if that reference is even more dated than a Walkman.  This reference is meant to hearken back to the days when lawyers literally hung a sign on the side of a building to advertise the launch of a practice.  Almost no one does that anymore, especially with the growing reliance on virtual office space and the development of virtual law practice modules.  Nevertheless, the term is loaded, and can be dangerous, if it causes you to think — like so many lawyers have — that that’s all you need to do.  No one is walking into your law office, because you have a sign hanging outside — and, if they do, they’re probably lost: they need directions, or they’re not the kind of client you want.  This logic extends to almost anything that has to do with advertising your practice; engagement is the watchword.  So, neither is your website alone going to be enough; you’ll need to drive traffic to it.  Having a robust list of contacts is great; you have to find a way to actualize it.  Not only is your sign less important than both of those things — it’s probably a waste of money.

(3) You May Not Need Malpractice Insurance Right Away

Every lawyer starting a law firm goes out and buys malpractice insurance.  As it turns out, though, the question of when to buy malpractice insurance is related to your law firm marketing.  Ask yourself the obvious question: If you don’t have any clients, what liabilities are you covering for?  If you are maintaining malpractice insurance without a client base, you’re throwing away money.  Wait until you get your first client, then get malpractice insurance.  Keep in mind, as well, that professional liability insurance for lawyers operates differently than standard insurances.  Lawyer malpractice insurance policies are generally claims-made (as opposed to occurrence) policies, which means that the policy must be in place when the claim is made, not from the date of loss.  Assuming you’re not offending clients broadly from jump street, the type of policy you’re acquiring will buy you some more time.  Finally, keep in mind that you can access cost savings on your malpractice insurance through bar association membership and/or by bundling other policies from the same provider — home, life, auto, etc.

(4) You Won’t Necessarily Need a Business Entity

Every new business owner wants a formal business entity; but, not one of them knows why.  The fact is that, unless you own property through your business or have some compelling marketing reason for doing so, it’s unlikely — especially as a solo — that you will need a formal entity.  Starting out with a dba (‘doing business as’) certificate is probably enough — that’s cheap and available through your city or town of residence.  Whether and how to incorporate is largely a tax-related question.  Talk to your accountant — get one if you don’t have one — about your personal financial situation, to see whether incorporating makes sense for you, and in what way.  Spoiler alert: unless your gross receipts are higher than most start-up law firms will be, you won’t be tax-advantaged by incorporating.

 

(5) Your Mentors Will Be Far Busier Than You Think

If there’s one thing you’ve heard about starting a law firm, it’s that you’re going to need mentors — ideally someone with experience running a law firm and someone (maybe someone else) who is a practiced hand in your chosen area of practice.  The assumption is you buy these folks a coffee, and they’re wedded to you for the remainder of your ramp-up.  The reality is that that is rarely the case; and, trust me: it’s not you, it’s them.  The fact of the matter is that anyone you can think of who would be an ideal mentor for you is probably also super-duper busy.  In real life, there is no one out there to hold your hand; so, you have to cobble together experiential training, which is a combination of your own experiments and a slew of other resources — books, guides, consultants, but also mentors.  And, that’s the thing: it has got to be mentors plural.  Aside from the fact that your mentors will be very busy with their own professional lives, mentors also move away and change practice areas and take jobs at other firms.  The more mentors you can go to for guidance, the likelier you are to receive it.  Fortunately, the increasing popularity of social media means that there are lawyer-mentors available to you around the country, and around the world.  Even so, bar associations remain excellent places for finding attorneys who are inclined to mentor less-experienced lawyers in start-up law firm environments.

 

 

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