2. No Budget
Your budget is the financial side of your business plan. It should show a breakdown of all your anticipated start-up expenses as well as forecast the money you will need on hand to meet expenses until your cash flow gets going. Failing to anticipate and have on hand sufficient capital is a major cause of business failure.
3. No Targeted Marketing
How will you persuade potential clients to leave their lawyers to come to you? Attracting sufficient good-quality (hint: well-paying) clients is one of the first hurdles you must overcome. Plan how you will reach out to potential clients and what your message will be to bring them to you. Failing to follow the 5 P’s of Marketing (product, price, promotion, place and people) can result in business failure.
4. Overestimating Income
I have yet to meet a fellow lawyer who did not believe that there would be an immediate lineup of clients the moment he hung out his shingle. The reality is that building a brand (i.e., you!) takes time. Don’t make the mistake of overestimating the income you will generate until your practice starts firing on all cylinders.
5. Not Learning From Your Mistakes
A business is an entity that makes decisions in order to move forward. Some of those decisions will work, others will not. Failing to learn the lesson that resides inside a bad decision means making the same mistake twice … or three times—costing you valuable time and money each time.
6. Not Listening to Your Clients
So many businesses appear to be set up to ignore or worse, annoy, their clients. Ben McConnell, co-author of Creating Customer Evangelists, told BusinessInsider.com: “Research firm TARP has found that for every person who complains, there are 26 who do not. That means if 10 customers complain, another 260 may have quietly dumped you, never to call again. To know what customers are thinking, ask them.”
Failing to listen to what you are doing right, and, importantly, what you are doing wrong, is a major mistake.
7. No Focus on Your Business Fundamentals
Entropy, physicists tell us, is the law that states that there is always a decline in any system into disorder without the continual application of energy. Failing to consistently spend time and energy on the fundamentals of your business (management, marketing, technology and finance) will inevitably result in your business failing.
8. No Cash Flow Management
I have met many lawyers who try to run their practice on the “checkbook method” of cash flow management. They look at the balance in their checkbook, and if there is money there, they draw it out. This method completely fails to anticipate expenses and when they must be paid. Paying unnecessary interest charges, losing a valuable supplier or having your credit cards max out because you don’t have sufficient cash on hand is a major financial mistake.
9. Not Having a Proper Trust and General Accounting System
So many lawyers defer the cost of a proper accounting system for trust and general accounting until they have “sufficient” cash on hand. This is not only a financial mistake; it can be a legal and ethical one with profound implications. Don’t assume you can look after the numbers side of the practice without a trust and general accounting system in place from the get-go. You are literally placing your license to practice on the line.
10. Not Seeking Professional Assistance Such as a Bookkeeper and Accountant
Professional advice is expensive. Failing to get professional help can be disastrous. Accountants can ensure that your financial systems are properly set up and running at the start. A good bookkeeper can keep track of trust funds and account for practice income, expenses and taxes properly to keep you on side with your regulatory bodies and provide you with valuable financial insights into how your practice is coming along.
11. Not Planning for Your Retirement
If you joined a corporate legal department, you would be starting to contribute toward your retirement starting with your first paycheck. Failing to provide for your retirement as a business owner can result in financial ruin if you cease work due to unanticipated health concerns or other life event.
12. Not Placing Paying Yourself as a Priority
Even if you forecast what you need to bill and collect to pay your expenses on time, many lawyers do not include the amounts they wish to pay themselves in that calculation. This results in lawyers paying themselves whatever is left after expenses, which can be a major financial mistake. Build your draw into your monthly expenses so that you are not left scrambling to pay yourself at the end of the month.
13. Not Implementing Technology Where It Can Help
The 2019 Aderant Business of Law and Legal Technology Survey looked for the 10 most effective electronic tools that lawyers can use now to improve the efficiency and effectiveness of their practice.
- Document management
- Time and billing
- Case management
- Financial management
- Knowledge management
- Mobility and mobile applications
- Business intelligence
- Matter pricing and planning
Failing to leverage the advantages of technology implies that you are failing to use your best asset—namely you—for greatest impact.
14. Not Realizing Just How Profitable You Are
Legal services is the third most profitable small-business industry by net profit margin (NPM), according to SmallBizTrends. NPM is an indication of how much profit you are making on each $1 of billings. A law practice’s NPM is typically 17.4 percent. Too low an NPM can indicate an upcoming financial crisis. Failing to generate, review and understand the numbers that indicate the financial health of your practice is certainly a major financial mistake.
15. Not Getting Enough Sleep
You can work yourself into a state where you collapse from exhaustion. Running your own practice is not a 100-yard dash. It is a marathon, and marathoners realize you need to spread out your energy and effort to achieve success. Ensure you are healthy, well rested and able to keep running, day after day, week after week. Take time to exercise, to sleep and to enjoy life—after all you are not living to run your practice, you are running your own practice to enjoy life. Enjoy the journey!