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Written by: Carolyn Young
Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.
Edited by: David Lepeska
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Published on June 7, 2022
Investment range
$11,550 - $22,100
Revenue potential
$156,000 - $364,000 p.a.
Time to build
0 – 3 months
Profit potential
$94,000 - $218,000 p.a.
Industry trend
Growing
Commitment
Full-time
Here are the most important factors to consider when starting your law firm:
You May Also Wonder:
How profitable is a law firm?
Law firms can be very profitable, with rates up to $500 an hour. If you have a passion for serving your clients and put your heart and soul into your work, you can be successful.
What are the best states to start a law firm?
The best states to start a law firm depends on various factors such as market demand, competition, regulatory environment, and local economy. States with strong legal markets, like California, New York, Texas, and Florida, often present opportunities. However, it is important to conduct thorough market research and consider your specific legal niche to determine the best location for your law firm.
How can I differentiate my law firm from competitors in the market?
To differentiate your law firm from competitors, focus on developing specialized expertise in specific areas of law, prioritizing exceptional client service with personalized attention, adopting innovative legal technologies to improve efficiency, and creating a unique brand identity with targeted marketing strategies.
How can I expand my law firm to reach more clients?
To expand your law firm and reach more clients, enhance your online presence with targeted SEO and social media strategies. Build a referral network with other professionals and utilize targeted advertising in relevant media. Engage in community events and pro bono work to increase visibility and credibility in your area.
What is the most common business structure for law firms?
The most common business structure for law firms is a partnership, specifically a general partnership or a limited liability partnership (LLP). Partnerships allow attorneys to share resources, responsibilities, and liability while maintaining flexibility in managing the firm.
Starting a law firm has pros and cons to consider before deciding if it’s right for you.
Trends in the law firm industry include:
Challenges in the law firm industry include:
Startup costs for a law firm range from $11,000 to $22,000. Costs include office space rental, office preparation and furnishings, a computer system, and malpractice insurance.
You should also consider joining the American Bar Association. Costs range from $75 to $400 annually.
You’ll need a handful of items to successfully launch your law firm business, including:
| Start-up Costs | Ballpark Range | Average |
|---|---|---|
| Setting up a business name and corporation | $150 - $200 | $175 |
| Business licenses and permits | $100 - $300 | $200 |
| Insurance | $100-$300 | $200 |
| Business cards and brochures | $200 - $300 | $250 |
| Website setup | $1,000 - $3,000 | $2,000 |
| Office space rent | $1,500 - $2,500 | $2,000 |
| Office preparation and furnishings | $5,000 - $10,000 | $7,500 |
| Computer system and software | $2,500 - $3,500 | $3,000 |
| Malpractice insurance | $1,000 - $2,000 | $1,500 |
| Total | $11,550 - $22,100 | $16,825 |
Attorney rates range from $100 to $500 per hour. When you’re first starting out in a solo practice, you’ll probably be able to charge about $200. Your profit margin after rent and overhead should be about 60%.
Some types of legal services, such as litigation, involve commissions or flat fees, so you could have revenue above and beyond your hourly rates.
In your first year or two, you might work 15 billable hours a week, bringing in $156,000 in annual revenue. This would mean $94,000 in profit, assuming that 60% margin. As your firm gains traction and you get referrals to new clients, you might get 35 billable hours a week. With annual revenue of $364,000, you’d make a tidy profit of $218,000.
You might want to hire other attorneys and paralegals at this point to grow your firm.
There are a few barriers to entry for a law firm. Your biggest challenges will be:
Now that you know what’s involved in starting a law firm, it’s a good idea to hone your concept in preparation to enter a competitive market.
Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.
Your services will be legal services in whatever practice area you’ve chosen. Law firms typically offer a variety of services, with the most common including:
To determine which services to offer, a law firm should consider:
Research law firms in your area to examine their services, price points, and customer reviews. You’re looking for a market gap to fill. For instance, maybe the local market is missing a firm specializing in employment law or a legal practice that handles family law.
You might consider targeting a niche market by specializing in a certain aspect of your industry, such as corporate law or tax law.
Focusing on a specific aspect of law allows a law firm to develop deep expertise and a strong reputation in that area, which can attract clients seeking specialized legal assistance.
Specialization also enables attorneys to stay abreast of the latest developments and nuances in a particular legal field, enhancing the quality of their advice and representation.
Furthermore, by concentrating on a specific legal niche, firms can differentiate themselves from competitors, making them more attractive to clients looking for experts in that particular legal domain.
Attorney rates range from $100 to $500 per hour. When you’re first starting out in a solo practice, you’ll probably be able to charge about $200. Your profit margin after rent and overhead should be about 60%.
Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.
Your potential clients will depend on your practice area. You should market on sites like TikTok, Instagram, and Facebook. You should also have an active presence on LinkedIn.
When choosing a location for a law firm, consider the following aspects:
You can find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.
Here are some ideas for brainstorming your business name:
Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.
Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that sets your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.
Here are the key components of a business plan:
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.
Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.
Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!
Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you’re planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to law firms.
If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your law firm will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Here are the main options:
We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.
Many law firms choose a PLLC, which is a professional limited liability company specifically for licensed professionals such as attorneys. You can read more about the difference between an LLC and a PLLC.
Choose Your State
The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.
Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.
The IRS website also offers a tax-payers checklist, and taxes can be filed online.
It is important to consult an accountant or other professional to help you with your taxes to ensure you’re completing them correctly.
Securing financing is your next step and there are plenty of ways to raise capital:
Bank and SBA loans are probably the best option, other than friends and family, for funding a law firm business.
Starting a law firm business requires obtaining a number of licenses and permits from local, state, and federal governments. Of course, you’ll need to be licensed to practice law in your state.
Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.
You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more.
You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.
This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.
If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.
Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.
Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your law firm business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.
Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.
Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.
Here are some types of insurance to consider:
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.
You may want to use industry-specific software, such as Clio, PracticePanther, or actionstep, to manage your case flow, documents, time, and billing.
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.
You can create your own website using website builders. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.
They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google.
Here are some powerful marketing strategies for your future business:
Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your law firm meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.
Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your law firm business could be:
You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a law firm business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in law firms for years and can offer invaluable insight and industry connections.
The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in law firms. You’ll probably generate new customers or find companies with which you could establish a partnership.
If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a law firm business include:
At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.
Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.
Nobody wants to need legal services, but unexpected situations arise and people need attorneys. Whether you’re a recent law graduate or an established lawyer, starting your own law firm is a great way to serve your community. You’ll be using your skills and your passion for the law to help people, and could also build a very lucrative practice!
Now that you know what’s involved in establishing your business, it’s time to build your entrepreneurial case and launch your successful law firm.
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