Creating a Business Plan, Step One: What They Are and Why You Need One

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If you are considering starting a law practice, you must consider how your firm will stand out when it comes to getting clients, attracting talent, and getting funding. A well thought-out business plan will allow you to do a number of things:

  • Create clear action steps to help you achieve your stated objectives.
  • Fill gaps in your current planning through identifying gray areas and obtaining advice from more experienced attorneys.
  • Seek loans and other financial support to start your business.
  • Ensure you and anyone who works with you will be on the same page when it comes to representing clients and pursuing firm goals.

In this series of articles, I will help you understand what a business plan is, why you need one, how to create one, and how to make it successful.

Do I Really Need a Business Plan?

This is a common question among entrepreneurs. Everyone hears that they should have a business plan, but they don’t often know why. Furthermore, most lawyers do not understand what should go into that plan or how to even create one. This leads to many new business owners forging ahead without a plan in place.

This is a mistake.

Your business plan is your roadmap to success. It requires you to put thought and effort into the foundation and future of your law firm.

Some scholars believe you don’t need a business plan to open your doors because they take time and effort to complete. Such time and effort could be focused on more practical items such as actively getting started on client work. Maybe so, but business plans are often required to get a loan or other funding, and they are an important way to gain a competitive edge over other practitioners in the field.

The Main Elements of a Business Plan

There are seven essential parts to a business plan:

  • Executive summary. This provides a brief summary of your full business plan. It starts with your firm’s mission statement and core values, touches on your intended audience and services, what your overarching business goals are, and why you believe your firm will be successful.
  • Company description. This covers the history of your firm, the markets you serve, how your services will meet your audience’s needs, and the competitive advantages your firm has over your competition.
  • Market analysis. This section provides a summary of your research regarding your competitors and your target audience. It involves reviewing what your audience needs, whether your audience is getting what it needs right now, and what gaps you can fill by providing your services. It also includes an honest assessment of your firm’s strengths and weaknesses.
  • Organization and management. From organizational and compensation structure to ownership and management profiles, this section covers all the primary aspects of your business structure and who will run operations on a day-to-day basis.
  • Services. This section is a list of services you are looking to provide and the benefits of each service to your target audience.
  • Marketing. This section requires you to consider how you will enter the market, how you will grow, and which communications and distribution tactics you will implement to reach your growth goals.
  • Financials. From your current balance sheet and cash flow statements to your financial projections and funding requests, this section covers everything having to do with existing and future money. It includes a summary of your plans and policies regarding financial management in addition to including a picture of your current financials and your financial forecasts.

A final, optional section of your business plan is the appendix. This can include your resume, any legal documents (such as a partnership agreement or your articles of incorporation), real estate documents (if you lease or own your workspace), and a list of individuals you consult with to manage your business (including your bookkeeper, accountant and business coach).

While this sounds like a lot of information, you can keep your plan short and sweet. It does not require forty-plus pages. But it does require is clear thought, research, and well-articulated goals.

Featured image: “business plan concept” from Shutterstock.

More in this Series: Creating a Business Plan

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  • Walker

    No. A real business plan is a set of credible, honed financials, period. All the rest is self-stroking and self-calming behavior by people who are scared spitless, as they should be if “Opening a legal practice” is part of the plan.

    Because I haven’t starved yet, I get about five or six invitations to go to lunch from young grads or new lawyers who want to come talk to me about going into practice for themselves. They sometimes show me business plans and, thus far, not a single one has had anything but words, mostly nonsense, about themselves or their imagined reality. That is not business planning.

    Business planning for entrepreneurs (= anyone thinking about opening a practice or small firm) means figuring out how to stay alive and at the table ready for the next hand between (a) the last assured income moment and (b) the moment when you can start pulling money out of the business and taking it home (which is not before you have had income that exceeds your monthly nut by a factor of two).

    There are two major part: startup (onetime) costs and then all the factors of production that form the monthly operating costs. You don’t need to be more exact than two decimal places, but you do need to be at least that exact — cash flow is oxygen to your business. When you’re out of cash, you’re out of business.

    You put them into a spreadsheet; you have to have all the money for the startup costs on hand before pulling the trigger, plus as many months of the operating costs as you can possibly manage to set aside.

    You can safely call it a “plan” when you have honed those numbers to the point where (1) nobody who is actually practicing the kind of law you want to practice can identify any gaps you’ve missed, and (2) you have a credible operations plan for earning the kind of top line revenue you need (about twice your monthly nut), month in and month out, and (3) you have specified the “Time to Change Plans” milestones or redlines — i.e., things that let you identify the need to modify the pre-launch plan early enough that you still have some capital left to enable you to go to plan B.

    Credible plan means that you have identified the market (size, demographic), know what that market spends on what you want to offer, and how many instances of the desired service you can competently deliver each month. The redlines are thresholds like number of incoming calls, monthly income, bank balance, etc. that serve to tell you “This ain’t working.”

    Once you have a real plan, you can write all the rest of that if you like (and if you have a need for outside investors, you may have to). But, really, no one is going to lend you money to start a law practice WITH those pretty words who wouldn’t lend to you anyway. And most would-be lawyers would far rather futz around with the fun parts than do the awful, scary part, which is the financial reality of solo/small firm law launches. Do that part well, and the rest is easy. Do the fun part well and it won’t matter a bit if you haven’t also got the financials under control

    • You raise valid points here. Solid financials are key–you must have a way to stay afloat while you wait for your first clients and first paychecks to come rolling in.

      That said, I disagree that everything else is unnecessary. You need to know what type of work you want and are willing to take, which clients you want, how you’re going to market to those clients, and more. Having the money to support you is great, but if you enter into a new practice without a clue as to where you want it to go and what you want to do, your practice will fail.

      The best thing to do is to tie specific financials to every goal you have. Doing so makes your plan not only credible, but functional.

      • Mary

        How does one do a market analysis? I am looking at opening a small town practice without the big city statistics. How do I do any of that?

        • Mary, I’ll be publishing a second post to this with a step-by-step guide as to how to create a business plan. Stay tuned, as I’ll be giving you some good pointers on how to do this in that post.