In the legal industry, almost 50% of all lawyers in the US are in solo practice. Starting your own law firm is exciting but also daunting. Even if you aim to expand to bring on other attorneys for a small or medium-sized firm, remember that launching a law practice requires an entrepreneurial spirit akin to a lean startup.
Whether you're fresh out of law school or you've made the decision to leave a different firm to start your own practice, you'll need to approach this move from a unique mindset.
The cost of starting your own firm, whether in criminal defense, personal injury, family law, or a niche practice area, can vary significantly depending on several factors. These may include the geographic location of your practice, your chosen area of law, the size of your firm, overhead costs such as rent and utilities, advertising and marketing expenses, and the cost of legal tools and software.
A typical bootstrap budget for a law firm may be anywhere from $5,000-$15,000. No matter where you fall on that spectrum, there are ways to maximize your spend.
To start a law firm on a budget, you need to know exactly what you need and what can wait until revenue flows in. Follow these tips to get your ducks in a row with the most essential elements for a brand-new personal injury law firm.
Starting a Law Practice as a Limited Liability Company (LLC)
Any business, including a law firm, can operate as a simple sole proprietorship with one owner in the business. However, sole proprietorship does not offer any liability protection or tax benefits. LLCs can have one or more business owners known as members.
An LLC provides liability protection for your personal assets should someone sue the firm, and an LLC taxed as an S-corp can provide additional tax benefits. At a minimum, you should incorporate your new law firm as an LLC, which can cost anywhere from $75-300, depending on your state.
To form an LLC, research the requirements in your area with the Secretary of State. You may be required to submit articles of organization and a list of all members and agents of the LLC. It can take a few weeks to receive approval from the Secretary of State. Hence, make sure you start far enough out before any launch date.
As a solo practitioner, all you may need is a single-member LLC law firm structure. Check with a business lawyer in your area if you have multiple members/partners/lawyers in the firm to determine the appropriate business structure.
Once the state reviews your materials and approves your LLC, they will provide you with official documents you should store securely.
Obtaining the Right Insurance Policies
Along with filing official documents, this is the right time to get insurance, such as malpractice and general liability insurance. Wait until you've been approved by the state and have an official employer identification number from the IRS to start your insurance policies.
Professional Liability Insurance
The majority of states mandate lawyers to carry malpractice (professional liability) insurance. This type of insurance offers coverage if a client decides to sue you for what they believe to be professional negligence.
Even if you think the risk of malpractice claims is low in your practice area, remember that legal services have become increasingly complex, and malpractice claims can often result from simple miscommunications. Ensure that the coverage is sufficient by comparing the average claims in your practice area to the proposed coverage sum.
General Business Insurance
Just like any other business, practicing law firms need to protect their premises and business property. General business insurance, or Business Owner's Policy (BOP), could include property insurance, business interruption insurance, and liability protection. It would cover the cost of replacing stolen or damaged property, protect you against loss of income if your firm cannot operate due to a covered loss, and shield you from lawsuits over the harm that your firm's actions or inactions may cause to others.
General Business Liability Insurance
General business liability insurance, also known as general liability insurance or business liability insurance, protects your law firm against lawsuits associated with accidents, injuries, and claims of negligence. It could cover payments as a result of physical injury, property damage, medical expenses, libel, slander, the cost of defending lawsuits, and settlement bonds or judgments required during an appeal procedure.
Workers' Compensation Insurance
If your law firm grows to the point where you have employees, you'll need to consider workers' compensation insurance. Most states require businesses with employees to have workers' compensation insurance to cover medical costs and a portion of lost wages for an employee who becomes sick or injured during work.
Cyber Liability Insurance
Depending on the nature of your practice and the extent of customer data you hold, cyber liability insurance might be a smart investment. This type of insurance is designed to help an organization mitigate costs associated with data breaches, such as legal fees, public relations, and identity protection solutions for affected clients.
Insurance can seem like a heavy burden when you first start a law firm, but the cost of these policies is minor compared to the potential monetary impact of a lawsuit or a major incident. Make sure you have appropriate insurance coverage from the get-go. It’s not enough to simply start a firm; you also have to protect it.
Always review your policies regularly (every 6–12 months is recommended) to ensure you have the correct coverage and aren't overpaying for anything. Talk to a knowledgeable insurance broker to ensure you're getting the best coverage for your needs.
Forecast Assumptions with a One-Page Business Plan
Whether you're beginning a family law practice or a criminal defense law firm, your legal expertise is nothing without a plan for how you'll make your services reach your target audience. You need to think like a savvy business owner and think about how you'll handle the day-to-day.
A business plan serves as your roadmap for a successful law firm launch. It lays out important details that build confidence in your services for your target market. You might think it's overwhelming to draft a comprehensive business plan, but the good news is there's no need to draft a 20-page document.
A one-page business plan is sufficient so long as you effectively cover all of the following elements:
- The basic strategy for your firm, including services/practice area
- How many clients do you want to work with monthly
- Your traditional and online marketing strategy
- A basic expense list for ongoing and variable costs
- How you'll maintain profitability (such as focusing on simple cases instead of big ones)
Your business plan helps you determine if you've done enough work towards determining your value proposition and have honed in on a good target market. In writing your business plan, you might realize you have more market research to do to confirm your plans. Some law firms choose to work with a professional to develop the marketing strategy for their personal injury practice, work through all the important details, and launch a clear offering in their market.
Refresh and Revisit Your Business Plan Continuously
Note that your one-page business plan is not intended to cover the next few decades of operation. As you practice law throughout the years, you'll likely add or evolve legal services, pricing, and profitability strategies over time. However, this lays out what you'll focus on when you start. This is crucial for narrowing your efforts to what is most important to launch you on a strong foundation.
From there, you can use what you learn in practice to forecast assumptions.
Find The First Clients For Your Law Practice Through Referrals and Organic Content
One of the biggest challenges new law firms face is finding the first few clients. New clients are essential not only because they offer revenue but they set you up to start getting feedback, reviews, and referrals.
Paid lead generation seems like the easy button for a law firm's marketing strategy. But this is not the time to invest thousands in paid ads or other complicated marketing strategy. Over time, you'll want to consider increasing your online presence through social media, PPC, SEO, and local SEO to get prospective clients with personal injury cases, but for now, start with who you know.
Set a goal of attracting high-quality clients with a small budget. The easiest thing for most personal injury attorneys and law practices is warm outreach: getting business from people who already know you. Contacts like friends, colleagues, and acquaintances already have higher trust in you. People close to you want to see you succeed and are often happy to support your launch efforts.
Here are the places to start building your list:
- People you've emailed
- Followers on social media that you can DM
- Contacts on your phone (export them)
If you make lists from all of these sources, you'll have more leads than you expected. Now, don't run off and send a copy/paste message to all of them. Instead, pick the platform with the most following or total contacts. Then, personalize your message to each person on that list. If you know them, it's much easier to individualize your messages off the top of your head.
But social media also provides us with rich data about people's lives. Spend 30 seconds combing through their profiles to look for something interesting, including whether you all have a mutual friend in common. Use this information to open the conversation. Your personalized message's content doesn't matter as long as it works for the person.
Then, target 100 people every single day.
Use Alex Hormozi's ACA method to increase your conversion rate:
- Acknowledge (recognize something they said or something you know about them)
- Compliment (Tie the compliment to something you acknowledged, if possible)
- Ask (Connect your ask to the compliment you gave)
For example, maybe your contact just started their own business. You can acknowledge what a feat that is and congratulate them on it while also forging a connection since you just started your law firm.
Note that in this model, you don't solicit this person. This is where most people go wrong in sales: diving right in to make an offer or push services on your contact. Instead, ask them if they know anyone who might need representation following a serious car accident.
This positions you to ask for a favor, not a sale. There's always a possibility that they want to learn more about your services. However, you keep things low pressure by building a relationship with the person.
What About Law Firm Financing Options?
Starting a law firm can be financially challenging, and while external financing might seem like a necessary step, it's crucial to weigh the pros and cons carefully.
Pros of Law Firm Financing
- Immediate Capital Injection: Loans can provide the necessary funds to cover startup costs such as leasing office space, purchasing equipment, and hiring staff, allowing you to establish your practice more quickly.
- Ability to Scale: With sufficient financial resources, you can expand your services, invest in marketing, and take on more significant or additional cases, potentially increasing your firm's profitability.
Cons of Law Firm Financing
- Debt Obligation: Loans must be repaid with interest, which can strain your cash flow, especially in the early stages when revenues might still be unstable.
- Risk of Over-leveraging: Borrowing more money than your firm can afford to repay based on realistic revenue projections can lead to financial distress and potentially jeopardize your firm's future.
When you start a law firm on a budget, it’s often wise to explore alternatives such as bootstrapping, seeking out angel investors who understand the legal industry, or applying for grants. These options can provide financial relief without the long-term commitment or risks associated with traditional loans. Setting up a rigorous budget and sticking to it is paramount to ensure your firm remains financially healthy and capable of growing sustainably.
Forget Investing in Anything Except the Fundamentals
Too many lawyers risk getting overwhelmed because they try to get everything for their law firm in place before launch. The truth is that a modern law firm only needs the basics and can invest in other things as it grows. Stick to the bare minimum for a functioning, professional office when you start.
When you first start a law firm, you may not even need an office space. If you need to meet potential clients in a professional environment, it's a given you should secure somewhere where you can do this. However, you can keep things small when you begin. You might even be able to rent conference rooms from businesses or a coworking space in your area if you only need intermittent access.
You will need a few basics like:
- A computer
- A phone number where potential clients can reach you
- Internet access
- Business cards
- Some kind of physical address for your business (which may be a virtual mailbox)
Be careful about cashflow "gotchas" that too many lawyers don't build into their expense plans. That includes things like court feed and litigation costs you may incur upfront while you wait for a client to reimburse you. Ensure you have a plan or a fund you can pull these things from so you don't hold back any client's case from moving forward.
During the early days, track cash flow in a spreadsheet or software program. You need to keep your finger on the pulse of what's happening in the business to avoid overdrawn accounts or bounced checks. Consider buying things you know you'll go through in bulk, like office paper.
If you can't afford a big copier, consider renting one or buying a top-of-the-line laser printer and scanner to get you through the early days.
Don't deck out your entire office with costly furniture or other things you don't need yet. It's too easy to fall behind if a client pays late or doesn't sign on, so keep your law office as lean as possible.
Fix Operations Along the Way and Start Buying Back Your Time
As your law firm grows, revisit your budget and determine when to invest in other things. For example, maybe you learn that you have more meetings than expected and need a small office space to avoid taking those meetings at your home or other location. Or, now that you have multiple personal injury clients, you could use case management software to keep things organized.
This is also the right time to start documenting processes as you go. Legal software and legal research tools can be a boon here. Even as a solo personal injury law firm, developing streamlined systems is optimal. In the future, you may hand off things like admin tasks to someone else, so the more you document now, the simpler it is to train that new person.
Document Your Processes
When documenting, follow these tips:
- Record yourself doing the task on tools like Loom (Windows also has a free version that works well for early days)
- Create workflows on Tango, so someone else can easily follow your exact steps
- Explain any checklists or reasoning you follow when doing something
- Save templates for common responses to prospective and current clients
Learn How to Delegate
As you bring in more revenue, your law firm requires a team. You need to focus your time and efforts on bringing in new clients and serving current clients. That means no more answering the phone, filling out intake forms, or possibly even filing paperwork at the courthouse.
In-house legal teams are essential for making sure that these administrative tasks can be done as efficiently as possible, but they also require responsibility on your part.
Delegating can be a struggle if you've never done it before, but it's also essential to maintain control of your schedule and grow your law firm. If you're unsure where to start, check out Dan Martell's book Buy Back Your Time.
When in Doubt, Seek Assistance from Digital Marketing Experts
Another way to leverage your time through delegation is by hiring an outside expert for digital marketing strategy. A legal marketing agency can help with multiple aspects of your strategy, including your law firm's website, content marketing plan, email marketing, social media marketing strategy, pay-per-click ads, search engine optimization, and so much more.
