By Darren Wurz
Starting your own law firm can be simultaneously exciting and terrifying. It’s thrilling to finally be your own boss after working for years or decades as part of someone else’s firm, but the logistics can be nerve-wracking, especially if you’ve never had to consider the financial side of running a law firm. We get it. At Wurz Financial Services, we think starting your own lawn firm should come with more excitement than anything else, and we have the tools and expertise to help you get there. If you’re thinking about branching out on your own, make sure you’re prepared with these 5 keys to financial success.
1. Start With the End in Mind
As much as you may want to follow your heart and jump right into your own firm, determined to figure it out along the way, the best way to start a law firm is to start with the end in mind. This means you should focus on the end goal just as much as the beginning stages.
Starting your own practice is more than just a career move for the here and now; it could be a critical part of your retirement strategy down the line if it becomes profitable enough to one day sell. Keep this in mind as you choose your firm name and build your brand. Ideally, it should be something easy to sell or transition to the new owner in the future. Rebranding is difficult and tedious work that you won’t want to deal with in the last couple years before retirement. Avoid this issue by starting on the right foot—keep your end goal in mind.
2. Run It Like a Business
You probably didn’t go to law school with the idea that one day you would be running a business. In fact, most of our clients would much rather be seen as an honest professional instead of a savvy business person. But there’s no reason why you can’t be both. After all of your education and experience, you deserve to get paid what you are worth and build a firm that maximizes profit. Don’t work for free or sell yourself short. Not only will this help create a solid foundation for your practice, but it will also make it easier to sell in the future. Potential buyers will want to see that the practice is profitable and efficient, with a long-term track record of good business practices. This is much easier to achieve if it’s incorporated into your practice from day one. A helpful resource you may want to check out is Clio’s guide on How to Start a Law Firm.
3. Select the Proper Business Form
Now that you know to run your firm like a business, it’s time to choose the proper business form. Certain states and localities will restrict what type of business form law firms can take, but generally speaking, the optimal choice for small firms is a limited liability company filing as an S corp. This form allows you to potentially reduce your Social Security and Medicare self-employment taxes, while also providing limited liability protection in the event of financial distress to the firm. You could also consider a professional partnership if you plan to start your firm with additional attorneys who will own and manage the business.
4. Separate Business and Personal Finances
It may be tempting to start your firm and figure out the finances later, but you’ll save yourself a lot of time, energy, and headache by keeping your personal and business finances separate from the start. You can do this easily by opening a new bank account and perhaps a separate credit card depending on your needs. Keeping different accounts for business versus personal expenses will make it a lot easier to identify trends in profit and loss within the firm and track growth over time. Commingling funds will muddy the waters and can be difficult to decipher come tax season or when you try to hand the business over to someone else.
5. Commit to Paying Yourself and Adding to Your Investments
When you first start your practice, you may experience a lot of ups and downs with your income. Although this is completely normal and to be expected, it can be difficult to manage this irregular cash flow. You may find yourself splurging when you get a sudden influx of cash but then relying on credit cards when business is slower. This dangerous cycle can lead to overspending and low liquidity. Avoid this up-and-down cycle by stabilizing your income and giving yourself a regular paycheck (this is where it helps to have your business and personal finances separate)!
Also, make sure you are not neglecting your investments. Being in business for yourself can make it easy to forget that you still need to save for retirement. Be disciplined and make consistent contributions to your investment portfolio even if it’s just a small amount. Over time you will be able to contribute more, and your nest egg will grow. If you are worried you can’t afford to keep investing, put the funds in an after-tax brokerage account instead of a retirement account—that way you will be able to access the money with no restrictions in case of an emergency.
Partner With a Professional
Starting your own law firm doesn’t have to be stressful or overwhelming. Our Wurz Financial Services team works with many attorneys who have navigated the challenges of starting their own practice. If this sounds like you and you’d like to learn more about your options, schedule a no-obligation consultation. Together let’s find out if we’re the right people for you to depend upon during your journey to starting your own law firm. Contact us at 859-291-9879 or firstname.lastname@example.org today!
Also, join us at one or all of our free webinars:
- Social Security 101: The 3 Rules to Maximize Your Lifetime Retirement Benefits!
- Will I Have Enough to Retire?
- Retirement Planning Strategies for Solo & Small Firm Attorneys
Darren Wurz is a fee-based financial advisor and co-owner of Wurz Financial Services, where he operates the Northern Kentucky/Cincinnati office. He is a CERTIFIED FINANCIAL PLANNER™ and has a master’s degree in financial planning from Golden Gate University. Darren specializes in serving the unique financial planning needs of attorneys and law firm owners. He is the host of The Lawyer Millionaire Podcast and author of The Lawyer Millionaire: The Complete Guide for Attorneys on Maximizing Wealth, Minimizing Taxes, and Retiring with Confidence, published by the American Bar Association.
Darren is a member of the American Bar Association and the Financial Planning Association. He is also active in his local community as a member of the Northern Kentucky Bar Association, Cincinnati Bar Association, Covington Business Council, and Northern Kentucky Chamber of Commerce. To learn more about Darren, connect with him on LinkedIn.