The Cost of Doing Business
When considering starting and maintaining an independent law firm, of central importance is the sourcing of the capital needed to do so.
Long gone are the days when all a lawyer needed to start his practice was a desk and a few legal pads.
To run an efficient office today involves all manner of assorted costs, from the necessary technology to the various utilities required.
If you are a young lawyer starting out, or are a veteran looking to blaze your own trail, you are assuredly contemplating your options.
Let’s have a look at the most common ones available to the modern lawyer of today, and some general considerations to keep in mind.
Finance It Yourself
If your intention is to open your firm using your own personal savings, there are some standard recommendations for going about this successfully.
For instance, it is highly advisable to have enough savings in the bank to see you through for at least six months.
One year would be even more ideal.
The question here is, how much are you actually going to need?
This is where a detailed business plan comes in handy, but if you are still working on that, you need to at least write up an accurate budget to work from.
The obvious place to start is with your expected minimal monthly expenses. This will include rent, utilities, filing fees and insurance.
Having a handle on these recurring expenses will let you estimate how long your nest egg will last if you need to float on it while bringing in clients and billable hours.
Don’t forget your out-of-office living expenses when preparing this section of your budget!
Next, you will want to estimate the costs of all the required upfront expenditures like office equipment, furniture, and an accounting system.
Your bare minimum considerations should be a comfortable chair and desk, and a three-in-one copier, scanner, printer.
If you are on a very tight budget, you can consider sharing an office space to help reduce these upfront costs.
Loans From Friends and Family
The most important consideration here is to do what it takes to preserve the integrity of the relationship into the future.
Rather than leave a loan of this nature informal, avoid the potential for future disagreements by drafting a simple but comprehensive agreement that covers all the necessary repayment and interest arrangements.
If you’re going to go to the bank to try to obtain financing, it would be a good idea to complete the aforementioned business plan to demonstrate your level of commitment to your business endeavour.
In order to obtain a bank loan, you will need to provide your financial information and demonstrate that your firm will have the capacity to pay back the loan.
Therefore, if you have the available budget, it is highly advisable to seek the counsel of a trusted accountant and have them review your business plan and make their recommendations.
You should also consider that you may or may not be required to provide collateral in order to obtain financing from a bank.
If this is the best option available to you, then you will want to shop around and find a card that does not carry an annual fee, and try to get the lowest interest rate that you can.
I simply cannot recommend credit card kiting, but I’m aware that this is often an option of last resort to many.
If you do, make sure you are within your contractual rights and that you don’t damage your credit rating by mishandling the process and interest payments.
You may wish to do some research and see if you qualify for a Small Business Administration (SBA) loan to get your independent law firm up and running.
Check with the U.S. Small Business Administration to see if your particular situation meets the requirements for any of the special programs that they offer to benefit women and minority business owners, those with disabilities, and businesses in rural communities.
Whatever course of action you decide upon, the importance of setting proper financial management habits right from the start cannot be understated.
Starting and running your own independent law firm takes a special kind of dedication and discipline, and the better prepared and organized you are, the higher the chance of your success.
Until next time!