In this article Sarang Khanna, Content Marketing Executive at iPleaders, writes about the 4 most important things to consider when setting up your own law firm.
Opening their own business is everybody’s dream in today’s date. No matter what profession you come from, what education you have had, or what your family background is; the thought of conceiving a money-minting baby in the form of a business must have definitely crossed your mind.
In the legal world, what do you think is the most popular form of a startup? Yes, law firms. Just as individual legal practice can be considered a self-sufficient business in itself, similarly, law firms have become its startup equivalent. Most lawyers wish to work for one, and more importantly, wish to own one sometime down the line.
To help you realize this dream, we bring to you this article discussing the important things to consider before opening your own law firm.
Do you wish to open your own law firm? Have you figured out what it takes apart from the money?
Work in litigation and law firms can sometimes be completely contrasting. In my opinion, it is imperative to have an experience of both if one plans to start their own firm. This is not to say that you cannot open your law firm right out of law school or after just one or two years of experience
But, is it easy? Of course not. You have to put in long man-hours. “We work 24/7” says Animesh Singh in this interview, while talking about his initial years of building his own firm A&S Law Chambers. This is as close to the truth as it gets.So if the entrepreneurial bug is your only reason, you should certainly reconsider the idea
Ranjeetsinh Pawar, a graduate of ILS Law College Pune, is also one of those very few who decided to open their own law firm right after graduation. Now doing brilliantly for itself, his firm, co-founded with two other friends, was also not independent from the various obstacles in its initial years. “The challenging part of being a start up law firm is acquiring and executing work when your failure is a bigger possibility. Not many freshers want to work with you because you’re new, and since you’re new, you can’t pay them enough.” he said in his interview on SuperLawyer.
Can you imagine other early struggles that might come during the stage of trying to establishing your new law firm? Share with us in the comments.
1) Your area(s) of practice:
This is crucial. Trust me, you don’t want to start a “whatever-comes-in-the-door” kind of law firm. Consider it the recipe for disaster. Having one or maximum two areas to focus on your practice is the ideal way to start. If you try to do everything at one go you won’t be good at anything. It also saves you from being a competitor to everyone, which makes it difficult to build a referral network.
It also goes without saying that adequate experience and your excellence in the area you choose to practice in cannot be substituted. Some areas are easier to penetrate for a young law firm, than others. For instance, no client wants the new kid in the court, who’s yet to fit in his suit, to handle a matter with his life at stake. You know what I’m saying?
The moral of this story is that you need to know what your strengths and weaknesses are and whether or not the clients in your chosen area of practice will identify and choose you in that particular field.
2) Costs and expenditures:
Admit it. You need the money. The firm won’t run itself. Setting up a firm requires huge funds for infrastructure, team salaries, books, library, etc. While litigation does not have much of a financial burden, firms need to tread extremely carefully and burn their money with caution.
The classic example of Dewey and LeBoeuf of when it filed for bankruptcy in 2012 is still fresh as new in the minds of all. A law firm with 2500 employee and operations all over the world went bankrupt. It had over $400 million worth of debt and liabilities. Reports show that it was a case of clear financial mismanagement.
I am guessing you don’t want to set a similar example? This is why financial planning is crucial especially for law firms. Clients come and go but expenditures are constant. You can read to know more about financial projections and how can they save your firm’s life, if done right.
3) Financial Projections:
Simply put, financial projection is the prediction of a company’s financial health. A strong and credible financial projection is a powerful representation of the firm’s stature. It makes it easier to raise loans, if required, and also further attracts other employees to work with you. They are also important to break down bigger goals into achievable targets and help in maintaining a regular track.
So, what are some ways to correctly project your financial numbers?
a) Monthly balance sheets
b) Cash flow predictions
c) Client and sales forecast
d) Assigning a monthly budget
These are some approaches one can take to build a healthy firm that evolves according to it potential. Although, it is arguable that predictions of this nature require the firm to be running for over at least a year before one can correctly predict, but this is not necessarily true. Financial predictions can be anticipated for a firm that is yet to begin its practice. They can flow from the firm’s mission and goals ahead in time, and help in effectively reaching the same.
4) Ownership and registrations:
Of course, the first thing you require to set up a law firm in India is a law degree. If you are over the age of 21 and possess a law degree from an Indian university or a foreign university recognized by the Bar Council of India, you are good to get a law firm registered in your name. You must also be a part of a bar council in the country.
What is important for you to decide is the type of structure and registration that is best for you. Did you know that Khaitan & Co. is separately registered in Delhi and Mumbai as a partnership firm so that it can promote its associates to partners effectively?
Management, finances, tax and other liabilities can vary depending upon the kind of ownership structure you choose for your firm. Want to be the single owner? Go for the sole proprietorship. Or do you want to have shared accountability? Go for the Limited Liability Partnership (LLP) structure. You can learn about how to build up the underlying organisation of your practice here.
There are three major types of legal structures and their registration, which are –
a) Sole Proprietorship
c) Limited Liability Partnership
To know more about which design will suit best for you, read this in-depth article on law firm registrations written by Nikieta here.
So, have you finally decided to go ahead with opening a law firm of your own? You must have hopefully pondered over all these discussions, among others. From initial branding, managing cash flow, to acquiring your customers and then retaining them, firm building is a tricky trade.
All in all, building a law firm from the scratch is like starting any other business. Some considerations are definitely more specific to the legal field but mostly all good law firms operate in accordance with the basic principles of business. Running a law firm is very different from working in one. Say what you might about law being a profession, at the end of the day, you will be in charge of a business, and one that must sustain.
Don’t you think it would be great if, in addition to knowing all about the law, you also knew the fundamentals of setting up a business? This has been the reason behind several such success stories who made it big in their entrepreneurial ventures. Designed by the top minds of one of the most respected institutions in the country, this course is a must for anyone who’s taking a stroll in the park full of the you-know-which bug.
Here’s to learning, and growing, and enterprising together!