How To Start a Law Firm: The Ultimate Guide

Has the thought of starting a law firm ever crossed your mind? There are plenty of reasons for starting your own law firm, whether you want to focus more on one practice area or you’re ready to be your own boss.

In this article, we’ll go over everything you need to know about how to start a law firm successfully. To make things even easier, we’ll also give you some tips about how modern technology can help you hit the ground running.

Should You Start a New Law Firm?

While many lawyers have dreamed of owning their own firm to better connect with clients and do fulfilling legal work, that’s not all there is to it. When you manage a law firm, you’re responsible for every aspect of the business—marketing, budgets, hiring, taxes, and everything in between. 

However, more responsibility also means more control over the direction your business takes. The journey of a new law firm can be incredibly fulfilling. To decide whether hanging out your shingle is right for you, you might want to ask yourself:

• Am I ready to learn how to handle every aspect of running a business?

• Can I excel as a lawyer while dedicating hours to developing my brand and attracting new clients?

• Am I comfortable with the financial uncertainty inherent in an independent practice?

If you answered yes to those questions—or, better yet, are excited to embrace the challenges of starting your own law firm—you should start by first learning the basics of how to start a law firm so you can lay the groundwork for success.

What Are the Requirements for Starting a Law Firm?

Though it may seem like common sense, only licensed attorneys can start law firms. To attain state licensure, you must meet education requirements, pass the bar exam and, in many states, an ethics exam. 

Education Requirements: 

• Juris Doctor (JD) from ABA-accredited law school or

• JD from California-accredited law school in California

• JD from non-ABA law school in Alabama, Connecticut, Massachusetts, and West Virginia (under specific conditions). 

• Completing a legal apprenticeship, also known as "reading the law', in lieu of attending law school in California, Virginia, Vermont, and Washington

• A combination of law school and apprenticeship in lieu of a full JD program in Maine and New York

Review the specific rules in your state to see the latest education requirements for Bar Admission. 

What Are the Startup Costs of a Law Firm?

The costs of starting a law firm can vary, especially considering that many independent practitioners choose to work in a fully remote or hybrid environment instead of renting permanent office space. The costs of setting up a law firm generally include items like:

• LLC entity formation costs

• Liability insurance

• Office supplies (computers, phones, stationery, etc.)

• Office space (if needed)

• Website development and marketing efforts

• Software subscriptions

So, how much does it cost to start a law firm? Startup costs typically average between $6,000 and $8,000, but can be more depending on your unique needs.

How To Start a Law Firm

A lot goes into starting a new firm, and breaking it down into the manageable steps below can be extremely helpful when you’re preparing to make your next move.

1. Create a business plan.

2. Form an entity.

3. Set up finances.

4. Establish your brand and marketing.

5. Consider liability insurance.

6. Build a client base and referral network.

Downloadable Checklist: How To Start Your Own Law Firm

Download this helpful checklist to get started on your journey to starting a law firm.

1. Create a Business Plan

Before doing anything else, take the time to do the math and create a solid business plan. Get a rough idea of: 

• What will your expenses be?

• How much will you pay in taxes?

• How much money will you need to earn each month to keep the lights on?

• How much money will you need to earn to make a profit?

Having these numbers in mind from the start can help you prioritize service, marketing, and technological investments and set revenue goals in the short and long term. It’s also helpful at this stage to create a system to organize important documents. For example, you can create a dedicated folder on your computer to house documents related to your law firm’s tax deductions.

2. Form an Entity

Once your business plan is solid, your next step is to form an entity. Which entity you choose will determine how you pay taxes as well as your personal liability for the business actions and debts. Generally speaking, the most common types of entity types are:

• Limited Liability Partnership (LLP)

• Limited Liability Company (LLC)

• Professional Corporation (PC)

• Sole Proprietorship

Different entities have different rules and costs associated with maintaining them, so make sure you pick the one that fits you best. This is also the point at which you will pick a name for your business.Once you’ve set up an entity, the last step is to apply with the IRS for a federal Employer Identification Number (EIN).

3. Set Up Finances

Establishing financial accounts for law firms is significantly more complex than for other types of businesses due to ethical rules and trust accounting compliance. 

The exact rules for IOLTA compliance vary somewhat by state, so make sure to review them as it’s incredibly important that lawyers do not commingle operating and client funds. Also, if you plan to offer modern payment options like credit card payments or e-checks, using fully compliant legal payment software is a must.

4. Establish Your Brand and Marketing

In the beginning, your new law firm will live and die on referrals, marketing, and first impressions. At a bare minimum, you’ll need:

• A website and logo—Consider hiring a professional designer to take care of these aspects for you. If your website and marketing materials look unprofessional, it will reflect badly on how potential clients see your business, regardless of how talented a lawyer you may be.

• Social media profiles — While going viral on TikTok is not essential, having a branded presence on social media can significantly boost potential clients' trust in you and your law firm.

5. Consider Liability Insurance

Even in states where malpractice insurance isn’t required, it should be a serious consideration for small firms and solo practitioners. According to the ABA, solo practitioners are far more likely to face a malpractice claim in their career than bigger firms. While malpractice insurance may seem expensive, even a bogus malpractice claim can be disastrous for a firm’s finances and reputation.

6. Build a Client Base and Referral Network

Once your business is up and running, the real work begins. Earning new clients and retaining them is how your business will grow and prosper.

• Reach out to your professional network. Because your firm may focus on specific areas of law, you can connect with other attorneys to build a referral network. Don’t be afraid to refer prospective clients to other lawyers if they aren’t a perfect fit, since those lawyers may return the favor over time.

• Establish a new client intake process. Ensure that you are equipped to quickly respond to inquiries and set up initial consults to avoid missing opportunities. 

What are the Benefits of Starting a Law Firm?

Starting out as a new solo practitioner can be a real challenge, but don’t let that deter you. Running a law firm can be extremely fulfilling and comes with a number of unique benefits.

Choosing Clients that Fit Your Style and Expertise

As a law firm owner, you have total control over the types of cases you work on and the clients you work with. This is beneficial for both clients and lawyers. Clients get more personalized, hands-on experiences, and attorneys can set themselves up for success by working only with clients who are a good fit.

Of course, in the early days of owning a new law firm, you might not have the luxury of turning away too many prospective clients. Maintaining healthy cash flow and setting your law firm's budget goals are also important to a law firm’s day-to-day operations. But with enough time and hard work, you can eventually establish a reputation that allows you to be more choosy.

Building an Ideal Work Culture and Team

Many lawyers want to strike out on their own because the culture at their current firm isn’t a good fit. Starting a new firm lets you define the work culture, work-life balance, and core ideals of your practice. As your business grows, you’ll also have opportunities to hire talent that fits your established goals and work culture.

Developing Business and Management Skills

Though starting a law firm is challenging, it’s also a fantastic learning opportunity. Opening a new law firm gives you hands-on experience with financial goal setting, hiring, and marketing skills that help you succeed and define what makes your business unique. Though not everything may go to plan, being small also lets you stay agile and make strategic changes on the fly to adjust to client preferences and market changes.

Solo practitioners and small firms also have the flexibility to think outside the box about what services they offer and how to price legal services, opening up a world of new possibilities for their clients.

Recommended Software and Services for New Law Firms

While starting a new law firm can be daunting, modern technology is making it significantly easier to stay efficient and fully in control of your business. Additionally, by leveraging the right legal technology, you can drastically improve the client experience—and a great client experience is key to helping a young law firm grow. Below are the most common categories of legal software and services you should consider.

• Legal Practice Management Software

• Legal Intake and Answering Services

• Legal Payment Processing Solutions

Legal Practice Management Software

Practice management software makes it easy for you and your practice to keep your client data in one centralized location. It also provides significant advantages to your practice. It can drastically increase efficiency when multiple individuals work together on a case, reduce the risks of misplaced documents or information, and improve client satisfaction.

A good case management solution should have several features, including:

• Client intake

• Matter tracking and management, including the ability to share documents and data between different matters for the same client

• Up-to-date forms and document templates

• Ability to create custom workflows

• Secure client communication and document portals

• Time tracking

• Calendaring and scheduling

• Email monitoring

• Legal practice guides

• Built-in AI features 

Cloud-based practice management solutions like MyCase are ideal for new practices for ease of use and security. Not only do cloud-based solutions give you maximum flexibility by allowing you to work from anywhere, but they are also constantly being updated to stay current with ever-evolving cyber threats, client expectations, and legal requirements.

Legal Intake and Answering Services

Although not every law firm will need specialized legal intake and answering services, these services can offer great time savings and improve your new practice’s professional image.

Some service providers only answer client communications, while some more advanced services can also complete new client intake. These providers can tailor how they handle call answering and client intake based on your criteria and preferences.

Legal intake and answering service benefits include:

• Ensuring that any phone calls your practice receives are answered by a live human

• Collecting all necessary information for you to call back when you cannot answer the phone

• Performing the intake process for prospective clients so you can focus on legal work

• Having multilingual representatives for law firms serving non-English speaking clients

For a new law firm, outsourcing call answering and client intake will almost certainly prove more cost-effective than hiring receptionists, legal secretaries, or paralegals to perform this work. Having these services can also improve your ability to retain clients and improve their satisfaction because they reach a human every time they contact your firm.

Legal Payment Processing Solutions

When considering the various payment methods and processing solutions on the market, there are two main things you should consider as a legal professional:

1. Is it fully up-to-date with state ethics and IOLTA compliance rules?

2. Does it offer a modern experience that clients expect?

Not accepting the most common payment methods may even be a red flag that turns off potential clients. Besides convenience, electronic payment processing also provides tangible business benefits:

• The ability to immediately invoice your clients and provide them with regular reminders of outstanding invoices

• Allowing clients to pay your invoices upon receipt so there’s never any delay between performing work for a client, billing, and getting paid

Legal payment software like LawPay also supports seamless integrations with your existing accounting, case management, and other software solutions. This ensures that you account for every payment and automatically update relevant information to the right places at every stage of the client journey.

Supporting New Law Firms With Best-in-Class Software Solutions

Starting a law firm may not be easy, but if you’ve got the drive, the resources, and the entrepreneurial spirit, it might just be the most rewarding step of your career. Luckily, modern legal software has made running a small law firm more feasible than ever.

LawPay’s best-in-class legal payment software is trusted by both solo practitioners and small firms to modernize and streamline their billing processes. By offering convenient credit card options and other digital payments, new law firms can stay competitive while freeing up time you would otherwise spend on manual data entry and invoicing.

Combining LawPay with a case management solution can ensure you have every tool you need to make smarter decisions, boost efficiency, and drive growth.

Get your billing and payment processes in order with LawPay. Schedule your free demo today.