You might have your own money or access to family wealth, however, most often than not, you will need a combination of equity (money you provide) and debt from some source or another.
Working out how much money you need varies from case, personal circumstances and life style choices.
A simple common sense calculation on a spreadsheet will probably suffice as a tool for you to work this out because initially your law firm and personal circumstances are very closely linked. It will take time before your firm will emerge as a viable separate financial entity.
You need to be practical. If you can afford it you might consultant an accountant, however, again remember that accountants are not entrepreneurs – you want to take their advice so that you can work out what to do, not do what they say.
Interestingly, funding is available, even for start-ups.
For a funder that specialises in the legal profession take a look at www.syscap.com or www.inpractice.co.uk – they may well be able to help you fund your new business.
If you keep your start-up costs low by investing in good systems and being organised from day one, you will be surprised at how long you will be able to survive.
Whilst most start-up businesses fail within 2 years, most start-up law firms survive.
Download The Back of a Napkin SLF Budget Calculator.
The only commodity a lawyer can sell is their time.
Many lawyers sell their time as an hourly rate billed as incremental units. For example, £200 per hour billed in 6 minute units means your rate would be £20 per 6 minutes. It is usual to bill for a whole unit even when you may have performed work only for part of a unit.
This method of billing ensures you capture the time for all the work you perform. You can easily prepare budgets and set targets for yourself and your employees by deciding the number of billable units you intend to bill for each day.
Remember, if you feel you have billed your client too much, you can always write down your fees. This is a great way to measure efficiencies within your firm.
To get the most out of time billing it is important that you use a great software package, one that allows you to analyse your time. This way you know that you are proceeding in the right direction.
There are some types of legal work that are very process driven. For example, a simple conveyancing matter will require you to perform the same process over and again. Work of this nature is often charged on a fixed fee basis.
Charging for simple work on a fixed fee basis allows you to compete with other service providers in your area. When using this method it is important to use great software that streamlines your business. You should always aim to make as much money as you would have should you have billed on a time basis.
The best way to ensure you are charging enough is to record your time while working on fixed fee matters and perform regular comparisons between how much time you spent on a fixed fee matter versus how much you billed.
Many firms use a combination of fixed fee billing and time based billing.
Quite often paralegals will attend to fixed fee work. There is usually a clause in a firms costs agreement that any work that falls outside of the usual scope of a matter will be billed based on time. This ensures your business remains profitable should a solicitor be required to assist with a fixed fee matter.
Firms that work in multiple areas of practice may also use different methods depending on the area of practice.
As a general rule of thumb, as long as you capture everything that you do, you will be able to structure your business appropriately and plan to be profitable.