Note: This post first ran in August 2017. While I am away for the holidays, I am re-running some of my posts that are timeless in hopes that those of you who may have missed one of them will benefit. Wishing you a peaceful and prosperous 2019!
Law school prepared you for the practice of law, but I’m betting it didn’t prepare you for the business of law. In fact, in my almost 20 years of counseling attorneys on how to build a profitable law firm, the one thing I’ve heard more than any other is, “Why don’t they teach this stuff in law school?”
I have no good answer for that because there is no good answer for that!
But I do have a list of the 8 essential things you need to do to run your law firm like what it is…a business:
Never forget you are running a business. This means you need to keep your finger on the pulse of your practice’s financials. If you do not have a good financial background and don’t know a spreadsheet from a bedsheet, then take a financial management course at your local community college.
Have a business plan. The discipline of actually writing a business plan forces you to put some serious thought into how you will grow your firm for the future. You need to outline your practice area geographically, define your target audience, detail the competitive landscape and calculate your expenses.
Develop a good banking relationship. Most of us do our banking online today, but there will come a day when you need the help and/or advice of a banker and you need to develop a personal relationship with the management of the branch where you bank so you have someone to call on for help and guidance. This can help tremendously when you need to establish a line of credit.
Hire an accountant. Even if you are just starting out as a solo practitioner, set some money aside to hire an accountant to set up your books and counsel you on taxes and other financial issues. This is especially important in the beginning, when you have no idea as to your cash flow for your practice.
Build without debt. This is easier said than done, but try to avoid debt as much as possible. You can only do this if you have a good handle on your monthly expenses and a tracking system that will alert you early to potential problems. You also need to have good invoicing practices in order to keep your cash flow positive. And you need to have systems in place that automate as much as your business processes as possible to keep your team lean and mean.
Sign all your checks yourself. When you’re starting out, signing every check is a good discipline to make a habit of so you can monitor your monthly expenses. I did this for my business until last year, when we grew too large and my travels became too frequent to efficiently handle the paperwork. However, I still review every transaction so I know where the money is going.
Safeguard your IOLTA Account. Being rigorous about protecting your IOLTA account is vital to maintaining a good business and a good standing with the bar. Be sure you keep separate trust and operating accounts for your law firm. Keep a strict accounting of client deposits as well as client funds from settlements, real estate or other transactions. Balance your accounts every month. Never, ever use trust account funds for operating purposes or personal expenses.
Be selective when choosing clients. Yes, it is tempting to take any business that comes your way — especially when you’re just starting out — but you have to discipline yourself to take on clients who are willing and able to pay you at a profit. Defining your ideal target client will help you cull the tire-kickers and price-checkers who will waste your time and deplete your resources.