What to consider when creating your business plan
Before you go ahead with writing a law firm business plan, it’s important to take a step back and reflect on what you want from your practice first.
For a more specific, meaningful, and ultimately rewarding business plan, consider these three points:
1. Define your success
Owning a law firm isn’t just about having a job—it has the potential to give you more freedom and more fulfillment. In theory, owning your own law firm gives you more control over your income than a salaried associate job.
Ask yourself these questions to get started:
- What would make you happy? Maybe it’s seeing your kids at night before bed, vacationing twice per year, or something else?
- What sort of house do you want to live in, and where? What are living expenses like in this area?
- What about your children’s education? Will you want to help them with college tuition fees?
- What type of lifestyle do you want when you retire?
Answering these questions can be more difficult than you think, but without clear goals for why you want to run a law firm, investing in this dream would feel misguided at best.
2. Consider how much revenue you’ll need
Now that you have an idea of your personal and financial goals, calculate how much annual revenue you’ll need to achieve those goals—and more.
Often, you’ll hear lawyers say, “I’d be happy with $150,000 per year.” $150,000 isn’t a small amount of money, but after you factor in life expenses like saving for retirement, vacations, home repairs, vehicles, emergencies, etc., that number gets eaten away quickly. More importantly, there’s no extra room for investment in hiring or marketing to grow your law firm.
Be generous when estimating the costs of your goals, and write down a number that scares you. You’ll be much better off planning with that number in mind from the beginning.
3. Determine how many cases you need to meet that revenue goal
If you are only doing two or three cases per month, the number you came up with above might look outrageous. It’s not. For example, let’s use $250,000 a year in annual revenue as our goal.
$250,000 per year in revenue = an average case value of $5,000 = 50 cases per year = 4-5 cases per month
$250,000 per year might seem crazy if you’re only doing a couple of cases per month, but keep in mind that you’re going to gradually work up to it.
The number of cases you’ll need may differ depending on your location and practice area, so do your research to make sure you come up with a case goal that’s realistic (even if it still feels like a stretch).
This brings us to the next part of developing your business plan—writing it.
How to write a law firm business plan
Once you’ve got the meat of your business plan worked out, it’s time to put pen to paper.
While your law firm business plan must be tailored to your unique situation, it should include at least the following key sections:
1. Executive summary
An executive summary is a one-page, high-level overview of all the key information in your business plan.
Law firm business plans can cover a lot, so it’s worth having a succinct high-level overview to keep things simple (Hint: While this section should come first in your plan, it’s actually easier to write this section last, after you’ve laid out your plan.).
Your executive summary should detail your firm’s:
One or two sentences describing your firm’s purpose.
What values are most important to the firm?
What are your firm’s overarching goals and objectives?
Unique selling proposition
What sets your firm apart from other firms?
2. Firm description
Next, write a company summary for your firm. The goal is to create a concise overview of your firm, giving all important details describing your practice and clients, including:
Type of law offered
What type of law do you practice? What types of clients do you serve?
Restate your mission statement and core values.
What sort of business entity are you? Are you in a sole proprietorship or a limited liability partnership?
Where is the office geographically located? What areas does the firm serve?
If you’re writing a plan for a law firm that’s already open, what are the firm’s history and achievements?
Unique selling proposition
What makes your firm stand out? What technology or services give your firm an edge?
3. Market analysis
A little bit of preliminary market research goes a long way. Look at bar association listings to see how many other firms in your area offer similar services. Is there a high demand for what you’re offering? If not, how can you ensure you stand out to potential clients? This will greatly inform the messages and mediums you choose to use in your marketing efforts.
Create a market analysis for your firm, including a:
- Target audience profile
- What demographics (like location, age, occupation), needs, and motivations would signify the best client match for your firm, and why?
- Industry description
- What is the current and projected size of the market your firm is in?
- What are the trends in your legal niche?
- Competitive analysis
- Who are your direct and indirect competitors, and how are they serving your target market?
- Where do your competitors succeed? What opportunities are there for your firm?
- How much can your target audience spend on legal services?
- How much can you charge?
4. Organization and management overview
You know that you’re the best person to lead the firm, but does everyone else know it too? This section is your opportunity to provide important details about yourself—and the key players in your firm.
- Highlight your experience and the educational background details that set you apart.
- If your practice is on the larger size, this section is a great place to add quick visual aids like an organizational chart.
Outline the types of legal services your firm provides (for example, do you offer technology legal services? Estate planning legal services?) and who you can provide them to (for example, you might offer legal tech services to start-up companies and high-tech clients).
When writing about your services it’s important to consider:
- What problems do your potential clients need your help with?
- How can your services uniquely help your clients solve their problems?
- What is the benefit of your services to clients?
- Why would potential clients choose your firm over another firm?
6. Marketing strategy
Marketing is a critical part of your law firm, and your business plan—allowing you to understand where your firm is positioned, how much you need to charge, and how you will get the word out and attract new clients.
Consider including the following in your law firm marketing strategy:
- Target market
- Identify the traits of your firm’s target market
- Marketing goals
- Detail what specific outcomes you hope to accomplish through marketing. Goals should include tactical objectives (more clients? Higher billing rates?) and overall objectives (like increased name recognition).
- Ensure your tactical goals are measurable (in terms of results and timing-wise), so that you can assess and adjust accordingly.
- Unique selling proposition
- Restate what sets you apart and makes you uniquely able to best serve your clients.
- Detail who your competition is—and what they’re doing to gain clients.
- Analyze how you can compete with your competitors’ marketing strategies
- Specify your competitors’ prices for their services
- Assess where the cost of your services fit in with your competitors
- Describe non-price ways that you can compete with other firms
- Action plan
- List the specific actions your firm will take to reach your target market and achieve your marketing goals (this could include a media/advertising strategy)
- Include a budget for marketing
It’s also important to consider that your marketing needs will be different depending on the current stage of your law firm. If you’re just getting started, then marketing for you might mean a lot of hustle—working referral relationships, identifying groups that you can get in front of for speaking engagements, blogging, and using social media to get your name in front of potential clients.
Remember to measure marketing metrics
As you grow (or if you have existing marketing in place) you should be able to estimate the number of cases you will bring in through each channel. Then, you can quantify your marketing cost per case by dividing the total cost of that marketing effort by the number of cases you got from each marketing channel.
For example, if you’re the only corporate lawyer in a small town, you’ll need to spend less on advertising than a family lawyer in a larger city.
Implement a marketing tax on each case fee
Once you have an idea of the cost and effectiveness of your marketing efforts, implement a marketing tax on yourself—a percentage that comes out of every single case fee you collect, and that gets invested straight back into marketing efforts. This is a simple way to think about how much you need to be charging to fuel your revenue goals. It’s also an easy way to scale and grow your marketing budget.
You can base this percentage on your marketing cost per case for each channel. Don’t be shy—this number can be anywhere from 10-25%.
Once you start mapping out this information, you’ll notice that a system starts to form, which connects your goals, the number of cases you need to bring in, the profit you need to make on each case, the money you need to re-invest in marketing, and the number of people or contract resources you will need to employ to keep growing.
7. Financial plan
The heart of your law firm business plan is the financial plan. After all, when it comes to your business, there may not be a more important question than, “How much does it cost to run your law firm?”
The key is to include as much specific financial information as possible—particularly if you’re seeking funding. This could include your firm’s:
- Financial projections (supported with assumptions)
- Break-even analysis
- Revenues summary by month (for at least three years)
- Balance sheet
- Cash flow statement
8. Start-up budget
If you’re creating a business plan for a new law firm, you need a realistic start-up budget. To do this, you’ll need to consider a number of up-front and day-to-day costs, and account for these in your revenue goals. Here are a few examples of costs to include in your budget:
- Hardware (laptops, printers, scanners, office furniture, etc.)
- Office space (Will you rent, or work from home?)
- Malpractice insurance
- Staff salaries (Are you planning to hire an administrative assistant or paralegal?)
- Utilities (Phone, internet, etc.)
- Practice management software or other technology services
Once you’ve laid out all of these costs, take a second look. Are there places where you could reduce your operating costs, and in turn, increase your profit margins?
Tip: If you’re writing a law firm business plan because you’re considering starting a law firm with little-to-no money at the outset, check out Willie Peacock’s advice here (It’s possible!).
There are also plenty of tools you can look at to help streamline non-billable tasks and leave yourself more time to practice law. Be sure to look at these options and work them into your operating budget.
Law firm business plan templates
Here are some links where you can find examples of business plans and business plan templates for law firms:
Add a table of contents or appendices
Once you’ve written down the essentials, you may want to add in additional sections that could benefit the plan’s readability or usefulness—like a table of contents or appendices.
Whether you’re creating a business plan for a new law firm or you want to take advantage of a slow period to grow your business, having a written business plan does a few key things:
- It creates a concrete explanation and breakdown of why you need to work a certain number of hours this week.
- It keeps you accountable to your goals and commitments.
- It serves as a comprehensive tool you can share with your firm, investors, and potential partners.
In fact, at How to Manage a Small Law Firm, we believe it’s important that our members share their business plan with their staff, spouses, and children. This is a scary moment, but remember that the people in your life want you to succeed! Keeping them informed will help them give you the support you need to do so.
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Categorized in: Business