How to Start a Law Firm

ON THIS PAGE

• How to Start a Law Firm Business
• 15 Steps To Start a Law Firm
• How Big is the Law Firm Industry?
• What are the Key Segments of the Law Firm Industry?
• What External Factors Affect the Law Firm Industry?
• Who are the Key Competitors in the Law Firm Industry?
• What are the Key Customer Segments in the Law Firm Industry?
• What are the Key Costs in the Law Firm Industry?
• Helpful Videos
• Additional resources in the Law Firm Industry

How to Start a Law Firm Business

If you’re looking to start a Law Firm business, you’ve come to the right place. Since we’re going to show you exactly how to do it.

We’ll start with key Law Firm industry fundamentals like how big the market is, what the key segments are, and how revenues and profits are generated.

Then we’ll discuss keys to not only starting a Law Firm business, but succeeding in it!

Download our Ultimate Business Plan Template here

15 Steps To Start a Law Firm:

Starting a law firm can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn the keys to launching a successful law firm.

1. Choose the Name for Your Law Firm

The first step to starting a law firm is to choose your business’ name.

This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your law firm:

1. Make sure the name is available: Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also, check to see if a suitable domain name is available.
2. Keep it simple: The best names are usually ones that are easy to remember, pronounce, and spell.
3. Think about marketing: Come up with a name that reflects the desired brand and/or focus of your law firm.

 

2. Determine the Type of Law Firm You Will Launch

When determining the type of law firm you will launch, it’s crucial to consider your legal expertise, interests, and the needs of your target clientele. The legal field is diverse, and specializing in a particular area of law can help you stand out and attract clients who require specific legal services.

Here are some common types of law firm specializations to consider:

1. General Practice Law Firm: A general practice law firm offers a wide range of legal services, including family law, criminal defense, estate planning, and personal injury. It serves clients with diverse legal needs.
2. Personal Injury Law Firm: Personal injury firms focus on cases involving accidents, injuries, and wrongful death claims. They often represent clients seeking compensation for injuries caused by others’ negligence.
3. Family Law Firm: Family law firms handle cases related to divorce, child custody, adoption, spousal support, and other family-related legal matters.
4. Criminal Defense Law Firm: Criminal defense firms represent individuals facing criminal charges, providing legal defense in areas such as DUI, drug offenses, and white-collar crimes.
5. Estate Planning and Probate Law Firm: Estate planning firms assist clients with wills, trusts, estate administration, and probate matters to ensure the smooth transfer of assets after death.

 

3. Develop Your Law Firm Business Plan

One of the most important steps in starting a law firm is to develop your law firm business plan. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.

Your business plan should include the following sections:

1. Executive Summary: This section should summarize your entire business plan so readers can quickly understand the key details of your law firm.
2. Company Overview: This section tells the reader about the history of your law firm and what type of law firm you operate. For example, are you a general practice law firm, personal injury law firm, or family law firm.
3. Industry Analysis: Here you will document key information about the law firm industry. Conduct market research and document how big the industry is and what trends are affecting it.
4. Customer Analysis: In this section, you will document who your ideal or target customers are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing services like the ones you will offer?
5. Competitive Analysis: Here you will document the key direct and indirect competitors you will face and how you will build a competitive advantage.
6. Marketing Plan – your lawyer marketing plan should address the 4Ps: Product, Price, Promotions and Place.
• Product: Determine and document what products/services you will offer
• Prices: Document the prices of your products/services
• Place: Where will your business be located, and how will that location help you increase sales?
• Promotions: What promotional methods will you use to attract customers to your law firm? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization, and/or social media marketing.
7. Operations Plan – here you will determine the key processes you will need to run your day-to-day operations. You will also determine your staffing needs. Finally, in this section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
8. Management Team – this section details the background of your company’s management team.
9. Financial Plan – finally, the financial plan answers questions including the following:
• What startup costs will you incur?
• How will your law firm make money?
• What are your projected sales and expenses for the next five years?
• Do you need to raise funding to launch your business?

 

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If you’d like to quickly and easily complete your business plan, download Growthink’s Ultimate Business Plan Template and complete your plan and financial model in hours.

4. Choose the Legal Structure for Your Law Firm

Next you need to choose a legal structure for your law firm and register it and your business name with the Secretary of State in each state where you operate your business.

Below are the five most common legal structures:

1) Sole Proprietorship

A sole proprietorship is a business entity in which the owner of the law firm and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.

2) Partnerships

A partnership is a legal structure that is popular among small businesses. It is an agreement between two or more people who want to start a law firm together. The partners share in the profits and losses of the business.

The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.

3) Limited Liability Company (LLC)

A limited liability company, or LLC, is a type of business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for a law firm include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.

4) C Corporation

A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for a law firm is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.

5) S Corporation

An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations, including the number of shareholders they can have, among others.

Once you register your law firm, your state will send you your official “Articles of Incorporation.” You will need this, among other documentation, when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.

5. Secure Startup Funding for Your Law Firm (If Needed)

In developing your law firm plan, you might have determined that you need to raise funding to launch your business.

If so, the main sources of funding for a law firm to consider are personal savings, family and friends, credit card financing, bank loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in a law firm that they believe has high potential for growth.
 

6. Secure a Location for Your Business

Having the right space can be important for your law firm, particularly if you’d like to meet clients there.
To find the right space, consider:

• Driving around to find the right areas while looking for “for lease” signs
• Contacting a commercial real estate agent
• Doing commercial real estate searches online
• Telling others about your needs and seeing if someone in your network has a connection that can help you find the right space

 

7. Register Your Law Firm with the IRS

Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).

Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.

Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.
 

8. Open a Business Bank Account

It is important to establish a bank account in your law firm’s name. This process is fairly simple and involves the following steps:

1. Identify and contact the bank you want to use
2. Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
3. Complete the bank’s application form and provide all relevant information
4. Meet with a banker to discuss your business needs and establish a relationship with them

 

9. Get a Business Credit Card

You should get a business credit card for your law firm to help you separate personal and business expenses.

You can either apply for a business credit card through your bank or apply for one through a credit card company.

When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.

Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.
 

10. Get the Required Business Licenses and Permits

Starting a law firm involves obtaining various licenses and permits to operate legally and ethically. The specific requirements may vary based on your location and the type of legal services you plan to offer.

Here are common licenses and permits you may need to start a law firm:

• Legal License: To practice law, you must be licensed as an attorney in your jurisdiction. This typically requires passing the bar exam and meeting other state-specific requirements.
• Business License: Obtain a general business license or operating permit from your local city or county government. This license allows you to operate as a legal business entity.
• Professional Liability Insurance: Many states require attorneys to carry professional liability insurance, also known as malpractice insurance, to protect clients from errors or negligence in legal representation.
• Occupancy Permit: If you plan to lease office space, you may need an occupancy permit or certificate of occupancy to use the location for commercial purposes.
• Federal Employer Identification Number (EIN): If you have employees or plan to operate as a corporation or partnership, you’ll need an EIN from the IRS for tax purposes.
• State and Local Business Permits: Check with your state and local government for any additional permits or licenses required to practice law in your jurisdiction.
• Federal Licenses (for certain practice areas): Depending on your area of specialization, you may need federal licenses or permits. For example, immigration attorneys may need authorization from U.S. Citizenship and Immigration Services (USCIS).
• Trust Account Registration: If you will be handling client funds in trust, you may need to register a trust account with your state’s legal authority and follow specific trust accounting rules.

Depending on the type of law firm you launch, you will have to obtain the necessary state, county and/or city licenses.
 

11. Get Business Insurance for Your Law Firm

Other business insurance policies that you should consider for your law firm include:

• General liability insurance: This covers accidents and injuries that occur on your property. It also covers damages caused by your employees or products.
• Workers’ compensation insurance: If you have employees, this type of policy works with your general liability policy to protect against workplace injuries and accidents. It also covers medical expenses and lost wages.
• Commercial property insurance: This covers damage to your property caused by fire, theft, or vandalism.
• Business interruption insurance: This covers lost income and expenses if your business is forced to close due to a covered event.
• Professional liability insurance: This protects your business against claims of professional negligence.

Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.
 

12. Buy or Lease the Right Law Firm Equipment

Running a law firm primarily relies on intellectual resources, legal knowledge, and professional skills rather than physical equipment. However, there are essential tools and equipment that can enhance the efficiency and productivity of your law practice.

Here’s a list of equipment commonly used in law firms:

• Computers: High-quality desktop or laptop computers are essential for research, document drafting, communication, and managing legal software.
• Printers and Scanners: A reliable printer and scanner are necessary for producing hard copies of legal documents and scanning paper documents into digital format for storage.
• Copiers: A photocopier is useful for making copies of legal documents and paperwork needed for court filings and client records.
• Fax Machines or Online Fax Services: While traditional fax machines are becoming less common, having the capability to send and receive faxes, either through a physical fax machine or an online service, is sometimes necessary for legal communications.
• Telephone Systems: A multi-line phone system or Voice over Internet Protocol (VoIP) system can handle client calls, conference calls, and internal communications efficiently.
• Legal Research Materials: Access to legal libraries, legal databases, and subscription-based legal research services is vital for conducting thorough legal research and staying updated on case law and statutes.
• Office Furniture: Comfortable and functional office furniture, including desks, chairs, filing cabinets, and bookshelves, is necessary for creating a productive work environment.

 

13. Develop Your Law Firm Marketing Materials

Marketing materials will be required to attract and retain customers to your law firm.

The key marketing materials you will need are as follows:

1. Logo: Spend some time developing a good logo for your law firm. Your logo will be printed on company stationery, business cards, marketing materials, and so forth. The right logo can increase customer trust and awareness of your brand.
2. Website: Likewise, a professional law firm website provides potential customers with information about the services you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you.
3. Social Media Accounts: Establish social media accounts in your company’s name. Accounts on Facebook, Twitter, LinkedIn, and/or other social media networks will help customers and others find and interact with your law firm.

 

14. Purchase and Setup the Software Needed to Run Your Law Firm

Running a law firm efficiently and effectively requires various types of software to manage cases, clients, billing, and administrative tasks.

Here is a list of essential software categories and examples that can help streamline your law firm’s operations:

• Practice Management Software: Practice management software is designed specifically for law firms and can help with case management, client communication, scheduling, and document management. Popular options include Clio, MyCase, and PracticePanther.
• Document Management Software: Document management software allows you to organize, store, and retrieve legal documents and files securely. Examples include NetDocuments, Worldox, and Microsoft SharePoint.
• Legal Research Software: Legal research platforms like Westlaw, LexisNexis, and Bloomberg Law provide access to an extensive library of legal resources, case law, statutes, and regulations.
• Time and Billing Software: Time tracking and billing software simplifies the process of recording billable hours, creating invoices, and managing client payments. Examples include QuickBooks, TimeSolv, and Bill4Time.
• Accounting Software: Accounting software helps manage the firm’s financial transactions, expenses, and financial reporting. Options include QuickBooks, Xero, and FreshBooks.
• Client Relationship Management (CRM) Software: CRM software allows you to maintain client records, track communications, and manage client relationships effectively. Popular choices include Salesforce, Zoho CRM, and HubSpot CRM.

Research the software that best suits your needs, purchase it, and set it up.
 

15. Open for Business

You are now ready to open your law firm. If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.
 

Finish Your Business Plan Today!

If you’d like to quickly and easily complete your business plan, download Growthink’s Ultimate Business Plan Template and complete your plan and financial model in hours.

How Big is the Law Firm Industry?

There are 445,427 Law Firms in the U.S. with revenues of $277.2 billion. Over the next five years, industry revenue is expected to increase at an annualized rate of 0.6% to $286 billion.

What are the key segments of the Law Firm Industry?

Commercial Law Services is the largest revenue segment of the industry. The remaining sources of revenue include:

• Criminal Law, Civil Negligence and personal injury
• Real Estate Law
• Labor and Employment

What External Factors Affect the Law Firm Industry?

A number of factors affect the performance of the law firm industry. These drivers include:

Corporate Profit: When corporate profit is high more likely companies are to engage in high-cost litigation and is expected to increase in this recent year depicting a high opportunity for the industry.

Initial Public Offering: Significant fees are received by most major law firms from working on initial public offerings (IPOs), mergers and acquisitions and capital-raising activity. As a result, investment activity and law firm revenue rises and expected to increase its annual sales volume of IPOs.

Number of Businesses: A growth in the number of businesses with employees can signify to an increase in work for law firms which is expected to increase by the recent year.

Crime Rate: Increase rate in reported crimes means higher demand for legal advice which results to increase industry revenue. However, crime rate has decline over the past years due to aging population and is expected to decrease which can bring potential threat to the industry.

Finish Your Business Plan Today!

If you’d like to quickly and easily complete your business plan, download Growthink’s Ultimate Business Plan Template and complete your plan and financial model in hours.

Who are the Key Competitors in the Law Firm Industry?

Small firms and lawyers in private practices comprise the majority of the industry, but the top four firms are:

• Latham & Watkins LLP
• Skadden, Arps, Slate, Meagher & Flom LLP
• DLA Piper
• Baker & McKenzie

What are the Key Customer Segments in the Law Firm Industry?

The largest customer segment in the law firm industry are businesses and corporate clients, followed by households.
 

What are the Key Costs in the Law Firm Industry?

Wages – Like most industries in the professional services sector, wages represent the largest cost to industry enterprises. Attorneys are highly educated and knowledgeable and employees often specialize within a legal sub-sector, such as securities law, which requires further experience and expertise. Work in this field also requires personal service and face-to-face contact with clients.

Other Costs – Many law firms lease office space and larger firms often incur higher rental costs because they are located in geographically important regions. Other significant expenses include insurance costs, costs associated with the outsourcing of temporary or contract labor, administrative expenses and travel expenses. Purchases in this industry are minimal, accounting for an estimated 1.8% of industry revenue. Depreciation is also minimal, as this industry has a low level of capital intensity and capital expenditures are generally related to computer and office equipment.

RELATED ARTICLE: How To Write a Law Firm Marketing Plan + Template

Helpful Videos

How to get Started with a Law Firm Marketing Plan

 
Law Firm Marketing Mistakes: Do You Make Them?

 
How To MANAGE a Small Law Firm: How To Sell Legal Services

 

Additional resources in the Law Firm Industry

For additional information on the car dealership market, consider these industry resources:

• American Bar Association: www.americanbar.org
• US Census Bureau: www.census.gov
• The American Lawyer: www.americanlawyer.com
• The National Association for Law Placement: www.nalp.org