Lawyers start law firms for many reasons. But most of the time, the freedom of running your own law firm brings opportunities you might not have while working for another firm. These opportunities might include a better work-life balance, greater compensation, and control over your own practice.
But starting and running a law firm is very different from practicing law. To run a firm, you need to manage money and people. You need to recognize and take advantage of opportunities that arise. And most importantly, you need to guide your law firm according to a long-term plan.
Developing a plan for a law firm and managing the law firm to achieve the plan's goals are very different from practicing law. Business management skills are not always intuitive. The managers of the most successful law firms devote the time to learning the new skills needed to start and manage a law firm. And one of those skills is strategic planning. A long-term strategic plan will help you guide your firm by always making moves in pursuit of your firm's long-term goals.
Read on to learn the importance of developing a law firm business plan and what goes in a business plan.
Why Create a Business Plan for Law Firm Formation?
You have probably heard the saying that the journey is just as important as the destination. Forming a law firm business plan perfectly fits this concept.
When you create your plan, you are not doing it simply for the sake of having a plan. You are doing it so you can think through everything you need to start, grow, and manage a law firm.
These are not easy or intuitive processes. By considering these issues before opening your doors to clients, you have a much better chance of having a stable firm that matches your values and has a clear set of goals.
Forming a law firm can feel overwhelming. You have a lot of freedom and can easily get sidetracked into issues that either can wait or do not deserve your attention.
Whether you have law partners or develop a solo law firm business plan, the plan will help you stay focused on your end goals. If having a strong law firm website design is important enough for you to include in your plan, you will spend time on that instead of less important matters.
A plan also includes a budget. The process of planning your firm's finances can ensure that you do not overspend (or underspend) as you start your own firm.
The attention to detail that comes from having a plan will help you avoid spreading yourself too thin by focusing on every issue or the wrong issues. Instead, you will maintain your focus on the important issues.
Keep Track of Goals and Results
It is easy to set goals when you start a law firm, then promptly forget about them. A plan helps keep you accountable.
Your plan will set out your goals and the metrics you will use to determine your progress toward meeting them. The plan should also explain how you will know when you have met them.
For example, you might have a growth goal of reaching five lawyers within two years. Or you might have a revenue goal of collecting $200,000 your first year.
Too many businesses, including law firms, meander on their developmental path. By setting goals and the path for meeting them, you will have guardrails to keep your firm on track.
Sort Out Your Own Law Firm Strategy
The motivation to start a law firm almost always includes the belief that you can run a law firm more in line with your values, goals, and needs than someone else. A plan helps you develop a concrete strategy to make that happen.
A plan forces you to think about the details of how your law firm will operate. It is easy to say that you will run your law firm better. It is more difficult to explain how you will run your law firm better. The process of creating the plan will help you identify and solve problems you might have otherwise missed.
One area often overlooked by law firm owners is marketing. Check out our step-by-step guide to developing a law firm marketing strategy to learn more about this important issue.
You should view your plan as a law firm business development plan that will guide the formation and growth of your firm. It can provide your projections for what you hope to accomplish and the roadmap for accomplishing it.
You can review the document periodically to remind you and your law partners of your growth and expansion projections. After this review, you can ensure your growth and expansion remain on track to carry you to your goals.
The review will also tell you whether you need to update your firm's goals. When you started your law firm, you might have been unduly pessimistic or optimistic in your projections. Once you have some time to operate according to your plan, you can update your goals to keep them realistic. You can also update your processes to focus on what works and discard what does not.
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.
You need to set realistic and achievable goals. These goals should reflect your reasons for starting your law firm. Thus, if you started your law firm because you expected to make more money on your own than working for someone else, set some goals for collections.
While you are setting your goals, think about how you will reach them and the ways you will measure your success. For example, if you want to expand to include ten lawyers within three years, think about intermediate goals at the end of years one and two. This helps measure your progress.
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
Also 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.
But revenue is not the end of the story. Your landlord, vendors, and employees expect to get paid monthly. So you should also calculate how much cash flow you need each month to cover your hard expenses.
You also need a reserve. Clients expect you to front expenses like filing fees. Make sure you have a reserve to pay these costs and float them 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
Figure out how much you need to work to meet your revenue target. If you charge a flat fee, you can simply divide your revenue target by your flat fee.
Hourly fee lawyers can calculate the number of hours they need to bill and collect. However, law firm owners rarely bill 100% of the hours they work due to the administrative tasks they perform to run a firm. Also, you will probably not collect 100% of your billings, and clients could take 90 days or longer to pay.
Contingency fee lawyers will find it nearly impossible to project the cases they need. You have no way of knowing the value of your cases in advance. You also have no idea when your cases will settle. You could work on a case for years before you finally get paid.
Parts of a Business Plan for Law Firm Formation: Structure
A law firm business plan is a written document that lays out your business goals and strategies.
For many businesses, a business plan helps secure investors. But the ethical rules prohibit law firms from seeking funding from outside investors or non-lawyer shareholders.
Your lawyer 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.
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.
Law Firm Description and Legal Structure
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 statement and 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.
Your attorney business plan explains where your firm's revenue comes from and where it goes. This is where your skills as a lawyer begin to diverge from your skills as a business owner. You may need to learn a few new accounting concepts so you can perform the analyses expected in a financial plan.
You will need a financial plan for at least the first year. If you plan to seek a bank loan or line of credit, your bank may need a financial plan that covers three years or longer.
You will need more than a few rough numbers for a useful business plan. Instead, you will need to estimate your expenses and revenues as accurately as possible.
You might need to contact vendors and service providers to get precise costs. You will probably need to track your billings with your prior firm to predict your revenues. If you are opening a law firm after law school or an in-house job, you may need a competitive analysis to show what similar law firms earn in your location and practice area.
Some reports you may need in your business plan include:
- Revenue analysis listing the fees you will collect each month
- Budget describing your monthly and annual expenses
- Financial projections combining the revenue analysis and budgeted expenses to predict your profit margins
- Cash flow statement showing how your revenues and expenses affect your cash on hand.
Your cash flow statement might be the most important financial report because it explains how your bank balance will fluctuate over time. If your clients take too long to pay their bills or you have too many accounts payable due at the same time, your cash flow statement will show you when money might get tight.
A market analysis will tell you where you fit into the legal market in your location and field. You need a competitive analysis to understand the other lawyers and law firms that will compete with you for potential clients. You can also analyze their marketing messages to figure out how to stand out from the competition.
A competitive analysis will tell you what services other firms offer, how much they charge, and what features help your competitors succeed.
Your analysis should include a discussion about your:
- Ideal clients and what you can do to help them
- Market size and whether you offer something clients need
- Competitors and what they offer to clients
- Competitive advantages and how you can market them to potential clients
Your market analysis helps you focus your efforts on your legal niche. You can also develop and hone your marketing strategy based on the benefits you offer to clients over your competitors. Finally, a market analysis can tell you the locations and practice areas in which your firm may expand in the future.
A marketing plan sets out the steps you will take to reach your target market. Your marketing strategy will take your market analysis and turn it into a plan of action.
You will start with the results of your market analysis identifying your clients, your competitors, and your competitive advantages. You will then discuss the message you can deliver to potential clients that captures the advantages you have over your competition.
Some advantages you might have over other lawyers and law firms might include tangible benefits like lower billing rates or local office locations. Other advantages might provide some intangible benefits like more years of experience or state-bar-certified specialists in those states that allow specialization.
You will then discuss your marketing plan. A marketing plan explains:
- Characteristics of the target market you want to reach
- What your competition offers
- The distinct benefits you offer
- A message you can use to explain what separates you from your competition
- Your action plan for delivering your message
- Your goals for your action plan, such as the number of client leads, new clients, or new cases per month
Your action plan will include the marketing channels you want to use to spread your message. Marketing specialists can help you identify the best channels for your marketing message and client base.
For example, if you practice intellectual property law, you need to reach business owners and in-house lawyers who want to protect their companies' brands, inventions, artistic works, and trade secrets. A marketing agency may help you create a marketing strategy geared toward trade publications and business magazines.
But IP lawyers require an entirely different marketing strategy than firms that practice family law. Family lawyers need to market to individuals and will tailor their marketing efforts toward different marketing channels and messages.
Even if you expect most of your client leads to come from referrals, you still need brand recognition for those leads to find you. You should consider a website, basic SEO, and legal directory and bar association listings.
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.
New lawyers and lawyers 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
You should approach your budget as a living document. You will spend more money as you add more lawyers and staff members to your firm. But you can also look for ways to reduce your operating costs through investments in technology services and other cost-saving measures.
Your budget should set out the amount you expect to initially spend on start-up expenses. As you create your start-up budget, remember many of these expenses are not recurring. Furniture, computers, and office space build-outs can last several years. In short, your budget should answer the question, "What do you need to open a law firm?"
It should also lay out the amount you plan to spend each month to operate your firm. Here, you will include your recurring expenses, such as rent, staff salaries, insurance premiums, and equipment leases.
Using your operating budget, you will determine the amount of money you need to start and run your firm. This, in turn, will tell you whether you need to take out a loan or tap into your savings to start your law firm. You will need a plan for paying your expenses and day-to-day costs while your firm gets onto its feet.
Law Firm Business Development Plan Template
Each of the websites below includes at least one attorney business development plan template:
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
You want to project confidence as you prepare your business plan. Remember, you will use this plan to approach potential law partners, lenders, and merger targets. You need to show that you have a solid plan backed up by your financial projections.
At the same time, you need to remain realistic. Write a business plan that describes your business challenges as well as your competitive advantages.
For example, if you have a strong competitor that has a solid law firm reputation management and many of the clients you will target, acknowledge the difficulty of getting those clients to switch law firms. Describe your marketing strategies for approaching and pitching your law firm to those clients.
Remember that your business plan sets out the roadmap for both the establishment and operation of your law firm. Think about issues that could arise as your firm grows and matures.
For example, you may have a goal of reaching ten lawyers in three years. But as your staff grows, you may need a human resources manager. You may also seek to handle your payroll in-house instead of outsourcing it to a payroll provider. These changes will create ripple effects through your business plans. You will incur costs when you add staff members. You will also realize benefits like increased attorney efficiency.
At the same time, any projections more than five years into the future will likely be useless. Your firm and its clients will evolve, and technology will change how you practice law.
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.
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.
Consult and Update If Necessary
Your plan should guide you as you build your firm. It contains your goals and the roadmap for reaching them. But your plan is not carved in stone.
As you face challenges, you will consult your plan to make sure you approach these challenges in a way consistent with achieving your goals. But under some circumstances, you might find that the plan no longer provides the right solution.
As you work with your firm and your law partners, your goals, processes, and solutions to problems may evolve. The technology your firm uses may change. Your law firm's costs may go up with inflation or down as you realize economies of scale. You should update your plan when this happens.
There is no recipe for creating a business plan for law firm development. What goes into your mission statement and plan will depend on several factors, including your law firm business model. But this is a feature, not a bug of developing a business plan.
The process of business planning will help you develop solutions to issues you might have overlooked. If you have law partners, just going through the process of creating a law firm business plan can ensure that everyone is on the same page.
As you create your plan, the process itself should provoke thoughts and ideas so you can have a unique law firm tailored to your goals and values. This will help you get exactly what you wanted when you started in the legal industry.
To learn how to expand your client base as your firm grows, check out Grow Law Firm, a professional law firm marketing agency.