Top 5 Factors to Consider When Starting a Law Firm

  • January 10, 2018
  • Marisa Lau

Starting a law firm is not a small endeavour, and as a result, significant thought should be put into it before proceeding. Once your decision has been made, there are several factors to consider.  Below are what we consider to be the top 5:

1. Have a Plan

Like any entrepreneur starting a new business, having a clear picture of what your law firm will look like is a necessity.  You will need to lay out clear milestones and timelines for yourself instead of marketing your services to potential clients right away. Some things you may want to include in your planning are whether to have a physical office space, whether to share office space with other small firms or sole practitioners, when to begin staffing your office, when you should invest in certain software and office equipment, and what the growth of the firm will look like over the span of several years.  Another important aspect to consider is what firm culture and firm image you want your firm to portray to the public and to potential employees.  All of these considerations need to be given thought from the outset so that you have a plan to follow in order meet your goals as best as possible.  Flexibility and knowing when to adapt is also crucial in being an entrepreneur, and is no different when starting a law firm.  You should make contingencies and know when to change plans when obstacles are thrown in your way.


2. Structure the business and finances

The legal structure of the firm and the business is crucial, whether it is a sole proprietorship, professionals practicing in association, a partnership or a professional corporation. The two main things to consider when deciding which legal structure to use for your law firm are protection from liability and tax planning.  Each legal structure has its own advantages and disadvantages.  For example, a Limited Liability Partnership will provide a certain amount of shielding in terms of personal liability, whereas your personal assets will be on the line when you are a sole proprietor.  A professional corporation will also provide certain advantages when it comes to taxes and personal liability protection.  It is therefore important to know the advantages and disadvantages of each possible corporate structure before making your decision. Each structure will also mean different expense outlays, which you have to determine whether it is beneficial to incur at the outset. A sole proprietorship may only require a business name and a partnership may only require a partnership agreement whereas an incorporation will mean governmental incorporation fees, yearly accounting fees as well as annual Law Society of Ontario (LSO) fees for renewing a certificate of authorization.  It is also important to keep in mind that you do not necessarily have to stick to a single type of corporate structure.  You can even consider combining several structures such as having a partnership between two professional corporations. It is important that you choose the right structure to suit your needs and goals to ensure you have the foundation to build your firm.


3. Business Development, marketing and networking

As a law firm, the primary source of revenue is legal work from clients.  It will therefore be no surprise to anyone that one of the most crucial factors to consider when starting a law firm, is to ensure that there is a business development plan in place.  This means considering if you have any current clients you can bring with you (without breaching any non-solicitation clauses with your current firm), going out and looking for clients or referral sources, professionals who can refer clients to you such as lawyers in other practice areas, accountants, realtors, financial advisors and properly marketing the law firm, and also networking at various events.  Business development is extremely crucial during the first few years of a law firm, as it will make or break the entire business venture.  Are you willing to invest the time to take on any opportunity to meet potential clients? Professional organizations are also key to developing networks, which could lead to referral business.  Don't be afraid to go out there and look for business opportunities.


4. Mentorship and seeking help

Willingness to seek help should not be considered a weakness, but rather a strength.  It is important to know one's own limitations, and when to seek help.  There may be areas of law which you are not familiar with, and it is important that you ask for guidance in such areas.  The biggest mistake that a lawyer can make is to venture into an unfamiliar area, and provide inaccurate advice to a client, which may lead to possible claims against the lawyer.  Having a mentor is another vehicle in which to receive advice and grow, especially for junior lawyers.  For lawyers that are thinking of starting their own firm right after articling, mentorship is crucial and can go a long way.


5. Compliance with the LSO

Even if you have a great business up and running, LSO can shut you down in one move if they find that you are not compliant. The dreaded law society audit is where they review your firm's practices and files. It is therefore important to have knowledge of all the requirements and the equipment to help you implement the required practices from the get-go, ranging from docketing systems, conflict management systems, bookkeeping systems, intake forms, retainer agreements and reporting letters, to name a few. LSO has some practice management guidelines on their website as well as a practice management helpline to help you answer the toughest questions about running your own law practice.

In addition to these considerations, I recommend connecting with a sole practitioner mentor. The OBA Sole, Small and General Practice Section provides opportunities to network, connect with mentors and access valuable practice resources for new solo lawyers. Consider consulting with a professional advisor: please contact my firm for more information.


About the author

Marisa Lau, Associate at Grinhaus Law Firm

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