Kerry M. Lavelle is a partner with Lavelle Law, Ltd., where he practices in the areas of federal taxation, law practice management, business law, and commercial real estate. He may be reached at kmlavelle@lavellelaw.com.

When deciding to start your own practice, the financial risk of moving forward is a significant concern. However, keep in mind that in our profession, the cost of starting your own business is relatively small.

Ask the general businessman or student about the barriers to entry in starting a law firm, and you would be told that the investment of time and money of law school and the risks of not passing the bar are huge barriers to becoming a lawyer and starting a law practice. However, you are beyond all that; you presumably have already passed the bar and now are looking forward to starting your own practice. The barriers to entry at your stage are actually quite minimal. Invest in a computer (or a laptop, which you probably already have), a high-quality printer, letterhead, and malpractice insurance, and you are in business!

Other items, such as office furniture, access to an online research library, a sophisticated telephone system, a website, and other miscellaneous equipment such as dictation machines and postage meters, are all niceties that you will eventually want and have, but they are not absolute requirements. A lot has been written on whether or not you should start your practice by renting commercial office space and where that office should be located, but many practitioners start their law offices on a shoestring budget by practicing out of their home.

Getting into business is not the barrier to entry in the practice of law. The primary challenge is financing the first year or two of business and personal expenses as you attempt to build a client and referral base.

In this article, I will address the more traditional routes of keeping afloat during the lean years of starting your own practice. Keep in mind as you endeavor to move forward practicing law that you will be hired and you will earn money in the first year of practicing law—so long as you devote genuine effort to networking with people and maintain the discipline necessary to follow up and stay “front and center” with potential clients and referral sources. The question becomes, will you earn enough to pay your business-related expenses, and how much will you “take home” to pay your personal expenses?

Assistance from Family Members

Realistically, if you are married or in a relationship and your partner is willing to provide for personal expenses during the first few years of your endeavor, you may have solved the problem. However, be aware that your personal “partnership” means sharing in the upside of your law practice, or repaying your debt.

If your spouse or partner is currently working, you may qualify for health insurance from your partner’s employer (even at a cost). Moreover, your spouse or partner may also be generating enough income to satisfy other basic personal expenses. If this is the case, the pressure on netting a meaningful take-home salary is greatly reduced. All that is required is enough cash flow to pay the expenses of running your law office—which, as noted above, should be minimal.

If you are practicing out of your home, your overhead will be low. Eventually, the first advancement into an office environment will be at a time when you feel you can afford rent for your office. There are many resources for small professional service businesses to rent space in an office-sharing environment where they have access to a large copy machine and conference rooms to meet with clients. You may even get more creative and move into an already-established law firm or other professional service provider where you can rent a single office in an office suite and have the same amenities as in an office-sharing arrangement with fellow independent attorneys. (Be aware of confidentiality issues with client files in the presence of non-attorneys.) Once you move into an office suite, your business expenses will go up, and you will need to generate additional revenue to cover these additional office-related expenses before your take-home pay will begin to increase and accumulate.

Some young attorneys without the benefit of a working spouse or partner may still be able to tap into the support system of their parents or other family members to float personal living expenses until they can establish their practice in their local community. Not everyone can be so lucky, but, again, family members generally are very proud and pleased of your success graduating law school, passing the bar, and then starting your own practice.

Banks and Lending Institutions

Do not be overly optimistic of going to a bank for a line of credit when you have just graduated law school and possess no collateral, no clients, and no referral sources. It would be very unlikely to obtain a loan to finance your business going forward under these circumstances (unless a family member or friend pledges collateral or provides a guaranty).

However, not every new attorney falls into this category, and some may have, through previous work experience, accumulated money to have purchased a home and to qualify for a loan. A bank will require collateral for its loan, such as a second mortgage on your home or lien on other collateral, if the attorney has such collateral. Furthermore, some attorneys starting their own practice are actually migrating from an existing practice to hang out their own shingle and, as a result, would be able to demonstrate the cash flow from portable clients moving with them to their own private practice. In this case, banks may be more willing to provide a small line of credit to the business to help finance receivables of the law firm that, in turn, helps the attorney to take out money from the law firm as profit. This has great benefit for the attorney because, as we all know, personal expenses such as rent, mortgage payments, car payments, insurance, and utilities must be paid on time and are not payable subject to the whims of clients who sometimes pay 30, 60, or even 90 days late. Access to cash is critical in the first few years of starting a practice.

Savings

Many authorities, including attorneys who have started a practice, assert that you should have approximately one year’s worth of personal living expenses in the bank before you launch your start-up. This may sound a little discouraging for those right of out law school (and carrying student loan debt!), but it is a realistic barometer of the financial cushion necessary before opening your practice.

Remember, you usually start your law practice because: (1) you want to or (2) you need to. If you are starting a practice because you want to, you may be in control of the timing of your start-up date and possibly working for a law firm or working on side projects with experienced lawyers; this can provide the ability to save money before hanging out your own shingle. If this is the case, you may be well served going to the local bar association meetings in your area and finding an experienced attorney/mentor who could help and teach you through the process; in return, you could provide legal services for his or her firm at “wholesale rates” (the attorney would then bill out your time at the market rate). Under these circumstances, you will have virtually no overhead, and even working at a reduced rate will help you accumulate the cash necessary for the reserve required before starting a practice on your own.

Find a Side Job

Prior to law school, and in some cases during law school, you may have had nonlegal jobs. Many attorneys worked, through undergraduate school and later, as mortgage brokers, insurance professionals, manufacturing reps, bartenders, retail clerks, and tradespeople. Kudos to you for keeping these connections, and while side work is not optimal, face it, it may be a necessity. Do not eliminate any possibilities for the success of your law practice. Keep in mind that even working a few nights a week as a bartender will help; if you can make enough money to pay your rent, utilities, and food, you will be able to concentrate on the law practice during the day. Admittedly, it is not optimal, and I highly discourage it if another path is available. And, hopefully, this side job will only be temporary.

As you will soon find out, and as written about by numerous authors, the endeavor of starting and growing a law practice is more than a full-time job; it is almost two full-time jobs. Time spent doing anything other than practicing law is detrimental to the growth of the law firm if better options are available. If at all economically possible, 100 percent of your effort and time needs to be spent on building and growing your law practice. By now, you understand the necessities of life and the economics required to pay your minimum living expenses, but any time spent on anything other than the requirements needed to build a great law practice will slow down the upward growth trajectory of the law firm.

Conclusion

While there is no great answer on financing the start of your law practice, keep in mind that the same is true for starting a hot dog stand, a mortgage broker company, a restaurant, or a local bar—you never know how much income you will receive in the first year, so you must be prepared to withstand some bumps in the road before your client base and referral sources are well established and work will continuously flow in the door. The practice of law is no different; however, keep in mind that we are very fortunate that our barrier to entry into starting a law firm is quite low.

Be mindful of the ongoing financial commitments you make that may handcuff your law practice. Take steps to control and minimize unnecessary expenses (overpriced rent, contracts for electronic research providers that are more than you can afford or need) and be nimble enough to take on opportunities that can come your way that will bring in revenue to your firm. Remember, boosting revenue is not the only way to increase your take-home pay; a good businessperson also looks to keep expenses down. Once your take-home pay increases to the level that allows you to cover your personal expenses at home, you are off and running! Before you know it, you may be looking to hire a paralegal or an associate.

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