Edward Poll. Starting a Law Firm: Never a Dumb Question

Transcription

1 Edward Poll Starting a Law Firm: Never a Dumb Question

2 There is no such thing as a dumb question. This has been the commonly repeated mantra of teachers everywhere. This sentiment is true in the legal context, too, when starting a law firm. In fact, you are encouraged to ask as many questions of yourself as you can think of to make sure that your business is successful. To help you in this endeavor, this chapter presents a sampling of questions that you might ask yourself about various aspects of starting a law firm. Practice Considerations Before you do anything else, you will need to decide what type of practice you will have. Of course, your choices will not be unlimited; you will be restricted by your specialties and interests. Still, you will undoubtedly have some options. Do I want a local, state, national, or international practice? Do I want to focus on estates and trusts, immigration, family law, or some other type of practice? Do I want a large practice or a small practice? Firm Makeup You will want to consider how many employees of each type you would like to have. How many partners/shareholders do I want in my firm? How many associate lawyers do I want in my firm? How many of counsel do I want in my firm? How many paralegals do I want to employ? How many secretaries do I want to employ? How many administrative staff members do I want to employ? How many IT and other staff do I want to employ? You will also want to consider the structure of your business. Am I interested in creating a professional corporation? Am I interested in creating a partnership? Am I interested in creating a limited liability corporation? Am I interested in creating a sole proprietorship? MyCase - Starting a Law Firm: Never a Dumb Question 1

3 Staffing After determining your firm makeup, you will need to think about hiring concerns and considerations that stem from your position as employer. What qualities am I looking for in my employees? What skills am I looking for in my employees? What do I need to know about equal employment opportunity legislation? Planning Every good practice begins with planning, and the planning process itself takes some planning. Ask yourself the following questions to help in this process: Who should be involved in the planning process? Should staff be included? What about confidentiality? How do I get all the partners to buy into the planning process? Where should I plan? What information do I need to gather in order to plan effectively? Office Space/Furnishings Your office is your home away from home, and you need to consider several aspects of this part of your practice. Do I want to work out of my home? Do I want a short-term rental agreement? Do I want to rent an office in an existing law firm on a month-tomonth basis? Do I want a full suite of offices? Do I want to spend a lot of money on fancy furnishings to cater to a posh clientele, or do I want a more conservative look? Do I want to lease equipment or furniture? What will I include in the library? MyCase - Starting a Law Firm: Never a Dumb Question 2

4 Technology Technology is a fact of life in this day and age, but not all new technology is mandatory. You have to make some choices about the various types and amounts of technology that you will incorporate into your firm. Do I want desktop or laptop computers? What kind of operating system do I want? Do I want to use cloud storage? What is the return on investment of each piece of technology that I am considering? Insurance The types of insurance are numerous, and it is not financially feasible for law firms to invest in every kind. Thus, you will have to make some decisions about types of policies. Do I want general liability insurance? Do I want business interruption insurance? Do I want cyberinsurance? Do I want errors and omissions insurance? Do I want earthquake insurance or some other type of weatherrelated insurance? Do I want sexual harassment insurance? Marketing Without marketing, you will probably have few clients, and clients are the key to your success. To get clients, it is necessary to implement a marketing plan. Marketing plans involve many, many considerations. What am I trying to accomplish? Who are my target customers or clients? What is my strategy for reaching my target audience? Do I want to use mailings, the Internet, speaking engagements, or some other form of marketing? What kind of social media will I use? How much time, staff, and money will be required? How much do I want to spend on business cards? What will they look like? What kind of letterhead do I want? Do I want to send out mailings to announce the opening of my firm? MyCase - Starting a Law Firm: Never a Dumb Question 3

5 Banking You will need a bank for your banking needs. Banks vary in many ways, so there are many questions that you should ask yourself before choosing a bank. Some of these questions, of course, deal directly with your finances. How much money do I need? What type of services do I need? What type of loan do I want a revolving line of credit, a line of credit, an equipment term loan, or a term loan? Does the bank offer an online financial network to facilitate cash management, such as the opportunity to set minimum and maximum cash balances in the firm s general account, with extra funds being transferred daily to money market, interest-bearing accounts and cash advances being drawn from a line of credit in the event that the general account falls below the minimum? How do I set up an IOLTA account? Does my bank offer payroll administration, including tax reporting and record keeping? Does my bank offer pension plan administration? Am I interested in other banking services, such as credit card services, office services, investment instruments, and/or online financial services? In addition, you will have some questions about other aspects of the banking experience. What level of responsiveness do I want? What kind of reputation does the bank have? Is the bank conveniently located? Does the bank specialize in my niche? Will I have a personal relationship with a banker? Financial Management Making sure that your expenses don t exceed your revenue is the key to financial success. The many aspects of financial management, therefore, are critical. How and when should I create my cash flow plan? What should my cash flow plan look like? q q What method should I use to determine revenue? Should I use the revenue pattern analysis, turnover ratio, aging analysis, or payment pattern analysis? MyCase - Starting a Law Firm: Never a Dumb Question 4

6 Compensation You will need to consider the compensation system in your firm. There are, of course, various formulae for determining compensation among partners. However, it s probably not important what formula is used as long as all involved perceive that the process of determining the numbers is fair. Do I want to use the lockstep method? Do I want to use the eat what you kill (EWYK) method, in which all lawyers are rewarded based on how much business they personally bring in? Do I want to use a corporate model of compensation in order to promote teamwork and partnering? How should associates be compensated? How should I handle compensation for nonbillable services provided by the lawyers in my firm, such as pro bono representation, involvement in professional associations, and community service activities? How should rainmakers be compensated? Should the office managing partner be compensated on the basis of the office s overall performance? Billing Billing is directly related to payment, which, of course, is directly related to your bottom line. At the outset, you need to make decisions about the type of billing you will use. Will I use cost-plus pricing or market pricing? Will I use hourly-rate pricing or some alternative, such as blended hourly rate, fixed or flat fee, value pricing, contingent/percentage fee, premium pricing, or retainer? How should I factor my use of nonlawyers into my pricing? Should I charge for ancillary expenses, such as photocopying? Once you decide on the type of billing, you need to make some decisions about the billing process itself. There are many variables involved. Who should do the billing? What should the bills look like? Should I use a simple statement, a time breakout of activities with brief descriptions, or a narrative form of billing? When should bills be prepared? When should bills be sent? How can I communicate value? MyCase - Starting a Law Firm: Never a Dumb Question 5

7 Collections Just because a bill is sent doesn t mean the client will pay it. Unfortunately, this scenario will almost certainly occur at some point in your career, and you need to have some plan ahead of time to deal with it. What kind of collections policy should I have? Do I want to accept credit card payments? How should I handle disputed charges? How will I handle the situation of a client who doesn t pay his bill? At what point does an account become past due? At what point should I call the client? At what stage should I stop work because the fee has not been paid? How long should I wait before I send the account to a collections agency? Conclusion Starting a law firm is an exciting, but stressful, experience. To make the process easier and more enjoyable, it is beneficial to begin with a series of questions to ask yourself to make sure that you are covering all the bases. The above list of questions is a mere sampling of the things you should consider. The more questions you ask, the more successful your venture is likely to be. And remember: There is no such thing as a dumb question. MyCase - Starting a Law Firm: Never a Dumb Question 6

8 Ready To Get Organized With Practice Management Software? Get The MyCase 30-Day Free Trial No credit card required ABOUT THE AUTHOR Edward Poll Edward Poll, J.D., M.B.A., CMC, is the foremost expert in law practice management. He collaborates to increase lawyers gross revenue and reduce their stress. He is the foremost expert on selling a law practice who worked to create the ABA Model Rule of Professional Conduct, Rule His most recent books are The Attorney & Law Firm Guide to The Business of Law, 3rd ed. (ABA 2014) and Life After Law: What Will You Do With the Next 6,000 Days? Ed is a Fellow, College of Law Practice Management, Board Certified Coach to the Legal Profession and a charter member of the Million Dollar Consulting Hall of Fame. ABOUT MYCASE MyCase, a subsidiary of AppFolio, is an affordable, intuitive and powerful practice management software designed for the modern law firm. Easily organize your firm with a complete solution contacts, calendars, cases, documents, time tracking, and billing. Reap the time-saving benefits of MyCase s integrated client portal so everyone stays informed and connected. Learn more at MyCase - Starting a Law Firm: Never a Dumb Question 7