Best Practices

How to Start a Law Firm: The Ultimate Guide

The LawPay Team
The LawPay Team
December 1, 2023

Has the thought of opening 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 your own law firm. To make things even easier, we’ll also give you some tips about how modern technology can help you hit the ground running.

Ready to make your dream of starting a law firm come true? Let’s begin.

Should You Start a New Law Firm?

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While many a lawyer has 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 run a law firm you’re responsible for every aspect of the business—marketing, budgets, hiring, taxes, and everything in between. Even an exceptional lawyer may struggle with the additional, and sometimes tedious, responsibilities that come with running a business.

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 also dedicating hours to developing my brand and attracting new clients?
  • Am I comfortable with the financial uncertainty inherent to independent practice?

If you find yourself answering yes to those questions—or, better yet, are excited for the challenges of starting your own law firm—then you should dive headfirst into learning the basics of how to start your own law firm so you can lay the groundwork for success.

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 what types of cases you work on and which clients you work with. This is beneficial for both clients and lawyers. Clients get a more personalized, hands-on experience and attorneys can set themselves up for success by only working with clients that 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 budget goals are also an important part of 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 the goals and work culture you’ve established.

Developing Business and Management Skills

Though starting a law firm is a bit of a challenge, 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 not only help you succeed but 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.

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, stationary, etc.)
  • Office space (if needed)
  • Website development and marketing efforts
  • Software subscriptions

Startup costs typically average between $6,000 - $8,000 but can be more depending on your unique needs.

How to Start a Law Firm: Key Steps

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

Step 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 your expenses will be, how much you’ll pay in taxes, and how much money you’ll need to pull in per month to keep the lights on and generate a profit.

Having these numbers in mind from the start can help you prioritize service, marketing, and technology investments. A business plan is also invaluable for setting revenue goals in the short and long term.

Step 2: Form an Entity

Once you’ve got a good grasp of the numbers, the first real 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 where you will pick a name for your business as well. Once you’ve set up an entity, the last step here is to apply with the IRS for a federal Employer Identification Number (EIN).

Step 3: Set Up Finances

Setting up financial accounts for law firms is considerably more complicated than other businesses because of ethics rules and trust accounting compliance. At a minimum, you’ll need to set up an operating account and an IOLTA account.

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-check, using fully-compliant legal payment software is a must.

Establish Your Brand and Marketing

In the beginning, your business will live and die on referrals, marketing, and first impressions. At a bare minimum, you’ll need a website and logo—and unless you’re a particularly artistic and/or tech-savvy person, it would be wise to hire 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.

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.

Build a Client Base and Referral Network

Once your business is up and running, the real work begins. Drawing in and retaining more clients is how your business will grow and prosper.

A lawyer’s first port of call should probably be their professional network, especially since many smaller practices tend to be more specialized than big firms. Don’t be afraid to refer prospective clients to other lawyers if they aren’t a perfect fit since over time those lawyers will return the favor.

Additionally, based on your practice area, determine how best to spend your marketing budget and establish a new client intake process. Ensuring you are equipped to quickly respond to inquiries and set up initial consults will help you stand out above the competition.

Download this handy checklist for more tips on how to launch your new firm.

Vital Tools 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 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.

Practice Management Software

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This technology makes it easy for you and your practice to keep your client data in one centralized location.

Practice management software also provides significant advantages to your practice. It can drastically increase efficiency when you have multiple individuals working together on a case, reduce 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

Cloud-based practice management solutions like MyCase are ideal for new practices, both 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 of the more advanced services can also complete new client intake for you as well. These providers can tailor how they handle call answering and client intake based on your criteria and preferences.

The benefits of these services 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

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.

Many legal intake and answering services can also provide multilingual representatives, which is useful if you intend to market yourself to prospective clients who may have difficulty communicating in English.

Modern Payment Processing Solution

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?

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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 every payment is fully accounted for and relevant information is automatically updated to the right places at every stage of the client journey.

Supporting Successful 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 that would otherwise be spent on data entry and manual invoicing.

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

Considering starting your own firm? Get your billing and payment processes in order with LawPay. Schedule your free demo today.