This third post in our Startup Questions series will help you tackle your law practice startup funding.
Unless you are leaving another law firm and you are confident that a steady stream of clients plan to follow you, you’ll need money to cover your startup costs, and if possible, one year of operation and personal living expenses. Even if you can break even at the end of your first year, it is prudent to have additional funds to cover your personal expenses for that year.
In order to determine how much money you need to start your law practice, you should prepare a budget. A budget is an essential element of the planning process for starting a solo or small law practice. You must know what it will cost you at startup and through your first year, so that you can determine what funds you will need upfront and how much you must collect on a monthly basis to cover expenses.
Your own personal savings should be your starting point. It’s the easiest and safest funding method. If you don’t have the requisite funds, you should then consider family members who could loan to you without interest (or, at least at a low rate). Beyond that, you could consider a bank loan, home equity, or line of credit to subsidize your startup costs. Contact your bank or the Small Business Administration if you choose to go this route.
To run your new firm as a business, at the outset you should develop a budget for your first year and then plan to review and revise that budget on an annual basis. Considerations when developing your budget include your fee structure, expenses, and projected revenue. That means you’ll need a solid financial management system to collect and measure your profitability. You should know what you have to bill and collect every month to cover your firm’s expenses.
It is also wise to set up an operating account for your business separate from your own personal account. This will avoid commingling funds for liability purposes as well as help you keep track of your business finances. Depending upon your legal entity and bank, you may need an employer identification number to open a business account. Apply online for an EIN, here.
This content appears in our Startup Kit. Find more here!
And for more guidance on starting your own firm, sign up to attend a workshop here.