GPSOLO October - November 2008
Leaving a Big Firm to Establish a Small One
Planning and confidence are of the utmost importance when beginning your own law practice. First, you must decide whether you will set out on your adventure as a sole practitioner or with partners. There are certainly advantages to both options. Because I left my old firm with another associate to open a two-lawyer office, I will focus on beginning a practice with a partner.
The selection of a partner is most important. In my opinion, a partnership can only be successful if all partners have trust in one another. They must have faith that each will contribute equally and must have respect for each other’s professional ideas. Many partnerships fail because each partner is worried about the production or ideas of the others, rather than focusing on him- or herself.
Once a partner or partners are selected, a corporation or partnership needs to be established. The specific type of business structure will vary from state to state and with each different structural situation. For instance in Florida there are professional associations (PA) and limited liability partnerships (LLP), among others. Our firm decided on a professional association, which is a professional corporation. It may be structured as an S or C corporation. I strongly suggest speaking with a few lawyers in your local area to see what business structure they created and why, and then investing an hour or two of your time and money to consult with a certified public accountant to help you make the best decision for your new practice. The manner of pay and benefits can be affected by your business structure. Most bar associations will provide information regarding business entities that are permitted in the state. In our situation, we began planning and creating a business structure about three to six months before we left our firm.
The naming of your firm may become an issue. When I consulted with other lawyers about how they began their practices, to my surprise I often heard about serious conflicts regarding whose name went first. Fortunately, we did not have any problems with selecting a firm name: We simply flipped a coin to see which name went first.
Financing a Practice
In my opinion, the initial financing of a law practice is not a problem. The options are lines of credit, loans, and proceeding with no financing. Our firm chose not to borrow or seek any lines of credit. However, many firms rely on and endorse lines of credit. The decision will vary from person to person. If at all possible, before opening a practice it is advisable to have about six months of expenses in a savings account. Planning and understanding where your practice’s funds will come from is most important.
There are three traditional fee structures: hourly, flat fee, and contingency. In our situation, we decided only to accept flat-fee cases for the first few months in order to enlarge our bank account and to create profitable work; there was no shortage of contingency-fee work, but we believed that taking such cases would detrimentally affect our personal finances. There are always exceptions, of course, and we specifically accepted a limited number of contingency-fee cases during our first two months of practice. Without question these cases helped us and paved the way for success. An hourly fee is best because it allows lawyers to recover their hourly rate for all hours worked. Unfortunately, many clients are not in a financial situation to remain in such an arrangement. Today we have shied away from flat-fee arrangements and moved into either purely hourly rate agreements with closely held corporations or contingency-fee arrangements with certain plaintiffs. Contingency-fee cases can be very profitable if selected and prosecuted appropriately.
Time brings clients. Most bar associations provide referral services. These services provided our firm an endless supply of potential clients for our first year. Beware that many of these referrals are ungrateful and quick to complain. However, ingenuity and creativity will provide your firm some very good cases from these referral services. Prior to leaving my old firm in April 2005, I visited the local referral service and told them that I was going out on my own and was scarred that I wouldn’t have enough clients. The bar association provided our firm with dozens of calls, and the phones began ringing nonstop on the first day of business.
A great source of referrals is other lawyers. I strongly encourage you to meet as many lawyers as possible and tell them about your practice. These referrals from other lawyers are wonderful and with time will only increase if you perform good work. One way to increase the likelihood of such referrals is by limiting your practice and creating a niche. Clients also will provide referrals, but this takes some time to develop. During the past year, our practice has seen a significant number of referrals from clients, opposing counsels, and even from companies we have successfully sued.
In a large firm you practice in the area of the law assigned to you. Upon leaving a firm and opening a small practice, you must be able to adapt and practice in a field that will generate clients and that you will enjoy and become passionate about. Although my partner and I began with the intention of creating a transactional immigration firm, we quickly developed into a labor and employment law boutique primarily representing employees who are victims of labor and civil rights violations. Today our firm practices almost exclusively in employment and labor law, with the exception of representing several closely held corporations in commercial and intellectual property litigation. Finding employment law clients has not been a problem for us, but it’s not always easy finding clients who pay up front. Nonetheless, this is an area of the law where work is endless and could become profitable and fulfilling at the same time. I discourage formal advertising in this field, as it has not helped our firm in the least.
At our old firm we had a ratio of approximately eight staff to one lawyer. This ratio allowed me to focus almost exclusively on conducting legal work without taking on any administrative duties other than driving to depositions. In fact, files were brought to me and taken away by the staff every day. Dictations were transcribed, and I never had to answer the phone. I only met with clients at prearranged conferences that were scheduled in advance and confirmed by a secretary. In the sense of not having any administrative work, life was very easy. However, upon opening my own firm I began answering phones, checking mail, making envelopes, writing letters, and scheduling depositions and mediations. The administrative and clerical work inherent in a small office becomes self-evident within the first few days of a practice and continues.
Organization is absolutely the most important trait in handling your workload. Practicing law requires many hours of work, study, and dedication. Focusing on more profitable cases and limited areas of the law helps our firm handle the caseload. For instance, we file more cases in federal court than state court because the former requires fewer court appearances, and these cases move along much faster. Furthermore, I try not to go to the office at least once a week so I can maintain some independence from the practice.
A focus on a specific area of the law, the continued study of that area, and plain old hard work prevent professional malpractice. Most malpractice originates from procrastination. Do not wait to file charges of discrimination and suits. If you don’t have the time to timely file, do not accept the case. Go to continuing legal education classes and order and read books on the areas of your practice. And, of course, always carry malpractice insurance.
Opening your own practice is very fulfilling and certainly a realistic possibility for everyone. However, it may not be the right decision for all. Complete control in selecting clients and spending time at work, traveling, and studying is the advantage of hanging your own shingle. The disadvantages are the added stresses of production, advancement, and business administration. Speak to as many lawyers as possible before making your decision on starting your own law practice. And if you are leaving a big firm to begin a new venture, leave on good terms. Doing so has proven a great boon to my new practice. I have referred my old firm myriad clients over the years and kept in touch with the lawyers there. In turn, my old firm has treated me well and referred clients.
Although resigning from my position as an associate lawyer was difficult—I liked my former colleagues and office—making the move to a small office has been very rewarding. I enjoy filing causes of action and assisting individuals in matters that I would not have been able to follow through with at my old firm. I enjoy the ability to travel often, accept cases in foreign jurisdictions, and attend continuing legal education courses as often as I desire. If, after examining your options, you believe that the time is right for you to make the move, I heartily recommend it.
Bernie Mazaheri is a partner with Mazaheri Gadd PA in Clearwater, Florida, where he focuses on employment law, particularly wage and hour violations. He may be reached at firstname.lastname@example.org.