As a solo practitioner, the biggest issue facing my business is how to manage my finances. And I don’t mean how to generate clients or how to collect and bill, but rather how to handle the routine expenses that are associated with a law firm. In this regard, it is important to consider your accounting practices, your business form, and your insurance coverage.
The best piece of advice I can give any new solo attorney is to get a good accountant. As a small business owner, you want someone who knows what a solo attorney faces, so you should look for an accountant who works with small businesses or law firms. Before you hang your own shingle, it is important to sit down with the accountant and map your business plan for the next five years. You should ask your accountant the following questions:
· What is tax deductible?
· What can I depreciate over the years?
· What expenses am I allowed to “write off”?
· Should I claim a home office?
· Should I use a cash basis or an accrual basis?
· Should I lease or buy equipment?
This conversation should not be the first or the last you have with your accountant.
You want an accountant with whom you can build a relationship. Settle a big case, call the accountant. Hire staff, call the accountant. Need to buy or lease office equipment, call the accountant. These everyday items are things that will affect you when tax time comes, which, depending on your firm structure, might be an annual or a quarterly event.
After you have spoken with your accountant, the next decision every new solo needs to make is how the business will be set up. You should learn the pros and cons to each type of business entity and how they relate to a law firm. How you choose to set up your firm is an individual decision based on you, your clients, your book of business, and your practice area. My only suggestion is to make sure you protect your assets.
After you set up your firm, your next big consideration is malpractice insurance. Insurance seems complex and scary to a lot of people, but it is worth the premium, especially if you get sued. Some states require insurance; you should find out if your state has minimum coverage requirements. Much like an accountant, an insurance broker is a good person to know and with whom to build a relationship. Insurance premium costs are predicated on the type of work you do. Some areas like criminal law tend to have lower premiums than areas such as real estate. Before signing up for a policy, ask your broker the following questions:
· What are the limits?
· Are defense costs included in my per occurrence or aggregate limits or are defense costs outside the limits? In other words, does the cost of defense get subtracted off the policy limits, thereby reducing the potential money available for settlement?
· What is my deductible (i.e., how much do I have to pay out of pocket before the insurance carrier starts paying)?
· Will my policy pay for time off of work?
Some policies will pay you a per diem rate if you get sued and have to go to trial. I would suggest getting quotes from several different carriers, as every policy is different.