How Much Money Do You Really Need to Start a Law Practice?
Erik Mazzone | Saturday, April 25, 2009 at 1:10PM The conventional wisdom on this topic is that you need twelve months.
It's probably as good a place as any to begin the analysis, but it's a little like figuring out how much gas you need in your car: a full tank is nice, but what really need is enough gas to make it to the next gas station.
Capitalizing your new law firm is the same: you need enough to make it to the next infusion of cash.
Getting your practice to a state of positive cash flow depends on a lot factors:
- how many new clients your marketing drives to your door
- how effectively you turn initial consultations into new clients
- how much start up capital (or loans) you amassed
- how much you bill
- how much you collect
- how much you pay in overhead
- how dependably you reinvest revenues into your firm
If you are a gifted marketer or bring a roster of paying clients with you, you may be in positive cash flow long before twelve months goes by. If you are determined cost cutter who pinches a penny until it yelps, you may need very little revenue to get into the black. If you have no clear plan on how to develop new business but a very solid idea of what your firm logo will look like and which smartphone you will use, you may be in for some hard lessons.
Here are a few tips to keep you on track:
- Inventory your strengths (and weaknesses) and feed your strengths. If you are a born salesperson, don't scrimp on investing in business development. If, on the other hand, your greatest strength is the ability to get by on very little, focus on keeping overhead so low it should be called underfoot.
- Create a budget. You might not like what you see, but at least it may stop you from paying $5000 for a conference room table that you could have used to keep the doors open longer.
- Analyze the cost-benefit on everything. Your capital is precious. Rigorously evaluate where your dollars are going and make sure you are getting a lot of bang for your buck and spending your money on nurturing the bottom line.
A final word of advice: keep a close eye on the fuel indicator. The next gas station may be farther that you estimated.
Reader Comments (3)
Here's a novel idea: make it a virtual law firm. With the way things are going for the legal industry in this economy, the most efficient way to get a law practice up and running is to make it virtual. No offices. No conference rooms, etc. Lawyering is essentially an online practice today. I perform my legal research online. I use e-mail to communicate with colleagues. I prepare all my documents on a computer. Filing in federal court is electronic. A traditional, brick-and-mortar law firm is a thing of the past. What's more, starting a virtual law firm costs a fraction (in both dollars and time) of what it costs to start a traditional law firm.
Very helpful look at starting up. Thanks for your post.
My buddy who recently passed the bar leases a small office with all equipment in a common area with other new lawyers. Whats great is they get to network, shar ideas and new clients. Works like a charm and saves a ton of cash.