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The inherent complexity of business contracts, consumer protection laws, and regulations in many (if not all) industries means that lawsuits are a natural part of doing business. The risk of those lawsuits necessitates council and advisory firms to help contain costs and defend companies against claims. This is what a legal consulting firm can help with. By acting as a consultant, rather than a traditional legal firm, your company would be able to advise companies’ legal departments and draw up compliance plans that meet local, state, and federal regulatory guidelines. You can also advise companies with no legal department, lowering their legal costs.
Who is this business right for?
This business is ideal for lawyers who want to leave their law firm or break out of the traditional or conventional role of a law firm.
What happens during a typical day at a legal consulting firm?
Day-to-day responsibilities vary based on the type of consulting your firm chooses to do. Some consulting firms, for example, help design compliance departments while others act as mediators. Others provide preventative council about employment law and related issues.
Days are typically spent meeting with clients, giving advice, and drafting various legal plans for clients.
What is the target market?
Preferred clients for this type of business are large corporations that have a need for outside consulting, cost control, litigation mitigation services, or that want to reduce legal liability and exposure.
The worst types of clients would be small businesses or self-employed individuals who cannot afford the services of a consulting firm.
How does a legal consulting firm make money?
Legal consulting firms make money by charging hourly or flat-fees for legal consulting work.
What is the growth potential for a legal consulting firm?
The industry, overall, is poised for growth as businesses are realizing the incredible cost savings for preventative legal council.
Growth potential for this industry is excellent. A small consulting firm can take on several clients and manage a small book of business. A large firm can employ several lawyers or several hundred lawyers. This business scales well as long as the firm hires qualified legal talent and legal aides. Administrative work is a big part of this business so hiring a skilled team of paralegals early on is important.
What are some skills and experiences that will help you build a successful legal consulting firm?
This business' success depends on its legal team. Because of this, business owners who start a legal consulting firm are almost always lawyers themselves. A law degree is almost always necessary. If you have no degree, start with a law-related field like criminal justice, legal studies, or political science. The Law School Admissions Test (LSAT) is next, followed by law school and a Juris Doctor (J.D.) degree.
Experience in business, with a master's degree in business administration (MBA) is extremely helpful, but not required.
Finally, at least several years experience working with a law firm as well as a legal consulting firm will be a practical necessity so that you understand the industry and how it operates.
What are the costs involved in opening a legal consulting firm?
Once you have your law degree, costs for starting a legal consulting firm are cheap. All you need are basic utilities and legal structure, including an LLC (minimum), liability insurance, QuickBooks or some other accounting software, business cards, advertising or direct mail packages, and a website.
Your startup costs should be no more than $5,000, and in some cases, much less.
What are the steps to start a legal consulting firm?
Once you're ready to start your legal consulting firm, follow these steps to ensure that your business is legally compliant and avoid wasting time and money as your business grows:
- Plan your business. A clear plan is essential for success as an entrepreneur. A few important topics to consider are your initial costs, your target market, and how long it will take you to break even.
- Form a legal entity. Establishing a legal business entity prevents you from being personally liable if your legal consulting firm is sued.
- Register for taxes. You will need to register for a variety of state and federal taxes before you can open for business.
- Open a business bank account. A dedicated checking account for your legal consulting firm keeps your finances organized and makes your business appear more professional to your customers.
- 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.
- 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.
- Get business insurance. Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
- 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.
- Establish a 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. Get your first domain for only $0.99 with GoDaddy.
Select your state below for an in-depth guide on completing each of these steps in your home state.
Where can I 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.
What are some insider tips for jump starting a legal consulting firm?
The most successful legal consulting firms start out as either law firms or start with a core team of lawyers. Aside from that, focus on getting a few “anchor clients” that consist of large corporate clients that can afford (and have a need) for your services.
How to promote & market a legal consulting firm
Promoting a legal consulting firm can be done one of several ways. One of the easiest ways is to use referral marketing or networking. A business that is concerned about preventing lawsuits before they happen also has revenues and assets that are worth protecting. Choose your networking events accordingly.
Direct mail is another effective method for getting clients. Contact your list broker and get names of corporations that have previously paid for legal consulting services. Then, mail them your offer and follow up until they become clients.
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How to keep customers coming back
Specialization in this industry is important. Rather than take on all types of clients, focus on a specific industry. For example, you could specialize in the healthcare industry, financial industry, or in retail. Because many industries have unique legal challenges, specializing will make you a sought-after expert.
For instance, the healthcare industry is plagued by a confusing web of regulation related to HIPAA and compliance with the national Affordable Care Act. Understanding these (and other related) laws will make you stand out in a sea of generalists. It will also help you better serve your clients.
How and when to build a team
Building a team is necessary as soon as you can afford it. Start with a small paralegal team, then add more lawyers when and as you can afford to.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a legal consulting firm. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
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.
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.
Maintain Personal Asset Protection
Don’t think that just forming an LLC, or any other type of business, will save your personal assets in case of a lawsuit or other matter by itself.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your LLC is sued. In business law, this is referred to as piercing your corporate veil.
Two of the simplest steps that will protect your business, and yourself, are to:
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.
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.
Legal consulting businesses should consider requiring clients to sign a service agreement before starting a new project. This agreement should clarify client expectations and minimize risk of legal disputes by setting out payment terms and conditions, service level expectations, and intellectual property ownership. Here is an example service agreement.
Recommended: Rocket Lawyer makes it easy to create a professional service agreement for your legal consulting business when you sign up for their premium membership. For $39.95 per month, members receive access to hundreds of legal agreements and on call attorneys to get complimentary legal advice.
Certificate of Occupancy
A legal consulting firm is generally run out of a physical location. 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 legal consulting 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 legal consulting firm will be in compliance and able to obtain a CO.
How much can you charge customers?
Fees depend entirely on the industry you’re serving. Some consultants charge $100 per hour with minimum billable hours while others charge a flat fee for a project. On average, you may charge between $100 and $500 per hour (depending on your positioning, experience, etc.) or between $1,000 and $10,000 per project.
As a general rule, large companies spend, on average, 0.1% of total revenue on litigation costs. Use this as a guide to determine your own fees and position your company as a cheaper alternative to litigation.
What are the ongoing expenses for a legal consulting firm?
Ongoing expenses for this type of business are minimal and are limited to utility costs, insurance premiums, labor costs, and other basic business expenses.
How much profit can a legal consulting firm make?
Profit for a small firm averages between $60,000 and $100,000 per year. This is for a one-person consulting firm. A small team can bring in up to $500,000 per year, with a medium-sized consulting firm bringing in up to $5,000,000 in revenue per year.
How can you make your business more profitable?
Making the consulting firm more profitable is usually a matter of specialization.