A law firm exists to serve clients, so its business plan must reflect the needs of those it aims to support. This plan should outline the foundational elements of the practice, including operational details, marketing strategies, and financial projections, while also providing a clear path for future growth.
In this blog, we'll walk you through creating a comprehensive law firm business plan that aligns with your goals. Additionally, tune in to our latest Grow Law Firm podcast, where host Sasha Berson interviews Omar Ochoa, founding attorney of Omar Ochoa Law Firm, on business development for lawyers. Don’t miss the episode with Tom Lenfestey, where he shares insights on developing a profitable and sellable law firm.
A business plan is a vital tool for any law firm to achieve success. It outlines goals, strategies, and the feasibility of business ideas, providing a clear direction and focus for the firm. The plan can be used to secure funding from investors or financial institutions by demonstrating the potential for growth and profitability.
A well-created business plan has plenty of advantages
A business plan aids decision-making by evaluating new ventures, managing risks, and setting financial goals. It ensures efficient resource use and tracks progress. Additionally, it drives growth by identifying opportunities and setting realistic targets. Overall, a solid business plan provides direction, supports decisions, and enables growth in the legal industry.
What to Consider Before Starting Law Firm Business Plans
Before starting a law firm business plan, think through a few key issues, including:
— Setting the Goals
Reflect deeply on your firm's purpose. Think about who you represent and how you can best meet their needs. A law firm exists for its clients. As you think about your law firm goals, think about goals for providing legal services to your clients.
"We continue to try to have the biggest impact that we can because ultimately, in my opinion at least, that's what lawyers are for, is to be able to help people and be able to move us forward." — Omar Ochoa
Set realistic, achievable goals that align with why you started your own law firm, like increasing collections. Plan how to reach them and measure success. For example, if your goal is to have ten lawyers in three years, set intermediate goals for years one and two to track progress.
— Choosing Partnership Structure
For lawyers considering a partnership structure, it's important to select partners that complement each other's strengths and weaknesses to help the firm function effectively.
There are 2 main partnership structure options:
A single-tier model provides equal decision-making power and liability between partners.
Meanwhile, a two-tier structure offers tiers like equity and non-equity partners, providing flexibility and career progression opportunities.
While similarly skilled individuals may clash, partners with differing abilities can succeed together. Some attorneys also choose to run their own firm for flexibility. This allows them to leverage different specialists through occasional joint ventures tailored for specific cases, without the constraints of a single long-term partnership. Furthermore, it highlights how the law firm partnership structures impacts freedom and sustainability.
— Thinking of the Revenue You Need
Calculate how much revenue you need to cover your overhead and pay your salary. Suppose your expenses include:
$2,000 per month for office rent
$36,000 per year for a legal assistant salary
$600 per month for courier expenses
$400 per month for a copier lease
Lawyer salary statistics
Assume you want the median annual salary for lawyers of $127,990. You need $199,990 per year in revenue to cover your salary and expenses.
Revenue isn’t everything. You need enough monthly cash flow to cover expenses like rent, vendors, and payroll. Additionally, maintain a reserve for upfront costs, such as filing fees, until clients reimburse you.
— Defining the Rate of Payment
You need to make some difficult decisions when it comes to setting your own fee structure. If you choose a higher billing rate, you will need to work less to meet your revenue goals. But you might not find many clients who are able to pay your fees.
Whether you charge a flat fee, contingent fee, or hourly fee, you should expect potential clients to compare your fees to those of your direct and indirect competitors. Remember, your firm competes against other lawyers, online services like LegalZoom, and do-it-yourself legal forms books.
Finally, you need to comply with your state's rules of professional conduct when setting your fees. The ABA's model rules give eight factors to determine the reasonableness of a fee. These factors include the customary fee for your location and the skill required to provide the requested legal services.
— Making the Cases in Your Law Practice Meet the Revenue Needs
Determine how much work is needed to meet your revenue goal. Flat fee lawyers can divide their target by their fee. Hourly lawyers should calculate billable hours but account for admin tasks and uncollected fees. Contingency fee lawyers face uncertainty, as case values and settlement timelines are unpredictable, making projections difficult.
Omar Ochoa is a founding attorney with extensive experience in complex litigation, including antitrust, class actions, and securities cases. He has recovered hundreds of millions of dollars for clients and has been nationally recognized as one of the best young trial lawyers in the country.
Omar graduated from the University of Texas at Austin with degrees in business administration, accounting, and economics. He later earned his law degree from the university, serving as editor-in-chief of the Texas Law Review. He has clerked for two federal judges and has worked at the prestigious law firm Susman Godfrey L.L.P. Omar is dedicated to seeking excellence. He has been recognized for his outstanding achievements in antitrust litigation.
Key Elements of Business Development for Lawyers: Plan Structure
A law firm business plan is a written document that lays out your law firm goals and strategies.
Every business plan should contain these main points
Your business plan is for you and your law partners. It will help you manage everyone's expectations and roles in the firm. Here is a law firm business plan example to help you see the parts and pieces in action.
— Executive Summary
An executive summary combines the important information in the business plan into a single-page overview. Your plan will include details like projections, budgets, and staffing needs. This section highlights the conclusions from those detailed analyses.
Your executive summary should include:
A mission statement explaining the purpose of your firm in one or two sentences
A list of the core values that your firm will use whenever it makes decisions about its future
The firm's overarching goals for itself, its lawyers, and the clients it serves
The unique selling proposition that sets your firm apart from other firms in the legal industry
You should think of this section as a quick way for people like lenders, potential law partners, and merger targets, to quickly understand the principles that drive your firm.
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First, you will describe what your law firm does. You will describe your law practice and the clients you expect to serve.
Second, you will describe how your firm operates. The organization and management overview will explain your legal structure and the management responsibilities of you and your law partners.
This section should fill in the details about your firm's operation and structure by:
Describing the scope of the legal services you offer and your ideal clients
Restating your mission statementand core values and expanding upon how they will guide your firm
Explaining your location and where your clients will come from
Describing your business entity type and management structure
Detailing your unique selling proposition, including the features that distinguish your firm from your competitors
When someone reads this section, they should have a clear picture of what you will create.
— Financial Calculations
Your law firm business plan should clearly outline your revenue sources and expenses. This is where your skills as a lawyer shift toward business management. Creating a detailed financial plan with accurate financial projections is essential, especially if seeking loans or credit for your new firm.
You will need a financial plan for at least the first year.
Key components include:
Revenue Analysis: Monthly fee projections.
Budget: Estimated monthly and annual expenses.
Financial Projections: Expected profit margins based on revenue and expenses.
Cash Flow Statement: Tracking cash on hand and identifying potential financial challenges.
Accurate cash flow management is crucial for any legal organization to ensure growth in its early stages and business development for lawyers. Effective business development for lawyers includes not only marketing and client acquisition strategies but also robust financial planning and management to drive sustainable success.
"Take some financial statements courses, take some managerial accounting courses that teach you how to track costs, how to frame costs in a way that you're looking at the important costs." — Omar Ochoa
— Market Analysis
A market analysis helps define your position in the legal niche by understanding client needs and industry trends. A competitive analysis identifies your competitors, their services, pricing, and success factors, allowing you to refine your business operations and marketing strategy.
By conducting market analysis, you understand your clients' needs and your competitors' strategies
Key elements to include:
Ideal Clients: Who they are and how your law services meet their needs.
Market Size: Assess demand and whether your offerings align with client needs.
Competitors: What they provide, their pricing, and standout features.
Competitive Advantages: What sets you apart and how to leverage this in your marketing strategy.
This analysis guides business operations, marketing efforts, and potential areas for expansion in your legal niche.
Your market analysis helps you focus your efforts on your legal niche.
— Marketing Plan
A marketing plan outlines the steps to attract new clients by targeting your prospective clients and refining your marketing efforts. Start with a market analysis, identifying your target market, competitors, and competitive advantages. Then, develop a marketing strategy based on this analysis.
Ask yourself these questions before creating a marketing plan
Key elements to include:
Target Market: Define your ideal clients and understand their needs for legal services.
Competitive Analysis: Identify what your competitors offer and how you can differentiate your legal services.
Unique Selling Points: Highlight tangible benefits like lower billing rates or local offices, and intangible ones like specialized expertise or more experience.
Marketing Message: Craft a clear message that emphasizes your unique advantages to prospective clients.
Action Plan: Choose the marketing channels that best reach your target market, whether it’s through SEO, legal directories, or publications.
Tailor your marketing efforts to your legal specialty. For instance, IP lawyers may focus on business publications, while family law practitioners might target community platforms. Even if you rely on referrals, building brand recognition through a website and online directories is essential for attracting new clients. Include an executive summary that captures these core elements for legal professionals planning their marketing strategy.
— Your Law Firm Services
You will outline the services your law firm offers to clients. Lawyers with established clients and an existing legal practice can simply describe what they already do.
Any new law firm or lawyer transitioning from other practice areas should consider:
Practice areas you know and enjoy
Overlapping practice fields that will not require extra staff, such as personal injury and workers' comp
Related legal services your clients may need, such as wills and guardianship
By offering needed services you can competently provide, you can gain clients and avoid referring existing clients out to other lawyers.
— Your Law Firm Budget
Approach your start-up budget as a dynamic plan. Initially, outline the one-time expenses like office space, furniture, and technology for your start-up company. These are essential for establishing your law firm but won’t recur frequently. Include recurring costs such as rent, staff salaries, and office manager expenses to understand your monthly operations.
Your budget should help founding partners determine the initial capital needed, assess profit margins, and decide if external funding is necessary. Efficiently managing your start-up budget ensures your law firm has a solid foundation to business development for lawyers.
Level Up Your Brand
Find out how much demand there is in your geographical area
You can use a law firm strategic plan example from these sites to start your firm's plan, then turn the plan into a document unique to your circumstances, goals, and needs.
Some Useful Tips on Creating a Business Plan for Law Firm Creation and Development
As you draft your law firm business plan, you should focus on the process. By putting your thoughts down in writing, you will often identify issues you had not previously considered.
Some other tips for drafting your business plan include:
— Describe Both Strengths and Weaknesses
When preparing your law firm's business plan, project confidence while staying realistic. You'll use this plan to approach partners, lenders, and mergers, so back it up with solid financials. Address business challenges and competitive advantages, like competing with a firm with strong law firm reputation management. Outline marketing strategies to attract clients from competitors.
— Think Ahead
Your business plan serves as a roadmap for establishing and operating your law firm. Consider future challenges, like needing HR or handling payroll in-house as your firm grows. These changes add costs but can improve efficiency. However, projections beyond five years are often unreliable due to evolving clients and technology.
"A law firm that actually does something in the unique way that is an actual measurable advantage to their clients or to their firm." — Tom Lenfestey
— Be Clear about Your Intentions
As you develop your plan, you should keep its purpose in mind. First, you want to outline your core values and goals for your law firm. Set out the reasons why you started your law firm and what you intend to accomplish with it.
"You can't just be doing something because you want prestige. There's gotta be more to that, right? You have to have a purpose that you're following. And if you've got that, that purpose is like gravity, right? You will always be grounded." — Omar Ochoa
Second, you set out your path to achieving those goals. This will include boring technical information like how much you spend on legal research every month. But it will also explain your approach to solving problems consistent with your mission statement and philosophy for law firm management.
— Develop a Succession Plan for Your Law Firm
Creating a succession plan is crucial for founding partners to ensure a smooth transition and preserve the firm’s value. By analyzing market trends and profit margins, firms can stand out and attract potential buyers. Law firms generating over $2 million in revenue often have systems in place that enhance value and simplify transitions.
A transition-based sale, where the selling attorney stays involved temporarily, helps maintain client relationships and reduces risk. Investing in strong systems and planning early ensures your firm remains profitable, systematized, and attractive for future buyers, securing a successful exit strategy.
Building High-Value Law Firms with Tom Lenfestey, the CEO of Law Practice Exchange
This podcast episode features a discussion between Sasha Berson and Tom Lenfestey about the Law Practice Exchange, a marketplace for buying and selling law firms. Tom, an attorney and CPA, explains how his experience with other professionals inspired the creation of this marketplace. They discuss the importance of building systems to enhance a firm's value, the challenges of succession planning, and strategies for creating a smooth transition and maximizing value during a sale.
"You make more money with hopefully more consistency and less stress. And so that's also part of it is enjoy it. Build to better, right, overall, but build that firm that you want." — Tom Lenfestey
Join Sasha Berson as he speaks with Tom Lenfestey, the CEO of Law Practice Exchange
Tom Lenfestey is an attorney and CPA who founded the Law Practice Exchange, a marketplace for buying and selling law firms. With a background in assisting dentists and CPAs in selling their practices, Tom identified the need for a similar platform for lawyers. His work focuses on helping attorneys realize the value of their practices, providing structured exit strategies, and facilitating smooth transitions.
Final Steps
While there's no one-size-fits-all answer to crafting a law firm business plan, it's an essential tool for effective business development for lawyers. The planning process helps identify overlooked issues and aligns partners with shared goals. This approach ensures your law firm is uniquely tailored to your vision and values, guiding you toward your original aspirations in the legal field.
To learn how to expand your client base as your firm grows, check out Grow Law Firm, a professional law firm SEO agency.
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