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Lloyd Hoffer*

A little over one year ago, Joseph Adler and I took the plunge and started up Hoffer Adler LLP.  We celebrated our first anniversary as a firm on October 1, 2005.  While most readers of this publication have been at it as sole or small firm practitioners much longer than we have (and therefore have much more to teach us than the other way around), it may be that there is a tidbit or two some readers may gain from our recent experience.

Ergo, here are a few reflections on the planning and execution of our first year.

Background

Our situation has a few characteristics that may be shared by some readers and not others.  Joseph and I were both called to the Bar in 1990, and so had significant experience as well as existing clients.  We practiced together in the Toronto office of a national firm and each felt we could better take advantage of future opportunities in the context of a small firm rather than a large firm, going forward.  Our project, therefore, was to move our existing practices to a small setting, still in the Toronto market, and to proceed to develop our client bases from there.

Joseph is an expert in franchising law, and so his practice is primarily commercial, with various other areas such as intellectual property that go along with franchising issues.  I am a litigator; one of those who likes to keep his practice fairly broad.  So my work involves commercial litigation as well as professional liability, intellectual property, insurance defense, communications, and various other things that come up from time to time.

Planning

(a) Teaming Up

The conventional wisdom in the big firms these days is that you look for economic “synergies” with your practice partners.  I wouldn’t call that wrong, but we didn’t look at it as a dominant factor for us.  Our practices had relatively little overlap when we started.  What we were more concerned about was that we had common objectives and that we get along well.  We both wanted each other to have the freedom to pursue personal objectives, and we both wanted to have each other around to share responsibility and to bounce things off of.  In my mind, that’s way more important than the practice synergies.

As it turns out, we do things largely by consensus, and we haven’t had a serious dispute about anything, even though we’ve had our disagreements from time to time.  That’s worth a lot in my books.  The bonus is that the synergies are actually there, even though we didn’t start that way, and we see more and more cross-over in client service as time goes by.

(b) Planning Materials

There’s a fair amount of good resource material out there.  The Law Society runs a program on opening your own practice from time to time and you can buy the materials if you don’t want to go to the program.  It’s a good resource book to help think through the issues, including financial planning and the like.  We used it as a general planning aid.

(c) Accountant
 
Speaking of financial planning, I’d say our accountant was our best friend in the planning process.  There are various models for planning expenses on your own but once we did that our accountant took our numbers and turned them into financial projections in exactly the form the Bank would want to see.  Then he went a step further and hooked us up with a couple of commercial lending people from different banks he was familiar with.  Apart from taking a bunch of work off of our plate, using his connections gave us an added level of credibility with the banks and getting our financing in place turned out not to be as big of a hassle as it might have been.

If you can find an accountant like this, it’s worth a lot more than just the accounting advice.  Ours also hooked us up with a bookkeeper connected with the accounting firm.  I’m told there are some good free-lance bookkeepers out there and I’d have no objection to that.  But if you don’t have access to someone you know and can trust on a free-lance basis, getting one through your accountant isn’t a bad idea.  It makes things easier when it comes time to do your financial statements, which you are going to have to show the bank, and when adjustments have to be made, if your accountant and your bookkeeper work well together.

(d) Business Structure

Speaking of accountants, they help on this issue as well.  First you have to decide some legal issues like if you are going to use a law corporation or associate or become a partnership.  We chose to be a limited liability partnership, but once we got there a second issue was whether we were going to have a management company.  That’s where the accountant came in.

As I see it, there are really two reasons for a management company.  One is that, if you can get your space in the name of the management company, without giving a guarantee, you can limit exposure to the landlord to that of the management company, thereby protecting your law practice and yourself personally.

Beyond that, a management company presents opportunities for tax advantages in a variety of ways.  Typically, the management company employs non-professional staff and does your procurement and various other things, and bills your firm for it.

The down side to a management company is that it is a little more complicated to set up and go with than just a law firm.  You should have a management agreement between the management company and the law firm, and each needs its separate books.  That’s a bit of a pain to set up, but once done, it starts to run itself, and it gives you a structure which (I’m told) if done advantageously in the beginning can make a significant difference down the road.  (Caveat emptor; get your own accountant’s - and lawyer’s - advice on this!)

(e) Lawyer

Speaking of management agreements, even though we are lawyers we thought it handy to have one too.  We retained a commercial lawyer in another small firm to do three things for us:  (1) Set up our management company and our limited liability partnership, including our partnership agreement, in consultation with our accountant; (2) advise us on our lease agreement; and (3) prepare our management agreement between the management company and the law firm.

We could have done a fair chunk of this ourselves, but apart from saving us a lot of time (well worth it); we got the benefit of another lawyer’s own experience and objective eye in evaluating our documents.

(f) Systems Consultant

Unless you are an awful lot more computer literate than we are, you need some help setting up computers for internal networking and internet access.  Someone with a little experience working with lawyers is helpful, as is someone who is going to be around for maintenance and support thereafter.

We found one company able to give us one stop shopping – advice re what to buy, provision of the hardware and software, set up, and then maintenance.  Our consultants were very good and very responsive, although they didn’t predict everything we would want to be able to do down the road.  It’s important to be able to spell out with as much detail as you can exactly what you want your system to be able to do on start-up and also down the road, so that whatever system structure you put in place will not only be ready to work when you are but also to grow when you grow.

(g) Interior Designer

One of the worst issues for us when trying to find space was trying to imagine what it would look like once we had furniture in it, where everyone would sit, what size furniture we should get, and where we would put supplies and this sort of thing.  We are also both significantly challenged when it comes to little issues like colors for paint and carpet and the like.  A designer doesn’t have to cost a fortune.  We were fortunate enough to find a good small outfit whose principal had experience in a law firm (from a prior life) and designing for law firms.  She was able to check our prospective space, make excellent suggestions about what should go where and how to maximize use of it, tell us what to do with the walls and the floor, and then hook us up with an excellent furniture guy to sell us the stuff that would nicely fit into the plan.

When the furniture came, we knew exactly where to put it, in a configuration that would permit us to add more items and cabinets as we got set up.  Our furniture guy was also excellent in providing us with loaner items whenever we urgently needed something until whatever we had ordered was actually shipped.

(h) Phones

Phones were one of the hardest things we had to deal with.  Coming from larger, established firms we were used to stuff that hooks up to a switchboard and with certain functionality.  Making inquiries about business phones always seemed to elicit efforts to sell us similar type equipment, which was way beyond our needs or budget at that point.

As it turns out our solution was ultimately pretty simple.  We got a basic business line for our fax and a couple of “Local Link” packages for our offices.  These provide almost all of the basic functionality you need – voicemail, conferencing, etc. - to get rolling as part of the phone service, without a fancy switchboard.  You don’t need a fancy “business phone” to work with it either.  There are lots of screen-type phones that have all the functionality you need and just plug into the jack to work.  Get one, plug it in, and away you go.

One point to watch out for is that there’s going to be a lag between when you order your phone service and when they actually show up to turn it on.  That’s even longer if, say, there’s been a recent labour disruption and there’s a backlog.  Make sure you find out about that soon enough to plan for it.

(i) Internet

Getting your email set up takes a little advance thought too.  Most importantly, you need a service provider, and if you want your own domain name you have to register that in advance too.  My solution to the mechanics of domain name registration was to let my partner take care of it.  I highly recommend that option, but if you don’t have it, chances are your computer consultant will be able to help you out.

Just remember that your service provider is going to need some technical information about your domain name in order to make your email work, and you are going to need to set up your domain name so it points at your service provider’s service (don’t ask me to explain that exactly, I can’t – I just found out that you need to have some information and figure out how to do this a few days in advance, otherwise you have to wait for your email to come on line.)

Chances are your service provider will host a website for you too, although you might not be ready (as we weren’t) to put up your site right away.  But in the interest of simplicity, it’s nice to have your website host and your email service both in mind at the outset when you choose your service provider, so that when your website is ready to go, so is your host.

(j) Website, Logo, Letterhead

Speaking of websites, it’s nice to have it incorporate a logo that is going to been seen elsewhere in your practice – meaning that if you want a logo, you should think about it early.  In our case, Joseph found a not too expensive designer (a university student, with a little business on the side) who was able to set up a logo for us – nothing fancy, just a stylized version of our name – and letterhead, incorporating the logo.  The letterhead comes in the form of a word template as well as a print design, so we can use it either way (for fax or hard copy), and matching business cards were done as well.

The same designer then coordinated with a website designer to plan a basic site for us.  We had to plan the content, of course, but someone else put together the format and integrated the content into the design.  The website took longer to get rolling than we’d hoped, but we had it up in about three months time.

(k) Insurance

Of course, not to be forgotten just because it’s item (k) on the list, is your friendly neighbourhood Lawyers Professional Indemnity Company.  Switching over from your old firm isn’t that difficult; you just have to give LawPRO the details in writing; when they get their records updated they’ll send you a bill and credit your old firm with whatever it’s entitled to based on your having departed.  This may take a while and because I’m a little anal retentive about insurance, I checked in periodically to make sure there hadn’t been an oversight in administration – there was one, eventually, but we got it sorted out.

We also wanted excess coverage, as probably most of us do, and that’s something else that needs advance thought.  To my knowledge, there are only 2 options.  One is LawPRO’s excess policy.  If I understood it right, LawPRO needs a lengthy period of time to implement, so if you want to go that way you need to check it out substantially in advance.  The alternative is to apply through an excess broker (we used Marsh & McLennan), which was able to get us excess coverage very quickly.

Finally (well, not really finally) there is necessary coverage for property and (non-professional) liability, which you need to have in place for yourself, your landlord, and your bank probably, as soon as you have possession of space and equipment.

I say “not really finally” in the preceding paragraph because you can, and probably also should, be looking at life and business interruption policies as well, for the business.  We did that, but not right at the beginning – just too much to tackle amongst everything else, and not an absolute must for start up.

(l) Law Society

Not to be forgotten.  You have to keep the Law Society apprised of your practice particulars.

Doing

Describing the “doing” is easier than the “planning”.  We found that once we got started we spent some time reacting to needs as we went, so we were then into problem solving rather than anticipating needs.  Carrying on practice at the same time was a challenge.  It’s not a bad thing not to be too overwhelmed with work at the outset, so you can spend some time figuring out how to make it work.

(a) Supplies

Figuring out how to make this work killed a lot of time for us, both in terms of figuring out what we needed and how to get it, efficiently.  We spent more time than we should have physically shopping for stuff.  In fact, most of the stuff we needed was available quickly and easily on line.  Both Staples and Grand & Toy have fast delivery services, so once we found our way around the web-sites, it was a lot more efficient.

Note to litigators:  Make sure you have an exhibit stamp before your first urgent motion comes along …

(b) Support Staff

This is a hard one to plan out.  Our approach was not to splurge on staff until we were confident we were in a position to pay for it.  In retrospect, we could have geared up on this earlier than we did, but it did work out in the long run.  We were fortunate enough to get early assistance on an hour by hour contract basis from an assistant who had worked with me before and who was willing to give us some part-time help.  That led to bringing on another person on the same basis, and eventually we hired someone full time when we were ready (well, when we were desperate, because we should have done that sooner, too).  End result, we now have 1 full time and 2 part-time staff.

Two things surprised me in this process.  First, we got our full time staff member without going through an agency, thereby saving a big chunk of change.  An ad in the Toronto Star got us quite a few very unhelpful applications but one very excellent one- all we needed.

Second, I was surprised at how many good quality people there are out there who want to work part-time.  We were fortunate, in our case, that we knew both of ours previously – but I gather there are lots of high quality people looking for flexible working arrangements.

(c) Photocopier

This turns out to be a significant investment because the options seem to be to buy something expensive or to commit to a long term lease.  The problem was, we could only guess at how much we were going to need in terms of speed and capability.  We were fortunate to find a sales agent who was willing to rent us an old one on a month to month basis for a few months, so we could monitor our usage and then make a more intelligent decision about what to do next.

(d) Accounting Software

Perhaps I should have put this under “Planning”, because you need to have it pretty much ready to go when you start up.  Learning how to use it, though, is part of practice.

So far as the law practice is concerned, you need a program that will enable you to comply with Law Society requirements, so something designed for law firms.  We went with PC Law.  It’s probably not that difficult to learn but we found we didn’t have time to learn all that much ourselves, and so relied fairly heavily on our bookkeeper initially – not the most cost efficient way to do it.

However, once we got our staff resources in play (another reason I wished we’d done that earlier) our bookkeeper was able to get our administrative staff up to speed on doing most routine tasks, so that we use less of the bookkeeper’s time now.

The management company doesn’t need law firm software, so we picked up a (less expensive) program recommended by our bookkeeper to deal with that, to the same effect.

A word of caution is that (so far as I understand it anyway) what the Law Society wants you to do is occasionally different from what your bookkeeper might want to do, from an accounting perspective.  In particular, your trust accounting has certain requirements you are responsible for, regardless of your bookkeeper’s help.  It’s a good idea to have a look at the Law Society’s bookkeeping guide, which you can download from its website, and to learn how to use the program well enough to see if your financial records make sense, even if you don’t learn how to input bills and cut cheques.

(e) Library

So much material is available and searchable online, we didn’t consider this a pressing issue.  We did set ourselves up with Quicklaw, and other than that we tend to acquire books on an ad hoc, as needed basis.  (Note to litigators, you do need the Rules of Civil Procedure …)  Most of the legal publishers are pretty good about delivering stuff quickly if you have a screaming need for it.  Apart from that, there is the Great Library’s research service, which will get you copies of case law on a very quick turnaround if you need it, and quite cost efficiently.

(f) Professional Staff

Hiring a junior lawyer was a big decision, and we did it last August.  The important consideration on the financial side is that you have to start paying your junior considerably before you start receiving cash for the junior’s work product, and of course you also have to provide a desk, computer, etc., which cost doesn’t get recovered until later either – so you need to think about whether there is sufficient work to generate the cash and when you are going to get it.  On the other hand, our experience was that it didn’t take long for us to realize there is a ton of stuff we were dying to have someone else take care of – so filling up our junior’s plate is taking less time than we thought.

Another point to keep in mind – assuming you are looking for a first year lawyer – is the timing of the large firm hire back decisions.  May or June is a good time to be looking, as there is a sudden flood of articling students who will not be returning to their firms as lawyers.  In our case, we contacted people we knew in large firms as well as a friendly consultant who was well connected, with the result that we got some good candidates referred to us directly.

(g) Coffee Maker

Here’s another item that should more properly be in the “Planning” section above, but becomes urgent in the “Doing” section if you are like me – need the coffee and can’t stand waiting in line for it at Tim Horton’s.

Conclusion

This article took a lot longer to write than I expected, so I guess setting up and doing our first year must have taken a lot more thinking, planning and doing than I’d thought about when I set out to write it.  It’s been a long haul but so far a very worthwhile exercise.  Hopefully, a point or two in here will help someone else get there a little faster and more easily.

* Lloyd Hoffer, Hoffer Adler LLP.