Am I Ready To Start A Law Firm? (Part Two)
In part two of our series, “Are You Ready to Start a Law Firm” we continue to ask the important questions to assess the readiness of aspiring attorneys/entrepreneurs. (You can read part one of this series here). The COVID-19 pandemic has inspired many to consider starting their own firm, but is it right for you? From a more practical perspective, can you make the numbers work? Here are some additional considerations from Firm Numbers, a bookkeeping service that has boots on the ground, helping the owners of small law firms be the boss, not the bookkeeper.
Are you ready to learn the basics of financial management?
What this means - We would love for everyone to read that question and immediately hire us to do their law firm’s books, but it’s important to start with self-education. You may hate managing your own finances. Understandable. You may know nothing about bookkeeping. Also not uncommon. Unfortunately, this type of grunt work is necessary and you need to at least have a basic understanding of what is involved to hire qualified professionals. Talk to accountants and fellow entrepreneurs about the process of recording and managing law firm finances. What accounting software do they recommend? How do they organize business finances? Which banks work well with law firms? What range of fees should a start-up firm expect to pay? Ongoing bookkeeping will vary according to how much business you transact per month, but it’s a good idea to budget at least $500-700/month if you want professional help, even if you are relatively new.
What this doesn’t mean - While some attorneys hate dealing with finances, others can easily get lost in the minutiae. If you are already well aware of a law firm chart of accounts, financial statements, and how to construct a budget, you are far ahead of the game. That doesn’t mean you should take on all the bookkeeping tasks yourself. Your billable time is what drives profitability in a law firm. If you are spending more than 5 hours per month managing your finances, you are sacrificing more than $1,500 per month in revenue. Most firms spend more than double that amount of time doing their own books, and often with errors they eventually pay hefty fees to correct at tax time. It is, far better to part with a few hundred bucks and recapture time to grow your business.
Do you have a professional network of entrepreneurial resources?
What this means - One of the most important resources to business owners is other entrepreneurs. They can mentor, share their experience, and most importantly, relate to the psychological challenges of just starting out. There are plenty of resources to improve your business acumen, and plenty of people who are willing to give their opinion about how you should be doing something (ahem...guilty). Go directly to the people who have the most first-hand experience doing work related to your business. Their lessons and their encouragement will improve your knowledge and ease the feeling of isolation that often comes with business ownership.
What it doesn’t mean - there are countless opportunities to join private networking groups and executive coaching programs. Make sure you vet each one carefully and try before you buy. Does the particular program focus on strategies that fit your target market, questions you need to answer, and how your industry tends to develop business? Are the fees you pay worth the cost of gaining a new client or improving your management skills? Not every group or coaching program is going to satisfy those needs. Remember to go back to your fellow entrepreneurs and ask them what has been most beneficial to their business. It all leads back to your network of peers.
Can you define your professional AND personal goals?
What it means - Almost every entrepreneur starts their journey with a basic business plan that spells out the goals and overall vision for their firm. Not everyone considers whether their vision aligns with their personal life. Our careers are very much a part of our identity and a source of pride, but they do not replace family, friends, and life beyond work. Decide what you want from both to help guide your overall business strategy. There is a mix of time, money, growth, and stability that will help you progress toward a more satisfying professional and personal life.
What it doesn’t mean - Let’s get real. Business ownership can be an all-consuming experience, even for those who have successfully run their own firm for many years. Don’t be surprised if you still find it difficult to take a “real” vacation several years after starting your firm. That is not to say every Managing Partner is destined to become a miserable workaholic. Owning a business is an incredibly motivating and empowering experience. You put in the extra hours because they are yours. You also have the power to change things up when needed. Your work-life balance will evolve over time, so don’t beat yourself up if you struggle to manage your time. If you stay committed to education, experimentation, and adaptation, you will dramatically increase your chances of becoming a successful law firm entrepreneur.
Firm Numbers is an accounting and bookkeeping firm dedicated to helping pull law firms and entrepreneurs out of decision-making based on emotion and get the necessary data to objectively run their business. We don’t claim to know everything about running a successful law practice, but we can provide the numbers to support smart decisions.
Book a free consultation online to find out how our bookkeeping and accounting packages can help you be the boss, not the bookkeeper.
