When partners form a new law firm: Three tips for success
What to consider if you are thinking of starting your own firm.
A Partners’ To-Do List
When partners come together to form a new law firm, the first focus is naturally on their clients. But there are other important steps toward building a solid business that should also be front and center, both for the entire partnership and for individual partners. Here are three items to consider for your to-do list as you and your partners plan on setting up your own firm.
1. Create financial management plans and processes for the firm
As legendary Chicago ad man Fairfax Cone is often quoted: “the firm’s inventory goes down in the elevator every night.” Managing and providing for your people is priority number one in a services firm. They are your business. From the early days of your new law firm you should establish a plan to deliver financial benefits for both partners and staff, including but not limited to a retirement plan, health insurance, if the size of your firm warrants it, and malpractice insurance.
Process efficiencies and controls for billing, cash flow and expenses are bricks in the foundation on which a successful business is built. This planning is particularly important while the firm is in its early stages, when the client base and billing projections are just forming, yet the demand for expenditures can be daunting.
The financial tools that will help you manage through the start-up phase of the firm will be essential. Beyond the basics of a business checking account and Interest on Lawyers Trust Accounts (IOLTA) depository, working capital lines of credit, letters of credit, equipment leases and loans may be helpful in financing your short and long term needs, including funds to secure office space and other infrastructure purchases. You will also need to establish a cash management system to manage payables and receivables as well as billing and payroll. Remote deposit capture, lockbox, ACH capability, escrow accounts, business credit cards, fraud protection and wire transfers are also valuable tools.
2. Create a financial plan for yourself
It is important to keep sight of your own financial well-being when you take on the role of founding partner in a new firm.
You and your partners likely have a retirement plan from your previous firm that should be rolled over into the one you’ll be establishing at the new firm. Be sure you work with an organization that takes a consultative approach to setting up your plan, offering non-proprietary products, transparent investment management and costs.
It is equally likely that during the start-up phase your new firm will require capital contributions from you and your partners; that may require capital loans as well as personal guarantees for borrowing to support the firm. Those demands on your financial resources, along with revising your estate plan, require thoughtful decision-making that can be made less stressful with the help of a financial advisor.
And don’t forget, if your new firm won’t be providing health and life insurance – at least during start-up – you should make your own plans to ensure those are in place for you and your family on day one.
3. Create a cost-effective marketing plan
The first step in marketing your new firm is to name it. Most advertising and branding experts who work with law firms argue on the side of shorter-is-better. But there is an element of naming that can have cost implications. As new partners join, many firms add them to the end of the name. That can mean expenses for letterhead, business cards, website design, even office doors and signage. The solution that some have found is to name the firm without using partner names. Choices often include words with Latin or Greek roots – or no roots at all – that communicate attributes such as value or a specific area of law your firm may practice. The best advice however, is to begin by consulting Section 7 of the American Bar Association (ABA) Model Rules of Professional Conduct and the Illinois State Bar Association Practice Tools to ensure you avoid any ethical missteps in naming.
Building awareness of your new firm
In addition to naming, there are also well defined ethics rules about advertising and promotions for law firms, and the messages they contain. The rules vary by state, so it is important to look not just at Illinois rules, but those for Wisconsin and Indiana, as well as other states where you are licensed to practice.
But beyond those rules, many options can factor into your marketing plan. For example, choosing between “earned” versus “paid” media.
- Earned media is typically free and is based on creating or sponsoring newsworthy events or information covered by the press. Your first step in using earned media can be a press release announcing the firm’s formation.
- Paid media is advertising in commercial channels such as television or radio.
And don’t forget social media. It can be a vital – and low cost – part of your marketing plan, but there are important ethical rules to follow. A Pennsylvania Bar Association opinion offers good advice for law firms in every state.
While there will be development and maintenance costs for a website, you can also post news releases as well as partner biographies and other information about the firm. However, effective websites must include relevant and interesting information that is updated frequently – and that means building in a budget for refreshing content.
Other cost effective tactics for building awareness of your firm fall under the category of community engagement:
- Sponsorship of charitable or community organizations and their events
- Donating partner time to pro bono legal services
- Involvement in partners’ law school and undergraduate alumni activities, newsletters and websites
- Networking through membership in trade or business associations that are valued by your clients
As your new firm continues to grow – adding clients, employees and partners – financial and marketing plans will need to expand as well. To manage the change that comes with success, it is wise to work with professionals in these areas who understand your challenges and have a significant track record in serving the unique and specialized needs of the legal profession.