I read an article on HuffPo Business recently in which they reviewed all of the most recently literature on the web and came up with the most expensive mistakes that a business could make starting out. That stated by HuffPo is ture, in my estimation, even if a little bit generic. As for lawyers starting out the advice applies as well and they represent many of the same mistakes. Avoid the mistakes, and new lawyers and new practices can improve their chance of financial success.
What do I mean financial success?
We all know any number of lawyers that are successful in hustling up clients and cases, and who have established a cash flow, but that does not mean that the attorney is a financial success. This is because money out plays as big a role as money in. Especially with solo attorneys starting out, all of the attention is concentrated on obtain clients and cases and caution is thrown to the wind as to overhead. The result is a practice that limps along, always trying to catch up, but that rarely allows the lawyer to bring home that much money. As a result of these early decisions, the lawyer is always feeding others instead of himself or herself.
Lack of planning. Anybody that knows me knows that I am not a big fan for business plans. But, that does not mean that I am against having a plan or objective or thinking through what it is you want to do. My point has always been that lawyers and others get online and spend hours filling out canned plans that do no good. A lawyer should know what areas or niches he or she intends to pursue. They should know the people, groups, organizations, associations and institutions they need to solicit to get referrals. They need to have simple plan to meet those they need to meet and to stay in contact with them. More importantly, the lawyer needs to understand that the anxiety they feel can be solved with a sense of urgency to get out there and get known. Too much planning involves all of the things that do not matter to a lawyer starting out, such as an office, a desk, design and image issues and the like.
Borrowing and spending too much. Initial high expectations are deadly because they cause attorneys to borrow too much money. Large monthly debt payments in the early stages can sap critical cash flow later. In other words, money you spend on credit now, robs you of your personal income later. And by debt, I am talking about not only loans and credit cards, but equipment leases, rent payments, staffing, cell phone contracts, yellow pages, legal research sites, service contracts, incorporations, and anything else that adds to your monthly overhead. There are a ton of providers that all have good reasons why you need to pay them a few dollars to a few thousand a month. They call it things other than debt or a loan. An obligation is an obligation, however. They always couch the costs in terms of that is just one case or two cases or so many hours of your time. Also, you do not have one or two cases a month, much less billable time that is being paid by anybody. It all adds up quickly, it is hard to get out of, and it is that much more money you have to earn before you can bring anything home. Debt is deadly and you need to recognize it in all of its forms. Start off on a shoestring, let the practice generate cash and savings first. Then pay cash for what you need, but still steer clear of too much in terms of commitments. It is amazing how much more seriously you will take a purchase or enter into an obligation if you are spending your savings as opposed to spending some imaginary cash or client cash that might be made in the future. Do this by working out of your house and sharing things like broadband and phone services that you already have and will use. Do not have a commute.
Insufficient capital. Whereas it is vital to have enough working capital to survive when starting out, it just does not have to be as much as one might think. If your business expenses are a little or nothing, then all you need to cover are your living expenses, which you can keep under control as well. The truth of the matter is that nobody has enough working capital starting off. The solution is to, as stated, cut business overhead to nothing and work on establishing a cash flow early. You just might have to do some contract work, a part time job, or court appointments for a while as you are building your niche. The problem is when your overhead is so high, then you have to devote too much time to these, let us say, distracting sidelines, and not enough time in building your niche.
Inadequate pricing. Fees people. We are talking about fees. The tendency is to get money coming in by undercutting the market in fees. As a lawyers starting out you have made yourself feel inadequate and therefore you want to charge a fee that is inadequate. It is admirable on some level, but it is disastrous. It is a big, big mistake. It is a hard practice to break and it will cost you in the long run. I am not saying get big headed and think you can start off charging the highest fees around, but if a client cannot pay a reasonable fee, then move on. Fear of failure causes too many to take low money instead of no money and moving on. The mistake is that this underpaying client is going to take up a lot of time you will not be able to spend on getting the clients you need and that can and will pay you. And, since you are starting off this client will take a lot more time than you can afford. It is for this reason that you need to let the more experienced lawyers do the pro bono work. They can do it more quickly than you. Also, without fail, it seems the clients who cannot pay much have the most complicated of problems. You ask, starting off how can I possibly sell myself at a reasonable fee when I do not have a resume to back it up? The answer is you do not do this. You sell your services and what they can do and let time take care of the resume. There are some brands out there, but legal clients pay money to solve problems. Most do not hire personalities. If you are doing consumer bankruptcies, for example, you sell the stopping of a foreclosure, or consolidating and lowering debts, and spend less time on yourself. Then charge market rates. You will already be earning less because it is going to take you more time to complete each task than it does a more experienced practitioner.
Not seeking advice. Mentoring is what we are talking about. Ask. Ask. Ask. Ask. And, not just lawyers, but industry leaders in town, business owners, tax professionals, the SBA, and anybody else that might have the question you need. Make contact with a lot of people. Attend court or hearings and just watch. Always think about who you can call. Remember, this serves two purposes. First, it helps you with advice so that you might make proper decisions. Second, believe it or not, it will help you find cases.
Keep these things in mind when starting out.
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