Be Smart—Start Your Practice With a Plan
This has been a year of bad news for law school graduates looking to follow the traditional path of joining a mid-size or large firm. For example, the Wall Street Journal reported, based on its own assessment of law school graduation data from nearly 200 accredited schools, that members of the law school class of 2011 had little better than a 50-50 shot of landing a long-term job as a lawyer at a firm within nine months of receiving a degree and only about 8% of 2011 graduates landed full-time, long-term jobs at larger firms with more than 250 attorneys1. Meanwhile, a different survey by the National Association of Legal Career Professionals (NALP) pegged the law firm employment rate for new law school graduates at 85.6%, the lowest rate since 19942.
Facing these and other sobering statistics, law school graduates increasingly choose to start their own practices. This, however, has plenty of its own perils. Law schools do little to prepare graduates for dealing with “The Business of Law” (client relations, practice management, finance) that determines a firm’s success. Solo lawyers need all the business traits of an entrepreneur: motivation, acceptance of risk, resiliency, commitment, persistence. They also need adequate capital, an ideal financial reserve of six months living expenses to ease some of the angst of starting a practice initiating the business cycle. But above all they need clear goals and specific strategies for what kind of billable work they want to do, measured against near-term targets that are realistic. In other words, young solos need a plan.
There are smart and foolish ways to start a practice. The smart way is to plan. Every law firm is a business, and a business that grows without a clear idea of overall goals and specific strategies will wind up reflecting whatever walks in the door. Foolish growth relies on whim and serendipity – not the best paths to success. An excellent acronym, SMART, describes what’s required for a smart growth plan:
- Specific: The issue is not more money, it’s how much…not more clients, but what kind.
- Measurable: If you can’t measure your growth, you’ll never know what you’ve achieved.
- Achievable: Set near-term targets that are realistic and continually raise the bar
- Reasonable: Don’t set yourself up for failure with unreasonable income expectations
- Timely: Give yourself an adequate timeframe that still imparts a sense of urgency.
John Wooden, famed UCLA basketball coach, said: "Failure to plan is planning to fail." For a lawyer in a solo firm, the SMART formula helps you decide where you want to go as you grow. Once you do, there is a greater likelihood of achieving a satisfying practice – and life.
A smart growth plan doesn’t have to be complicated. It can be as fundamental as identifying two or three desired business outcomes within a given time period, defining the behaviors necessary to achieve those outcomes, identifying whom to influence in order to get both the desired behaviors and the desired business results, and deciding how to influence them. Such a plan is a guide for the future, not a guarantor of that future. The ultimate goal of a plan is simple – to control your practice as it grows, rather than letting your practice control you. Modified to your own needs, consider these 10 elements as part of your growth plan.
- Plan your infrastructure. Define your office space in terms of what you can afford and what you’re obligating yourself to before you sign the lease. Look at affordable alternatives. Some solo practitioners like being in a diverse professional environment, sharing space with accountants, brokers and other non-lawyers. Others may be comfortable with a "Fegen suite," where lawyers share the expense of a reception area, conference rooms, clerical staff and office equipment. Whatever you choose, make sure it’s a fit for your practice.
- Plan your cash flow. Effective cash flow management often comes down to the steps any lawyer can take to get funds into the bank account as quickly as possible. Begin with more efficient and creative billing on your end – for example, “aging” your outstanding invoices to see which have gone unpaid longest, billing one fourth of the alphabet each week to stagger incoming collections, billing on the 25th of the month so that clients receive and pay statements before month’s end, or billing right after a particularly successful outcome.
- Plan your staff needs. A solo practice without support help risks being overwhelmed, but perfect employees do not exist. What you can and should try to find is the “ideal” employee – one who is competent, highly skilled, congenial and manageable. The starting point for your search is defining what you need, by asking yourself what you need to delegate, and to whom you want to delegate it. Then list the characteristics of your ideal candidate, whether administrative assistant or paralegal, and focus on finding that individual.
- Plan your receivables. You may think that financial success means rising billable hours. However, your real inventory is actually the cash those hours represent. The importance of collecting the money you are owed could not be more obvious. Stipulating payment rates and terms up front is the best way to get paid. Have a policy to keep track of when clients are behind on their payments, and how to contact clients when they are late. Review your accounts receivable once a week and determine which clients are behind on their payments. Then pursue collection vigorously.
- Plan your clients. A marketing plan doesn’t have to be complicated. The real definition is simple: Identify the people most likely to hire you for the work you want to do, communicate with them to let them know who you are, and then develop close relationships with these people to help them achieve their goals. Develop a profile of your ideal client and develop a marketing strategy that focuses on this target, not everyone. You can increase revenue dramatically by focusing on clients who will provide the desirable work that fits your capabilities.
- Plan your credit line. To get the financing you need to accommodate growth, you must establish an ongoing relationship of trust with a bank that will meet your credit needs. That means documenting clear plans for cash and receivables management, marketing and business growth. It also means establishing your qualifications under the “Four Cs” test (character, capacity to repay, capital and collateral) and building a high FICO credit score.
- Plan your compensation. Your draw or salary should reflect your personal needs and style of living, and the most sensible approach is to increase it only as the firm’s performance produces sufficient income to do so. Never use a loan to cover staff payroll or your own compensation – anticipated work or payments too often do not materialize on time to cover the loan payments.
- Plan your core competency. No matter what your area of practice, it makes sense to focus on your core capabilities. The principle of outsourcing is fundamental: Do what you do best and let others (even if the work is done by another firm or contract lawyer) do what they do best, most efficiently and at least cost to both you and the client.
- Plan your business development. The number of contacts that you make, the number of people you talk to, will determine your growth. This goes beyond the issues of branding or marketing. Getting "out into the public eye" can do more than advertising alone for firm name recognition. Social media is becoming part of lawyers’ marketing efforts, but personal contact at meetings, on the phone and through hand-written notes will remain effective outreach tools. Personal contact is the differentiating factor that gets a lawyer noticed. Writing articles and attending bar association functions is the fuel for growth.
- Plan your education. Successful attorneys always continue their education and take more than the minimum CLE requirements. It is impossible to know everything in any one field of endeavor, but you should continue to learn new trends. Also learn to speak the language of the clients you are targeting. Advice from a lawyer who knows the client’s business and industry builds the client’s trust and confidence.
The Final Step
There is one final planning step: realize that your plan will always be changing, which means you will always be a problem-solver. Instead of just reacting, look ahead for solutions. Too many good attorneys are so busy with immediate concerns that they cannot look forward for ways to solve future problems. That applies not only to your own practice but to your clients’ needs. Make yourself invaluable by going the extra mile and providing a service that clients feel they must have. Know your clients' business and anticipate their future problems. Suggest articles or webinars on new business trends. When you become truly invaluable to a client, you will always compete successfully for their business. And as long as you’re competing, you have the opportunity to succeed.
Ed Poll is a speaker, author and board-approved coach to the legal profession. LawBiz® and Fujitsu are sponsoring Ed's cross-country tour to reach bar associations and law schools. If you want Ed to stop in your community, or if you have questions about this article, contact Ed directly, at email@example.com or call (800) 837-5880. To follow his tour, visit www.facebook.com/lawbiztour. Also visit his interactive community for lawyers at www.LawBizForum.com.