Since this can be a frustrating task, it’s tempting to just throw up your hands, and tell yourself that, truly, you’ll know what you’re going to make when you make it. The downside of that approach is that it’s difficult to make any plans that way, and to begin to define a strategy for business growth. Without revenue goals, there are no targets to hit. You won’t know whether to judge your year as a success or a setback. Establishing revenue markers is a method for implementing steady (not overwhelming) growth) — and, it doesn’t mean that the overarching goal is no longer to make as much money as you can. If you hit or exceed your goal, be more aggressive about establishing next year’s goal.
These are some basic tips for developing revenue projections for a new law firm:
Start with Your Overhead. At a very basic level, you need to meet your expenses to stay in business. So, start there. Figure out what you need to meet your personal and business expenses, and then build revenue goals on top of those.
Ask Around. Lawyers hate to share information about their rates. But, for almost every other category of law firm business management, you won’t be able to stop them talking. So, find a mentor in your practice area, and have her review your financial projections, to see whether what you’re thinking jibes with her experience.
Create Three Test Cases. If you’re having difficulty deciding on just one revenue model, try out different test cases. Create an aggressive financial model, a moderate one and a conservative one. See which one you nail, and then you’ll have a better idea about your growth pattern for year two.
Don’t Get Too Far Ahead of Yourself. It’s likely not valuable for you to project too far ahead, especially as a new business owner. While you might feel some comfort running out financial projections to year five (which will be far rosier than what you would have developed for year one), so much will change in your business by that time, that that projection is likely garbage as soon as you mark it down. Consider developing financial projections for the first year of operation a victory.
Simple is Best. You needn’t go crazy trying to find a financial projection model that suits you. Just create a spreadsheet. List your expenses, including line items. List your projected revenue, including total matters and hours. There is no prize for the prettiest financial modeling.
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]]>The traditional advice on this topic is that you go out, and ask around. Only, lawyers (especially your competition) are fairly reticent about sharing their rates, probably obviously. This is also a taboo topic in terms of bar association engagement, since those organizations don’t want lawyers publishing or discussing rates under their auspices, for fear of being implicated in price fixing. The majority of lawyers do not publish their rates on their own websites, either — because they don’t want to be undersold by new law firms entering the market. I know lawyers who have asked staff or friends to pose as clients of other law firms, to call and acquire rates; but, the majority of lawyers think that’s cheesy — and, rightfully so. So, your best bet is to find lawyers outside of your geographic area or jurisdiction, or a mentor who may share a niche but not target clients, to help you get a handle on the market. Failing that, you’ll figure it out eventually, after trial and error. That’s not encouraging, of course.
There’s another approach, however; and, that is to start by figuring out what you need to pay your bills, and to create rate sets around that. Once you have that number, add your expected law firm overhead, and then think about how many cases you’ll want to take on in your first year. Divide that total number of cases by your personal and business expenses, and that’s your required hourly rate. You can then adjust up (if you think the value of your services means you can charge more) or down (adding to your required case total). Readjust after six to twelve months.
This is, certainly, a very basic analysis of fee setting, based almost entirely on an hourly rate model, that most law firms still use. Other factors that will relate to your rates include: whether and how much you charge for retainers, and what types of retainers you use; whether you need to construct rates for associate attorneys or staff; whether you need to build in coverage for processing fees or other expenses; whether you can charge more based on your expertise or experience; etc. In some cases, and this may be true of entire practices, contingencies or statutory requirements establish fee structures for you.
. . .
If you want to start your own law firm, join me for an exclusive workshop, coming up in Boston (August 24-26) and New York (September 7-9).
For more information, visit the official site: www.buildyourownlawfirm.com.
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]]>But, when you’re starting a law firm, it’s important to understand the bottom line. You will very quickly learn that you can’t make sustained guesses about expenses and revenue, when all your bills remain due every month.
A lot of start-up law firms avoid financial management as a defense mechanism, waiting until their new venture is viable before looking at a more pleasant set of numbers. But, in the first instance — and especially for start-up law firms without a definable source of income — it’s important to at least get your arms around your expenses. If you can create a list of expenses (monthly and annually), you’ll know what you have to make to meet them. And, that’s the first step in building a viable business.
It’s important not to get stuck trying to create the perfect format — which is a way that lawyers regularly get themselves stuck. Start by figuring out what your initial costs will be. Then, define what your monthly costs will be. Lastly, take those down somewhere — whether it’s on a document or a spreadsheet or a notepad, it doesn’t matter. Know and understand your numbers, and compare them to actual expenses on a monthly or quarterly basis, and at the end of the year. Then re-do your entire budget for the new fiscal year. If you pay the bills in your house, include those expenses, too — on a separate sheet. Once you know how much you need to pay, you can figure out how much you need to make.
And, you don’t need to be a math major to figure that out.
. . .
If you want to start your own law firm, join me for an exclusive workshop, coming up in Boston (August 24-26) and New York (September 7-9).
For more information, visit the official site: www.buildyourownlawfirm.com.
Social media hashtag: #BYOLF.
Visit our Sponsors:
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