Law Firm Business Plans Explained
A common refrain I hear from lawyers with which I work and speak is, "I haven’t been effective at running my firm as a business." I get it. Attorneys hate marketing; it’s a necessary evil. You never went to law school to market your business. Just like doctors never went to medical school to run a business.
No one goes into business because they are good at running a company. People and companies go into business because they are good at their respective skillset. Law firms are no different. The mere ability to practice law doesn’t mean you have what it takes to run a law firm business successfully or sustainably.
If you haven’t run a business before, it can be difficult to know what’s important, and what’s wishful thinking. If you don’t know what metrics are important to track to help you plan for growth or address a downturn in business, it can mean the difference between success and failure of your firm.
I’m not a beaten-down economist projecting doom and gloom. But we’ve had a nice run in the economy. I’m not saying that I see the next recession around the corner, but we all know there’s going to be another recession at some point . And it’s not just me—I know economists on both sides of the political aisle who agree.
If you’re unprepared or simply reactive when that downturn arrives, it may be too late to save the firm. As James Downing said in his book, Heads Up Leadership: What You Need to Lead in Times of Change, you need to be ready "for when the brown stuff hits the fan." The impact of being unprepared when the economy turns is real and stark—from layoffs to loss of social classes in your firm. Law firms need a business plan to help them get through the rough spots and take advantage of the upturns.
Having a plan helps you measure against the goals you have set for yourself. That’s what a business plan is for, after all.
A business plan creates a framework for accountability. It gives your firm a roadmap to success. It allows you to prepare for the good and bad times. As someone who has both built a law firm from the ground up as well as worked with scores of law firms across the country, I assure you most law firms don’t have a business plan or even a clear vision of the practices that would build their law firm.
Company Statement and Mission Overview
Your business plan should include an executive summary and a mission statement. The executive summary includes a brief introduction to who you are as a firm, important highlights from the rest of the plan, and contact information. It allows you to share with others the most fundamental things they need to know about you in a snapshot, and contain a few key details that would entice a reader to explore the rest of the document.
The mission statement should convey what the firm exists to accomplish. It’s your ultimate goal, or what you hope to achieve in the future (such as by creating value for clients, building long standing relationships, and so on). Both the executive summary and the mission statement are essential to creating a clear picture of who you are and where you want to go as a firm.
Industry Analysis for Law Firms
Law firms must perform market analysis on the services they provide.
North America has 1.3 million attorneys vying for business in the marketplace. These lawyers come from over 200 0-500 law firms, as well as a plethora of 1099 lawyers that many of these firms were formerly affiliated with. Further competition will come in from Alternative Legal Service providers (ALT’s), who are significantly driving down prices in law today. While the concepts of the offerings amongst these law firms are almost similar, this competitiveness seems to have little value for clients as the price is effectively determined by the market, regardless of many preconceived notions of worth. The first task at hand is to determine what service you provide and how you can differentiate yourself from others – and there are many. Identifying your market, your "target," is an essential starting point. There is no need to spread yourself too thin, you only need a small share of a broad market to be successful. Too often firms try to be something to everyone, which only diminishes your value. When determining your optimal target client, it is recommended that you narrow your target audience to less than five distinct businesses/employers. The focus of your web content will become clear. Your marketing budget won’t be wasted on trying to be everything to everyone. Once you determine your target, it is recommended that your web developer perform a detailed competitive analysis for your target(s). This is your opportunity to gather pertinent information about your competitors that will allow you to create your unique offering to the market. Information gleaned from the analysis should be used to complete the SWOT analysis for your firm.
There are many factors to dissect in reviewing your competitors. Be sure to consider things like location, size of your firm, quality of your services, area of practice, specialty, and billing practices. Compile all of the relevant information into a report form (preferably an excel spreadsheet) so that it can be easily organized and reviewed. The most important aspect of the report is that it should focus on your primary target. For example, if your target is personal injury cases then when researching your competitors you need to keep that in mind. Even if you closest competitor is a DUI attorney, but you target personal injury cases, you don’t need to waste time researching why the DUI attorney is winning cases, when you should be focusing on why the personal injury attorney is winning cases. We recommend that you meet with your web developer once you have your report complete, to review the findings. This way both parties can contribute and openly discuss what your internet marketing and online business development approach should be.
Organization and Management Framework
The organizational structure of a law firm business plan will help you establish the hierarchy of authority within the firm. The type of organizational structure adopted will be specific to the needs of your firm. For instance, small firms with few attorneys may not need a hierarchical organizational structure. Alternatively, larger firms may have extensive organizational structures which include committees. Regardless, these structures will help the management team know the reporting structure of the firm. Failure to create appropriate reporting guidelines can lead to ineffective and inefficient management.
In addition to the organizational structure, the management of the firm should also be addressed within the law firm business plan. Typically, the response to this section will address aspects such as who will be in charge, how often management meetings will be held, and what major factors must be approved by management. The management portion of the law firm business plan will ensure that all top level attorneys within the firm have a clear understanding of their roles and responsibilities.
Law Firm Services Outline
When drafting a business plan for a law firm, it can be worthwhile to divide the Services Offered section into two parts: The types of services offered and areas of niche practice.
Types of Services Offered
There are basically three categories under which all legal services fall. They are litigation services, transactional services and services of a quasi-legal nature. You will need to be specific as to the services you offer and give some examples.
Litigation services include everything from basic representation in a court proceeding to the most sophisticated and complex multi-jurisdictional triple track economic criminal regulatory proceeding by the federal and state government. You can include in here any advice on litigation matters such as pleadings, briefs, injunctions and equitable matters.
Transactional services are the services provided to businesses to get them in order. These can include how to buy property, how to sell property, how to negotiate a deal. If you are offering business services, you can include everything from choosing business entities for your clients to drafting an operating agreement for a limited liability company to writing a manual. You can add any advice you give to them on transactional matters.
Services of a quasi-legal nature are those things for which you may not have professional licensure, but you have the education or experience to advise clients and help them. They include things like accounting advice, financial planning and financial advice of all sorts. In fact, your entire wealth management program can be included here. Dramatic shifts in the law have made it possible to offer wealth management services without being a financial planner as long as you didn’t hold out that you were. When you offer wealth management services, it is important that you spell out which services you are providing and which ones you are referring to others.
In terms of niche area of practice, you will find that you engage in some type of specialized expertise. You should be eligible for listed an AVVO, Findlaw.com or Martindale hub with little problem. You should also consider becoming AV rated. As you will learn later in this book, you will be able to sell yourself, your services in a much easier manner if you are certified as an expert in your area. You should mention here any area in which you will be able to be certified.
Marketing Strategy for Law Firms
Marketing strategies for law firms are crucial for success. One of the first decisions to make is where to hang your shingle. Law firms that are well-established may have an office or more in an upscale business area of town where premium rates can be charged on the legal services offered. New law firms that are just getting started may not have the start-up capital to afford an office space in the same area, so you may want to open your business in an up-and-coming neighborhood where rent is more affordable.
New internet technologies make it increasingly possible to run a law firm without a physical location. Many law firm online startups are virtual businesses that only serve clients through their information-rich websites, email, chat function and even video. This real-time approach to law firms is a cost-saving measure and a way to network more efficiently without the overhead of an office. Of course , legal ethics rules must be followed at all times when doing any business using electronic communications. One area where legal ethics rules must be adhered to is the presentation of fees on a law firm’s website.
The law firm will also need to market its services if it wants to be successful. Advertising in regular media like newspapers, radio and magazines still can attract clients, but you may want to consider online ads as well. The internet gives your law firm a chance to have an internationally visible presence and can build credibility for your firm.
Social media also is a way which to generate new law firm business. Twitter, Facebook, LinkedIn and similar services help to create a relationship with potential law firm clients. The law firm also will need to market its services in the community. This could include giving seminars or workshops in the field of law in which you plan to focus your practice.
Projected Financials and Budgeting Strategies
A business plan for a law firm would not be complete without some financial projections. The costs of opening a new law firm, including the purchase of a book of business, the overhead of hiring new attorneys and staff, lease agreements, equipment purchases and other items of potentially large expense all need to be factored into the decision of whether to open a new law firm and when. If you don’t ask yourself these questions, you are jumping in the deep end without even looking at the pool to prepare for the splash. Your revenue forecast is the most challenging part of your financial projections. Particularly if you are starting a new law firm, you have no historical data to serve as a guide. If you are purchasing a book of business, that book of business does have historical data, but determining its value can be difficult. I recommend using conservative figures in your initial calculations, focusing on revenue from current clients and known future work, and expanding that number as you do more due diligence and your confidence level rises. If you are purchasing a book of business, you need to consider additional expenses in the early stages of the firm, such as the anticipated costs of divesting the book of business of unwanted clients and growing your practice with your ideal client base. All additional costs need to be accommodated in your budget, as your initial revenue projections will be lower than expected until you build your new client base. Once you have determined revenue projections, you can factor in expenses. If you are buying into a firm, you will know some of these expenses already, but for a new law firm, you will need to determine what your expenses will be. Here are some common expenses to consider: Laboratory and cleaning supplies: This can include everything from binder clips to office supplies and paper to cleaning agents and solutions. Maintenance and repair: This category can include everything from vacuum cleaners to printers and fax machines. Utilities: This may include a variety of utilities depending on the location of your law firm. Telecommunications: This includes internet service, cell phone service and landline service. Rent and lease: Your costs of renting or leasing your building and office furniture. Office costs: This can include office furniture, copiers, printers, postage and other business equipment costs. Transportation: Many law firms will provide at least some sort of transportation to their clients. This can include everything from a complimentary lunch with a client to taking them out of town, or even shuttling them to appointments and events. Professional dues: Any applicable dues that pertain to your area of expertise or business interest will be a part of your expenses. Things like bar dues and other fees will also apply. Education and training: Attending classes, conferences and seminars can be an expensive part of your business. You may also need to complete continuing education on a regular basis. Labor: Labor is the most expensive part of a firm, including officers’ salaries, hourly wages for clerks, accountants and payroll processors, and benefits. Some law firms hire subcontractors, which may also account for a significant portion of their labor costs. Laboratory and cleaning supplies: This can include everything from binder clips to office supplies and paper to cleaning agents and solutions. Many law firms today choose to utilize software solutions to help with their invoicing, accounting, billing and expense-reporting. If your firm utilizes a timekeeping or software solution to assist with the administrative side of the business, it’s important to have ongoing support and maintenance for this system. Software maintenance costs should also be factored into your financial projections when starting your law firm.
Law Firm SWOT Analysis
The next step in the process is to conduct a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) for your firm. Brainstorm a list of strengths, weaknesses, opportunities, and threats, and then rank them.
Strengths
List the items that are your law firm’s strongest selling points. What do you have that is better than your competitors? This will help you see how to best market your firm. Strengths could be the following:
Weaknesses
This is the part of the law firm plan where you will need the most honesty. Be as critical as possible so that you can make the necessary improvements. If you cannot bring the skills into the firm you need to succeed, you may have to seek other outside arrangements. Weaknesses could be the following:
Opportunities
Opportunities are out there, but you need to be the one to find them. You have been preparing for this stage by conducting your online research. When brainstorming this portion of your SWOT analysis, think of interests and possible contacts that could either become clients or lead you to clients. Additionally, a recession or relatively slow economic times can actually create opportunities when so many other firms around you are cutting staff and downsizing. Opportunities could be the following:
Threats
Do not be afraid to admit your law firm has threats. Threats can come from many sources and can be external to your firm. Train your staff to spot these threats and address them as soon as possible. Threats could be the following:
Now that you have both your SWOT analysis and competitor evaluation, you will be prepared to make the game plan that will lead you to victory.
Appendices and Supporting Information
Informational appendices and supporting documentation can provide your firm with two things when it comes to your business plan: a source of information and a legal protection mechanism.
An example of the former would be something like your sales projections, current product sales numbers, and other information used to create the financials in your formal business plan. If your plan is ever challenged or you are the subject of any kind of lawsuit, these appendices become vital because they will offer additional frameworks for how you have created your forecasts or projections, but if the plan is being reviewed by an outside party, they will only be interested in the summarized version you provided above in your main document.
The second role of appendices and supporting documents is much less interesting, but also more valuable. This is the mechanism of legal protection that it provides for your firm , as anything that is not specifically stated in the business plan cannot be legally challenged by any parties as part of that plan. So, if you use an appendix to describe the inner workings of your projected marketing campaign, for example, rather than give the details in the main document, you can avoid someone claiming theft or infringement on your business plan. Instead, all of that information, how you intend to operate and what you look like when you are at your best is listed in an appendix where it does not get recorded as part of your filed plan.
Keeping this information separate from the main plan also gives you flexibility and control over new developments or changes. If you need to make an adjustment to your marketing strategy, for example, you can just move information out of that appendix. However, if you listed it in the business plan instead, you would have to go through an amendment process to move that information around.