How much does it cost to start a law firm?

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cost to start a law firmHow much does it cost to start a law firm you ask? Not as much as you might have thought.  If you want to have your own law practice, don’t let the fear of what it will cost to start a law firm stop you.  It does cost money – just not as much as you might think. My philosophy, you will learn if you continue to read this blog, has always been to NOT start a new law practice with debt – you need to wait until you have revenue and then you can add additional elements to your practice as necessary.

In researching other content for this post, I came across a post on by Sam Glover that estimates that a new law practice will cost from $3,000 – $15,000 in start-up expenses. I think that is a scary number – especially for a young lawyer that just finished a bar exam, has no income, and has law school loans to worry about (not to mention their own living expenses).

Before I get to the meat and potatoes of this post, I did want to address a couple of comments made by Mr. Glover in his article. He says that young lawyers who are “starting a law firm out of desperation, not because it is what [they] really want to do” are setting themselves up for failure if they do not properly account for the costs to start a law firm. I disagree with this statement in the following respect – if you are only starting a law firm out of desperation, you have already failed. It doesn’t matter how much you budget. You absolutely, positively, will not succeed. You shouldn’t start a law firm unless you actually want to start a law firm. Those that want to run their own firm, however, absolutely cannot fail. They will succeed because that is what they want to do.

The second exception I take with Mr. Glover’s post is this statement:

When it comes to outfitting a law practice, it doesn’t pay to pinch pennies. Figure out what you need, then figure out how to pay for it. If you can’t get what you need, don’t start a practice.

I completely disagree. If you need to pinch pennies while your firm grows from zero to one to five to ten clients, then that is what you need to do. I do not advocate taking out huge loans to start a practice – there is simply no need. If there is something you want, budget for it, and when you get that next client that pays you a sizeable fee, you can pay for it.

What was my cost to start a law firm?

As I’ve discussed previously, I’ve done this “start a law firm” thing twice. The first time I took out a line of credit and used it almost all up before I got my first client. This was in 2005 before the real estate bubble in Florida, and getting a LOC was easy. This was a huge mistake. Don’t do that.

When we moved to North Carolina, my wife took a job at a firm when I started my practice. We did have the cushion of her salary, but she was also 7 months pregnant and about to go on maternity leave when I started. Then our son came about 4 weeks early – further cutting our income. I didn’t have any choice but to make it work, and made the conscious decision to not use credit this time.

I want to be as open and transparent as I can in this blog, so here is a sampling of the expenses that I had for those first three months that I was in practice in North Carolina, from May to July, 2010, followed by a rough monthly average of my expenses for the remainder of the year. (Disclosure: Many of the links below are affiliate links.  I only include affiliate links for services that I currently use or have used in the past and would recommend to others.  If you sign up for a service through one of my links, I will receive a small commission.)

May through June 2010/Monthly Thereafter:

Rent – $3,435/840 – My rent was at a furnished office suite that offered all in one services. Works for some people, but I thought it was a total rip-off. They practically charged you to use the bathroom. I have since moved in with another lawyer and pay substantially less. I have heard of other solo’s paying as little as $300-500 per month to rent an extra office with a lawyer when they start out. Also a good potential source of overflow work.  I actually had coffee with another lawyer today who works virtually from home and rents “virtual” office and conference room space for $420 per month.

Marketing – 1,596/519 – This consisted of the following expenses: Vistaprint ($90), Aweber ($39), GoDaddy ($242), Google Adwords ($1,148), and a premium WordPress theme ($78).  The cost to Vistaprint was mostly business cards and thank you notes. I don’t recommend investing in stationary – it will cost you an arm and a leg and just isn’t necessary. Three years in and I still don’t have it – nobody has cared.  Aweber is $19/month. More on what this is and why I use it in a future post.  I spent a lot on GoDaddy to buy domain names. Probably more than necessary. Looking back at those numbers, I went a little nuts here. Use this link and save 25% off your initial purchase at  Google adwords to this day costs me about $500 per month. Don’t do this unless you know what you are doing. If you are interested in a course on adwords, let me know and I will put some tutorials together.  The theme for WordPress was a one-time fee. I currently use the Thesis Theme for WordPress, but have also used the Genesis Framework. Setting up a website is super easy and nothing that you need to pay a programmer for initially. I use bluehost for my hosting with a wordpress website.  If you really need assistance, help can be found on Elance.  Again, I will talk more about this in a future post.

Office Supplies – 1,410/100 – Office supplies were mostly start-up expenses. My costs are even less now because I have gone paperless.

Telephone/Fax – 827/150 – My telephone/cell phone/fax expenses included buying a new iPhone for about $300. Also, I’ve used myfax from the very beginning for about $10/month.

Food and Entertainment – 815/300 – Food and Entertainment was mostly networking lunches and getting coffee with referral sources – more on that in a future post. This is extremely important when you are just starting out.

Research – 719/0 – Research costs were a one-time thing to purchase practice related books from Lexis and West. I recommend having some books on hand for reference, but they aren’t necessary. Legal research is now virtually free through Google Scholar. Also, your bar association may offer a free subscription to another service such as Fastcase – mine does.

Health Insurace – 0/719 – Health Insurance – I started on COBRA, so I didn’t have to pay those premiums until 90 days after I started the practice.

Bar Dues – 275/0 – Bar Dues were a one time fee, but because I am licensed in another state, I had to pay additional dues later that year which are not inclued in this spreadsheet. The cost to join the North Carolina Bar Association and other associated organizations is typically greatly reduced in your first year of practice – sometimes eliminated. (They do make it up later though!)

Copier Lease – 175/119 – The lease for a copier I had was something I contracted for as a favor to a friend. I recommend finding a nice Brother printer on Amazon for a couple hundred bucks.

Travel – 108/0 – Travel can obviously be eliminated if all your work is local.

Merchant Fees – 77/Varies with client charges (averages about 2-3% of amounts charged – minimum of $40/month) – You MUST get a credit card machine unless you are doing plaintiff’s personal injury or bankruptcy. I went through Costco for mine, but if I had to do it again, I would probably use a service like Square, which was not in existence when I first started. After you get established, you can negotiate better rates with your bank. (Be careful of bar rules re: trust accounts – you may need two separate merchant accounts, one for operating and one for your trust account). Credit/debit cards are here to stay – and having the ability to take credit is convenient for your clients.

IT Expenses – 74/63 – IT consisted of Clio, a cloud-based case management software (SAAS) – $36.75 per month with a discount through my bar association. Now I use Rocket Matter – still cloud based. I also use Quickbooks Online at $26/month. I HIGHLY RECOMMEND you get accounting software such as Quicken ASAP. Freshbooks is another alternative.

Malpractice Insurance – 0/50 – I didn’t get malpractice insurance until after I had several clients. At a minimum, you don’t need this until you have at least ONE client. Also, the premiums are cheapest in your first year of practice.

Postage – 38/25 – I use now, at $15 it pays for itself with one trip to the post office.

Printing/Copies – 31/31 – Printer expenses are related to the printer I leased. Did I mention this was a big mistake?

Corporate Filing Fees – 25/0 – Corporation fees were one-time. I recommend forming some type of business entity. Solos are typically S-Corps or LLC’s.

Bank Fees – 7/9

Total – $9,612 for the first three months (approx. $3,200 per month) and $2,965 per month thereafter.

Of these expenes, only my rent for the first month was charged to a credit card.  The remainder of my expenses were pretty much covered by the legal fees I generated.  Those expenses were actually higher than I would have later in the year, because a lot of these were one-time expenses. There are also expenses that are not listed here, such as CLE, because most states don’t make you take CLE’s immediately – but you may have a requirement to take those prior to the end of your first year in practice.  I also assume that almost every recent law school grad has access to a computer or laptop – so I did not budget for that expense.  You can always upgrade when you get some clients.

So you can see that you can comfortably start a practice for around $3,000 per month in expenses. And I know other lawyers who run very successful practices on even less than that per month (the lawyer I talked to today is averages about $2,000 per month for the past 4 years, and has been profitable since his second month in practice).

There are additional services that I use today that I did not use when I first started.  That is for a different post.

If you are interested in learning more about any of the services I referenced above, please post a comment below. Also, I’ll be posting additional links to this page and updating it from time to time, so be sure to check back or sign up for automatic updates with the form on the right.

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