13 Tips for setting up your Law Firm

Are YOU are thinking of setting up a new law firm? In this article, I have noted down some things you might wish to consider before handing in the resignation that gives you a comfortable monthly income! 

I have helped to set up many businesses including a number of law firms and here are some things someone thinking of setting up a law firm might keep in mind!  

I have written it in point form for you to easily convert into a check list of things you need to cover off on. 

There are three other blogs you might like to check out as well: 

• Choosing Legal Practice Management Software
• Nine tips to reduce paper in your office
• Advice from current business owners if they were setting up a new business

 1      Document your Vision

• Why are you starting? If it just because you are sick of being a staff member, think again!
• Is your game plan economically viable? You can’t check this too often. 
•  Get as much of your current passion down in writing. Later when you are making big decisions or the going gets tough this will help enormously!
• What is your point of difference? What type of law will you focus on?  

2      Carefully consider your Marketing

Where are your clients going to come from? Do not pass here until you have answered the questions in detail! Hanging a shingle does not guarantee any business will walk in your door.

a) Web Site

Who will organise your domain name and build your website?  

Have you written the content for your website? 

b)  Generating New Business

• How will you generate new business? 
• What if the trusted source of new business dries up – what will you do?

3     Licencing

As a lawyer, when will you have your Principal's Practising Certificate? 

• Do you have more study to do to be able to apply for Principal's Practising Certificate from your local law society?
• Once you have ticked all the boxes to qualify for a Principal’s Practising Certificate, you will need to have determine your structure (see the following point) before finalising.
• What other licences do you need? 
• Do you need approval from your local council to carry on business at your chosen location? 

4     Set up the Correct Structure

Get advice on the best business structure if you are not familiar. Your accountant can recommend the best structure for your situation, be sure to prompt them to include future planning for changes in ownership (even if it is the furthest thing from your mind now).

Setting up a corporate structure gives you much more flexibility later. If you are in a company or a unit trust you can change the ownership later and the entity continues, without having to set up new books and/or trading entities. 

• If you set up as a sole trader and take on a partner the sole trader business has to cease and a new entity starts in the new structure. 
• If you set up as a company or a unit trust and you take on a partner it is simply a case of issuing new Shares or units and advising the local law society, banks, etc.
• If something happens to you as a sole trader and the business needs to continue, you need to set up a new entity in a rush which is never good! 

Once the structure is decided you need to set it up and get an ABN. Your accountant can assist here. At this point you can register for GST and Pay as You go Withholding (PAYGW) – the tax you withhold from wages. If you don’t know your start date GST and PAGYW can be easily added to your ABN later.

5    Funding

How are you going to fund the set up? 

• How long will it be from when you open the doors to when the business is paying its way? 
• Where will you get your customers from? (yes I have asked this before)
• Have you learnt how to generate new business in your current role?
• Do you have a network of people to refer you work?  

6 Do a Business Plan 

This takes a lot of work but is very useful!

A business plan walks through most operations of the business and can often get you to think about things you haven't yet focused on. 

Some of the more important parts will include:

a. Where are the clients going to come from? (Do you feel like this question is a broken record?)

b. How will you keep the flow of clients coming? 

c. Will you have a restraint of trade from your current employer? 

 There is a very useful business plan template and guide at https://www.business.gov.au/Planning/Templates-and-tools/Business-Plan-Template-and-Guide 

7     Computers & IT

What Information Technology set up will you have? 

Do you understand what cloud computing is? 

How much will you do yourself? How much will you outsource? 

• Where will you safely and securely store your group data? 
• Do you understand how to back up a computer?
• So the data is safe if the Hard disk dies?
• To restore in event of accidental file deletion? 

How do you protect your clients data from:

• Hard disk failure on YOUR computer. Yes they do die, generally in the first six weeks or when they make funny noises. Personally I have had several die on my own main computer AND I have replaced several on my back up server.
• Cyber-crime & Hacking
• Cyber security is a huge risk for any law firm today. 

8  Practice Management Software

 This decision is huge. It is like a marriage!  A Good choice is heaven, a bad choice you will hate every single day. 

This is a very specific area to consider so i have written a separate article on it. you can find it here.

9     Premises

Where will you work from? 

Business premises? Home? Serviced Office? Share an office with someone else? 

If you use a serviced office, at what point does it become cost effective to move to leased premises? How disruptive would a move be in the first 12 months of trading? 

How disruptive is it to move premises after you have started trading? 

10     Insurances

There are a number of insurances you need to consider. 

a) Professional Indemnity Insurance (PI Insurance)

Depending on your jurisdiction, your local law society might dictate who you are to required to use for your professional indemnity insurance. (For example in Queensland Australia you must use Lexon Insurance) 

If your jurisdiction allows you to choose your PI Insurance provider,it is well worth shopping around as prices will vary extensively.

b) Worker’s compensation insurance to cover staff

c) Key Person Insurance or Sickness and Accident insurance to cover yourself in case of sickness or injury

d) Business Insurance to cover your business premises, loss of profits in event of an incident, burglary, etc. The list is extensive. 

The business owner needs to carefully think each of these risks through in terms of what they would do if any of the events occurred and they didn’t have cover because the insurance on some of these items can be quite expensive.

11      Staffing

Staffing can be the key to a great legal practice. Get it wrong and it will make your life hell. 

a) Secretarial

You need to carefully look at the staffing you really need. You have worked with a personal secretary for the last 5 years – can you do what they do and still focus on legal work or do you need them?

b) Bookkeeping

What will you do for the bookkeeping tasks? What about the trust accounting?

Yes! It is great to keep control of the money by doing it yourself, but if a task that a bookkeeper or accountant can do in 2 hours is going to write off your Saturday – is it worth it? Is it worth the stress of putting your wordsmithing brain into number mode every week?  

From my experience most lawyers are best to outsource the bookkeeping, but ask enough questions after the work being completed to still be on top of what is going on in your business. 

c) Legal Staff 

• When do you expect to start hiring legal staff? 
• How will you pay them? 
• What sort of restraint of trade will you put in their employment contract?
• What will their employment contract look like?

12      Taxation & Finances

There are 2 things certain in life, death and taxes.

a) GST

Once you earn over $75,000 per annum you are required to register for GST. I suggest to a law firm that they register for GST anyway as they won’t be taken seriously if they are not earning enough to be registered for GST.

GST can be paid quarterly or in some circumstances annually. I recommend quarterly as it can get away from you. 

b) Income Tax

Income tax is the sneaky one. In year one you don’t have records to show what you have earned. If you lodge your income tax through a tax agent, you won’t be required to lodge your income tax return until the nearly the year of the second year you are in business (deadline is 15 May for lodgement and payment). But this has a downside! 

In year one as there is NO income tax to pay, you get this false sense of security that everything is all right. On the 15th May in the second year you are in business you lodge the income tax return for year one and then have a year's income tax to pay….. right? 

WRONG!!!! 

The tax man then says – ok I will assume you will earn the same amount of money in year 2 and oh year 2 is nearly over, so I will have twice the amount of tax that was calculated in the return that was just lodged. 

Yes the second helping the tax man takes is deducted from years TWO's income tax return, however you are now in year 3 so the tax man wants you to pay tax on year 3 every quarter as it progresses !

It all works out in the end IF you don’t spend the tax on year one’s income as you earn it!

This is why many businesses fold after the end of year two.

see diagram at https://karenmcdonald.online/blog/f/13-tips-for-setting-up-your-new-law-firm?blogcategory=Legal+Practice+Management

13 Record Keeping  

How are you going manage client files and your record keeping obligations? 

As a legal practice you will be subject to a high level of compliance audits. The best way to reduce their burden is to keep on top of your record keeping requirements.  If you are organised and tech-savvy it is much more efficient to go paperless as much as possible.  Click here to read our article here on the paperless office. 

14     Holidays & Self-care

Last but definitely not least how will you make sure you get time to yourself (where you are not working)?

How will you make sure you get to take a holiday? 

It is critically important to look after yourself and not let the new baby (business) overtake you.

What else?

What else do you need to consider? What advice do lawyers already in business have?  

I look forward to your questions, comments and feedback.

About me

Hi, my name is Karen McDonald and I am a qualified accountant and probably best known as owner of Cascade Consulting a business that has helped many business (including a lot of law firms) over the last 20 years.

I run an accounting and tax practice, where we aim to empower our clients to understand their finances and lighten the load of compliance.

In 2011 I founded Wise Owl Legal Practice Management as a response to seeing so many lawyers caught up with the struggle of old out of date inefficient software. I believe software should lighten your load and empower you to focus on your core mission. 

If you would like to learn more about how I could help your law firm in any of the consulting, accounting or practice management spaces, please click here to book a complimentary chat with me.