Start a law firm by following these 9 steps:
You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your law firm. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
STEP 1: Plan your Business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How long it will take you to break even?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a law firm?
A law firm requires an office building, computers, printers, office supplies, legal software, insurance, and personnel.
What are the ongoing expenses for a law firm?
The typical law firm spends several thousands of dollars per year for legal malpractice insurance. The rent for the office will likely run between $700 and several thousand dollars per month. Budget at least a couple hundred dollars per month for utilities and high-speed internet. In terms of labor costs, attorneys usually make between $35,000 and $250,000 per year. Paralegals and billing specialists make between $25,000 and $50,000 per year. An office manager will command a yearly salary in the range of $30,000 and $60,000. A receptionist will likely earn $10 to $15 per hour.
Who is the target market?
The preferred client type is an individual who needs extensive legal assistance in his quest for justice. Some law firm business owners take great pride in helping needy members of the community who can't afford a high-priced attorney. Oftentimes, it is more rewarding to help those in need obtain a fair result than it is to tend to uber-complicated legal matters for corporations and other high-profile clients. However, some attorneys prefer to provide legal services to companies that are willing to pay a substantial hourly rate for the law firm's legal services. Examples of such clients include multinational corporations and regional businesses with challenging legal matters that require substantial analysis and representation by a team of experienced attorneys.
How does a law firm make money?
A law firm makes money by providing legal services to a wide variety of individuals, businesses, and organizations. A law firm represents clients at hearings, trials, and other court events. In some instances, merely providing legal advice is enough to charge a substantial fee.
How much can you charge customers?
Some attorneys serve the neediest members of their community at no cost. This is referred to as pro bono work. However, most attorneys charge an hourly rate in the range of $100 to $500 or more per hour. The exact cost of your hourly rate depends on your experience, the legal niche you operate in and the wealth of your clients.
How much profit can a law firm make?
A law firm can make anywhere form $30,000 per year all the way up to millions of dollars per year. Aim to make a salary of $30,000 to $100,000 in your first year or two. Your profits have the potential to skyrocket as you add attorneys to handle new clients' legal needs.
How can you make your business more profitable?
Consider teaching law at a local college or university. Offer legal counseling that is independent of courtroom representation. It is also possible to work as an appearance attorney. Appearance attorneys show up at court hearings in place of a client's attorney due to travel complications, sickness and other matters.
What will you name your business?
Choosing the right name is very important. Read our detailed guide on how to name your business. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
After registering a domain name, consider setting up a professional email account (@yourcompany.com). Google's G Suite offers a business email service that comes with other useful tools, including word processing, spreadsheets, and more. Try it for free
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your law firm is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
Form Your LLC
Read our Guide to Form Your Own LLC
Check out the Top Business Formation Services from our friends at StartupSavant.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Recommended: Find the right bank for you, read our review of the Top 5 Banks for Your Small Business
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a law firm. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
If you seek to practice law, you will be legally required to obtain a law degree. You may obtain your degree from any law school accredited by the American Bar Association. Information on ABA accredited law schools can be found here.
In addition, you will be required to pass your state's Bar Exam in order to legally practice law in your state. Each state bar association has its own website giving detailed information on the requirements for eligibility to take the Bar Examination. Here you can find a list of each state's bar association website.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
For information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Certificate of Occupancy
A law firm is generally run out of an office building. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
- If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a law firm.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
- If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business’ location to ensure your law firm will be in compliance and able to obtain a CO.
STEP 7: Get Business Insurance
Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.
There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.
Learn more about General Liability Insurance.
Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How to promote & market a law firm
Though it is possible to market your law firm business online and through traditional outbound marketing platforms, the best way to spread the word is through client referrals. Encourage current and former clients to recommend your law firm's services to those in their family and social circles. It also helps to establish a rock-solid online presence. Encourage clients to post positive reviews of your law firm's services to online directories. Build a website with an excellent user experience design that prospective clients can navigate with ease. Establish accounts on popular social media websites like Facebook, LinkedIn, Twitter, and beyond. Make sure all of your online content is optimized for those who conduct searches on the web for legal services. This will make it much easier for prospective clients to connect with your law firm.
How to keep customers coming back
Maximize your law firm website's SEO (search engine optimization) and clients will find you online. SEO involves using keywords and key phrases your clients are most likely to type into search engines. As noted above, attracting clients to a law firm is also much easier if you interact with those in the community. Get the word out about your services and persuade clients to recommend your legal services to their peers. In terms of retaining clients, the best way to maintain a steady stream of business is to obtain fair and just results for your existing client base. Most people have more than one legal matter in their lifetime. They will return to your law firm for assistance if you helped them in their quest for justice with a prior legal matter.
STEP 9: Establish your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Start A Law Firm In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
Is this Business Right For You?
This business is ideal for an individual with a strong sense of justice. If you are looking for a way to serve your community and help people/organizations obtain fair results, you should consider starting a law firm. However, you will need a law degree or a considerable amount of money to fund the launch of a law firm headed by those who have obtained law degrees.
What happens during a typical day at a law firm?
The average law firm business owner is an experienced attorney who tends to client concerns, seeks out new clients, meets with the law firm's partners and provides legal analysis. Much of the day is spent applying case law to clients' legal matters, conferencing with fellow attorneys, and developing effective legal strategies with the end goal of obtaining a just result.
What are some skills and experiences that will help you build a successful law firm?
A law degree will certainly help in your quest to build a successful law firm. You should have experience working as an attorney and handling challenging legal cases. It will also help to have a rolodex filled with client information. These clients will serve as the law firm's “bread and butter” when it first starts out. Initial clients will also spread the word about your law firm's services and merit to others who require legal assistance. It is essential that you interact with community members on a regular basis. The relationships you form will help you acquire new clients as time progresses.
What is the growth potential for a law firm?
Law firms have the potential to grow quite rapidly. This business might start out somewhat slow but it can quickly expand once clients are recruited. It is possible to start out running a law firm on your own and eventually grow to the point that additional partners are added. The law firm can easily transition from a specific legal niche to becoming a provider of legal services that spans a wide array of realms. The law firm might start out serving locals, eventually expanding to provide services across the region and even across the nation. The most successful law firms establish international offices across the globe.
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Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
What are some insider tips for jump starting a law firm?
Your reputation is of the utmost importance. Focus on providing community members with important legal services that help in their quest for justice. Obtain such results and your clients will speak highly of your law firm to their friends, colleagues, associates, family members, and others. The foundation of your law firm business is relationships. Meet as many people as possible, fight for justice and accept cases that portray your firm in a positive light. A high-profile case that puts your business in the spotlight can do wonders for your business. Alternatively, representing a company or individual perceived as a threat to the community has the potential to create a negative impression of your law firm. So choose your cases wisely!
How and when to build a team
It is possible to run a law firm as a solo practitioner for a year or two. However, as time progresses and your client base grows, you will eventually have to add staff. Employees will be necessary to answer the phones, interact with clients, work as paralegals and provide legal services as attorneys. Your first hire will likely be a receptionist. You can add paralegals, legal assistants, billing personnel, and an office manager as the business grows. If your law firm reaches the point where you can't handle all of the cases on your own, it is time to add an attorney or two. This is also the ideal time to add a billing specialist to handle client billing along with accounts receivable/payable matters.