How Much it Really Costs to Start a Law Firm
A few years ago, I wrote a post I titled Start a Solo Law Practice for Under $3,000. Boy, do I regret that title. Starting a law firm is a relatively inexpensive endeavor, but picking an arbitrary number and trying to stick to it is wrong-headed. I’ve met plenty of lawyers who have done just that, and many of them have struggled to keep their practices afloat — or failed — as a result.
Don’t let that happen to you.
Don’t like where this is going? Was $3,000 already too rich for your budget? Bitter Lawyer has a much-more-reasonable prescription for a $20 law practice!
It really doesn’t need to cost a lot to start a law firm. In theory, all you really need is access to a computer, a printer, and a law library. In reality, there are a few more things you’ll need. And if you don’t plan accordingly, you are going to run into expenses you didn’t expect, probably at the least-opportune moment.
When you set an unrealistic upper limit to your spending, though, you set yourself up for failure. This is especially true if, like many new lawyers, you are starting a law firm out of desperation, not because it is what you really want to do. When you are struggling to pay the bills every month, it becomes easier to rationalize bad decisions, like taking a red-flag client or dipping into your trust account to help you float some checks.
When it comes to outfitting a law practice, it doesn’t pay to pinch pennies. Figure out what you need, then figure out how to pay for it. If you can’t get what you need, don’t start a practice.
So what do you need?
The practical minimum
As a practical matter, you’ll need a bit more than I listed in my post. While it is theoretically possible to meet with clients at coffee shops, draft briefs on the display models at an Apple store, and do research at the law library, you won’t be doing your clients or yourself any favors.
Here’s what I consider the practical minimum:
Office & supplies
- Office supplies
A serious lawyer needs an office. You need a place to meet with clients, first of all, and the best place to meet with clients is your office. It really does make a difference, both to your clients and your productivity, to meet at your office instead of at a coffee shop. Sharing space with other lawyers can be a great way to have mentors on hand, or at least sounding boards. Officemates often make reliable referral sources, too. And an office is usually relatively free of distractions, at least compared to your couch or a coffee shop.
There are a lot of options, here, from a spare bedroom or basement corner to an office presence options to actually renting your own space. It’s okay to start out working from home, but unless you have a solid plan for running a virtual law practice, you should plan to rent a real office 6–12 months after you launch your practice.
While I strongly recommend getting an office, it is true that plenty of good, successful lawyers work from home. In order to decide what will work best for you, I suggest you spend some time meeting with lawyers who work at home, at an office, and everything in between.
With an office, you’ll obviously need some furniture. Don’t get crap. If I had to guess, I’d say 9 out of 10 solos have no design sense and no business shopping for their own furniture or decorating their own offices.
You don’t need to hire an interior designer — although it wouldn’t hurt — just find someone with decent style to help you pick out some professional-looking furniture and decorate your office. You don’t need to spend a fortune; just set a budget and get some furniture that makes you look good.
Finally, you will need some office supplies, like manila folders and paperclips. Buy what you need. (Oh, and if you litigate, track down some exhibit labels before you need them.)
- Continuing legal education
- Malpractice insurance
Licensing is not optional. Neither is continuing legal education, whether or not your state requires it. Budget for these expenses.
Some lawyers decide to go without malpractice insurance. I don’t recommend it. It is a lot easier to sleep at night knowing that, if you do screw something up, you will be covered. Don’t simply get the cheapest insurance, either. If you can, ask around to find out whether the insurer can be trusted to actually help you when you need it.
When you settle on your practice area, if you haven’t already, you should budget for membership in an organization (or two) that serve your niche. You should also budget for at least one conference each year. Conferences are often valuable sources of substantive knowledge, strategy, and inspiration.
- Backup drive
- Document scanner
For your basic hardware and software needs, my New Solo Technology Shopping List: the Basics is a good starter guide, but I’ll reiterate here.
Get a good computer. It’s hard to go wrong with Apple, Lenovo, or Dell, for laptops or desktops. (For Lenovo and Dell, stick to the business lines, not the consumer lines.) Laptops are much more versatile, obviously, but the choice between laptop and desktop is down to personal choice and how you like to work. My top recommendation is a 13″ Macbook Air and an external monitor.
External hard drives make for easy (and cheap) backup. Get one. The Western Digital WD Elements drives are cheap and reliable. If you have a Mac, it’s hard to beat a Time Capsule for wireless backup. Or you could get an ioSafe for near-indestructible backup.
A decade ago, you would get a copier. Now, you are much better off with a document scanner and printer. For a scanner, I still recommend the Fujitsu ScanSnap S1500. Nothing else comes close to its simple ease of use. For a printer, any workgroup laser printer will do. I generally stick with HP LaserJet printers, because they print well and last forever.
You have a lot of options for a phone these days. Many solos just use their mobile phone. That works, but I think it is a better idea to get a separate phone number for your firm. A separate number means you can easily direct it to a receptionist, if you ever need to, or sell it with your practice, if you want to.
Software & services
- Document creation
- Remote backup service
- Accounting software
- Timekeeping and billing software
- Legal research
For email and calendar, the Google Apps suite is still best, and for $50 per year, a bargain. If you want to use Microsoft Outlook, go ahead; Google Apps Sync plugs right in. Microsoft Office 365 also looks like a good option for Windows users.
While Microsoft Office remains the standard for creating and editing documents, there are other options, including Apple iWork, WordPerfect, LibreOffice, Google Drive, and Office 365. If you regularly need to share editable documents with others, then get Microsoft Office. Nothing else will be fully compatible, so you might as well get what nearly everyone uses. If you don’t anticipate sharing documents very often, get what you like.
Backing up to an external hard drive is not enough, especially if you are paperless to any degree. You should have at least two redundant backups in at least two different locations. If your office burns down (with your computer and backup drive in it), you will need a backup to your backup. Fortunately, remote backup is simple, secure, and cheap. Right now, you can’t beat CrashPlan for all three.
Neither accounting software nor timekeeping and billing software are strictly must-have. However, keeping your books on paper and doing your timekeeping and billing with spreadsheets is incredibly time-consuming, and often prone to error.
For accounting software, just get QuickBooks Pro. All bookkeepers and accountants are comfortable with QuickBooks, and it is solid software.
For timekeeping and billing, I haven’t found anything better than Freshbooks. It is easy to use, and nearly makes timekeeping and billing pleasant. Plus, it will grow (to a point) with your firm, if you do grow.
You don’t have to pay a lot for legal research. Most law libraries include Lexis or WestLaw access with membership. Many bar associations include Fastcase for free. There is also Google Scholar. What you need depends on your practice. If you do a lot of litigation in different practice areas, you probably want a premium service. If you have a narrow practice and you have good, frequently-updated treatises on hand, you might be fine with Google Scholar. Get what you think you need, here, but beward of the long-term contracts Lexis and WestLaw usually demand.
Finally, you obviously need an internet connection. Get a good, fast one, especially if any of your software is cloud-based.
Budget for marketing. At a minimum, plan to be social. Give yourself a breakfast/coffee/lunch/happy hour budget, and spend a lot of time doing those things with people (i.e., networking).
Get a website — a good one. Don’t worry about search engine optimization, apart from making sure your website shows up when you search for your name. It’s more important for your website to (1) be good-looking, (2) have your contact information, and (3) have a good picture of you on it. Like your office decor, don’t do this yourself. Hire someone competent.
Finally, you might want to jump-start your practice by advertising. If you do decide to advertise, Google AdWords is probably the most cost-effective way to do it. It is easy to get started with AdWords, and you can control your costs.
There are a lot of other things you can do to market your firm. Budget accordingly.
It is going to cost more than $3,000 to start a law practice
I haven’t added up everything I just listed, but I am confident that it adds up to more than $3,000. I’m equally confident that this is not all you will need (or want) as you get your practice off the ground.
In order to represent clients and run a business, you have to have some things, and those things cost money. The amount of money they cost is not important. If you need them, you need them. You just don’t get to decide that, hey, legal research is too expensive, so you aren’t going to do any. Or elect not to buy filing supplies because a stack of loose paper is cheaper.
In my article, I acknowledged that $3,000 is a starting point. $5–15,000 is more realistic, but it will depend on location, practice area, and many other variables.
The bottom line is this: When you start a practice, you are going to spend a lot of money. Spending this money is not optional. You have to spend this money to do a good job, and if you don’t do a good job, you won’t make any money. So get what you need.