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Starting A New Firm -- Top 10 Mistakes To Avoid And Top 10 Tips For Success

by Edward Poll


According to the American Bar Foundation, nearly half of the one million lawyers in the United States are solo practitioners, while another twenty percent-plus are in firms of 10 lawyers or fewer. Despite all the publicity about consolidation and the rise of megafirms, the majority of lawyers will likely open their own law firm, or start one in partnership with just a few other lawyers.

The Business of Law (R)

Starting a new firm is quite distinct and separate from practicing law. It brings the lawyer face to face with what I call "The Business of Law"(R). Despite the continuing insistence of some that law remains a profession and not a business, I believe that a law practice is fundamentally the business of providing legal services to individuals and organizations. And lawyers, who receive no training at business during their professional education, are notoriously poor business managers.

Businesses fail because the owners fail to focus their energy on the business; most business owners are technicians, not entrepreneurs, according to Michael E. Gerber, best-selling author of "The E-Myth Revisited." Law is a business as well as a profession. To succeed, lawyers must act in a businesslike way. But Gerber may be right when it comes to lawyers. They tend to be technicians who want to do what they love doing, whether it's negotiating, drafting a contract, litigating, or some other task. They don't want to run a business, and they especially don't want to engage in business planning. When your business is a law practice, you unquestionably have a recipe for disaster.

Planning to Fail & the Top 10 Mistakes

Legendary UCLA basketball coach John Wooden once said, "Failing to plan is planning to fail." Every "Fortune 500" company has a detailed business plan. Yet it's estimated that fewer than half of the "Inc. 500" companies do -- and these are the most successful, fastest growing small businesses in the country. With Hurricane Katrina still a vivid memory, keep in mind that the U.S. Department of Labor says most companies that experience a major disaster are out of business within five years; only 25% of these companies have a disaster plan.

In other words, the ten biggest mistakes most lawyers make when starting a new law firm inevitably involve a failure to plan. That failure encompasses a host of shortsighted errors. This list, while not definitive, highlights ten key blunders.

  1. Failure to establish a timeline.

    Opening a new firm is such a complicated process that you should, ideally, allow six months to one year to accomplish the many tasks involved. Lawyers accustomed to the rush of meeting a 5:00 p.m. filing deadline at the courthouse tend to take last minute effort for granted. Don't make the same mistake with starting your new firm.

  2. Failure to negotiate office space effectively.

    When you look for the physical location of your practice, focus on three factors: what you can afford, what kind of space you need, and what you are obligating yourself to before you sign the lease. The terms of the lease, the rent, the improvements needed before you occupy the space -- all these can and should be negotiated.

  3. Failure to contact key service providers.

    It's your practice, but you may not realize all the people involved in it, and who require notice about your new firm. The list includes financial institutions and insurance carriers, bar associations and courts, vendors, utilities, the news media, and the U.S. Postal Service. Forgetting any of these can cause big problems.

  4. Failure to notify clients.

    If you start a firm from scratch, client development is your first priority. But if you're already established with clients, make sure they know what you're doing and can reach you at all times. Keep them fully informed of your timeline, provide full contact information and directions, and give them your cell phone or other emergency number.

  5. Failure to publicize.

    Don't feel publicity is undignified. Send a press release to the local business and legal media. Consider an open house at your new office location. If you blog, tell the world about your new firm. A textbook example is how big firm litigator Ernest Svensen used his high-profile ErnieTheAttorney Blog to announce his new solo practice early in 2006.

  6. Failure to develop a budget.

    Physically setting up your firm has costs associated with it. You should develop a line item budget for everything you need to purchase or relocate: decorating, moving, telephones, computers, office furniture, supplies, etc.

  7. Failure to plan your office space.

    In today's digital age you can never have too many computer and telephone hookups. To avoid unnecessary expense later, make sure you plan the approximate location for current and future desks, computers, and phones.

  8. Failure to establish banking relationships.

    During startup, your cash needs for staff, equipment, operating expenses, or some other purpose will exceed your cash generating ability. You will need a bank loan; and establishing a sound early relationship with your banker is the best assurance of loan approval.

  9. Failure to strategize.

    Most lawyers realize they are in trouble only after the money ceases to come in the door. The seeds of such a problem typically begin months or years earlier through failure to create marketing, receivables, and financial plans.

  10. Failure to develop business literacy.

    Lawyers needn't be accountants, but too many fail to understand the basics of budgets, collections, profit, and loss. Each attorney should understand that profitability is determined by how well you win the business, do the work, and get paid.
Top 10 Tips for Success

That's a lot of negativity, and not a note on which to end a discussion of such an adventure as starting a new firm. I much prefer to conclude with the positive -- ten common characteristics of successful law firms that I have uniformly observed in decades as a lawyer, coach, executive, and consultant. In these firms the lawyers:
  1. Have a comprehensive business plan.

  2. Remember that the client comes first. Without clients, there is no reason for a lawyer to exist.

  3. Sell solutions ("provide value") to clients, not time as expressed in billable hours.

  4. Begin each matter with an engagement letter -- a written agreement outlining the scope and responsibility of each party, including the client's responsibility to pay.

  5. Prepare budgets for each matter: tasks, events, timing and resources to be used for the benefit of the client. This process requires early analysis and client signoff.

  6. Understand that their inventory is not "billable hours," it's the cash those hours represent, and they focus on collecting accounts receivable and maintain a high realization rate.

  7. Practice effective cash flow management by getting funds into the bank as quickly as possible.

  8. Recognize that technology -- e-mails, blogs, cell phones, and voice mail -- cannot replace personal relationships, personal integrity, and rapport with clients.

  9. Work with a coach or mentor to achieve business and practice success more quickly.

  10. Have a disaster plan in place and keep it current. Business survival and succession cannot be left to chance.

Put them together, and all the don'ts and do's have one message. To have a successful new firm, view your practice as a business as well as a profession, and employ this businesslike perspective to provide your clients with value. Acting in this manner will ensure your new firm's long-term future.