Small business fundamentals for lawyers: What you need to know

  • July 29, 2016
  • James Careless

When it comes to surviving and thriving economically, solo practitioners and small law firms are small businesses first. Just like the local convenience store, solos/small firms have to attract enough paying clients to pay their bills, employees, and owners, and make a profit so that they can save money for slow times and have capital to grow in the years ahead. As small businesses, solos/small firms also have to accurately track and record their financial activities using legally-accepted accounting methods. They must do so in order to know where their money is going, to ensure that any funds they are holding in trust for clients are being properly managed, and to comply with any externally-imposed audits.

Given these fiscal realities, one would think that small business management fundamentals would be a central part of any lawyer’s education. Sadly, this is not the case. “Teaching students how to run a small business is not remotely part of the standard law school curriculum in Canada,” said Jordan Furlong; a legal trends consultant and owner of Law21.

“Many schools would argue that teaching small business management skills is someone else's job,” he said. “Their job, they say, is to give students a legal education, to invest them with the legal knowledge, reasoning, and analytical skills required of lawyers. Whether their students would agree with that assessment is another story entirely.”

This lack of business education plagues many new lawyers once they hang up their shingles. Suddenly thrust into running (and paying for) their small businesses, these lawyers “struggle to bring in client work, manage the work they acquire, serve their clients satisfactorily, and keep their businesses solvent,” said Furlong. “Not coincidentally, they also struggle with mental and emotional pressure, depression, and a heightened susceptibility to addiction.”

So, clearly, new lawyers need to learn small business fundamentals. But what does that mean?

“It starts by understanding who your potential clients are; what you can do for them, and how to attract their attention to your firm,” said Sandra Maher-Hatcher. She is president of The Law Office Management Association, a not-for-profit organization for law firm managers and administrators. “You also need to ballpark your realistic earning potential over time, including your revenue targets and how you hope to find clients to get you there,” Maher-Hatcher said. “Then there’s your estimated costs; not just office and related expenses, but any employees you may hire as well.”

All of this information is used to prepare your business plan, your theoretical roadmap to arrive at the success you seek. Despite its formal-sounding name, a business plan does not have to be long and involved. But it should be revised and updated on an ongoing basis, both to keep it in line with the firm’s actual performance, and to incorporate additional knowledge as you gain practical experience with what clients are willing to pay for what kinds of work, and what your business costs actually are.

With the business plan in place, it is now time to get specific about what Furlong calls the three most significant aspects of running any business: customer/client service, business development and sales, and financial/organizational management.

“Customer/client service” refers to the level of professionalism, courtesy, ethical behaviour, and attention to the client experience that a law firm provides. “The leading cause of client complaints to law societies and state bars is consistently the failure to communicate properly with and respond promptly to clients," said Furlong. "This strongly suggests that lawyers are not well trained, and law firms are falling below expectations, in attentive client service.”

How clients feel during and after using a law firm, and the degree to which the firm gave them appropriate levels of attention and respect, will figure prominently in their chances of returning to the firm again in future, he explained.

This said, even the most client-attentive lawyers can still fail due to inadequate business development/sales and financial/organizational management. Fortunately, there are many sources willing to educate lawyers in these areas of small business management – and at far less cost than the average MBA.

For instance, the federal government’s Canada Business Network offers a complete portfolio of helpful topics online. They include how to write business plans, identify and contact potential new clients, organize small business accounts in line with accepted accounting practices, and persuade overdue clients to pay their bills.

“We can also help you register your business correctly with GST/HST and CRA,” said Christian Laverdure; Director General of Services for Business at Innovation, Science and Economic Development. “The key to running a successful business of any size is to get all of these points covered upfront, so that you don’t run into pitfalls later.”

Law societies can also help. For example, the Law Society of Upper Canada’s Guide to Opening Your Practice for Lawyers is an excellent how-to document that can serve as a checklist for lawyers starting out on their own.

If these self-help resources aren’t enough, Furlong advises the business neophyte to take night classes or online courses in business administration and to take advantage of CLEs in legal business operations. Other opportunities for learning include:

  • cloud-based practice management systems like Clio
  • law societies and professional insurance providers may have resources and assistance
  • networking with experienced practitioners in order to learn their insights and solutions

The bottom line to ensuring your solo/small firm’s bottom line is to seek whatever help you need to make it a success.

“Don't try to bluff your way through it or go it alone,” said Furlong. “This stuff is learnable and implementable – all you need is information and training, which is widely available. But it starts with your decision to invest time and effort into the enormously important business side of your law practice.”

Freelance writer James Careless is a frequent contributor to CBA PracticeLink.

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