North Carolina Bar Association demographics indicate that over half of its members practice in solo or small firms. 16% are solo practitioners and 38% are members of small law firms (2-10 attorneys). I’ve been there: my former law partner and I started our own two-lawyer firm in 2006 and after five successful years, went on to new adventures. My work includes advising and representing Charlotte-area small business owners saddled with personal debt from a failed or failing business venture, and appointments to serve as a receiver for troubled businesses. What can we attorneys learn from them, regarding best practices for starting a successful law firm?
Before you open your doors, know how you will support yourself. Do you have savings, or other income, to pay your personal obligations while you are generating and collecting receivables? For how long?
Consider securing a line of credit. This dovetails with the first item; you may need to borrow start-up costs and living expenses, and repay as your new venture becomes profitable.
Consult professionals. You’re receiving this newsletter, so you already have great professional liability coverage. Consider consulting a commercial insurance agent in order to determine other coverage needed to protect you and your business assets. Also, a good CPA or tax advisor and preparer is a must.
Seek advice. Pick a few attorneys whose solo practices or small firms you would like to emulate, treat them to breakfast or lunch, and ask them to share their experience and advice. Add a mix of non-attorney small business owners for a broader perspective.
Pay taxes and file tax returns. It is a big mistake to fail to pay payroll or withholding taxes on time, and to fail to timely file the quarterly reports for these taxes. The tax authority can hold the owner and manager personally responsible for the tax debt. A payroll service can be a huge help. Further, the transition from employee to business owner often means moving away from withholdings and to payment of quarterly estimated installment payments. It takes knowledge and discipline to set aside these funds and pay them.
Keep your personal and business finances separate. Commingling can lead to tax problems and makes it hard to track cash flow. Further, never use your trust account for personal or non-client deposits or withdrawals.
When relying on employees and independent contractors, trust but verify. Professionals, in particular, are prone to turning all bookkeeping and accounting over to one person, with little to no oversight or basic fraud controls, only to find fairly late in the game that there has been significant business loss due to embezzlement, theft, or simple incompetence.
Try to carve out time to reconnect and recharge. A new practice is your baby, and it can suck you dry if you let it.
The dreaded M-word. Marketing means more than just starting a website and printing business cards. Come up with different and creative ways to share the good news about your new venture with friends, family, former colleagues, potential referral sources, current and former clients, and fellow members of the bar, and follow through.
If it doesn’t work out, that’s okay and you will survive. You may do everything right but face hard times. Some lawyers don’t have the skills, the work, or the desire to row their own boats, which is required in any solo or small firm. Know that you can change only what is in front of you, and that there can always be a next chapter in your career.