Writing or revising your business plan helps you be intentional about the direction of your firm and gives you the framework to measure your success. This article discusses the business planning process and its benefits.
A business plan is not an exercise that you do simply to get a bank loan or to get your life partner to stop asking about it. It is not busy work unless you let it be. Let’s talk about some of what goes into a business plan and how you can get the most out of the exercise.
What’s your mission?
What are you passionate about? What outcomes do you want to see for your clients, community, and society? Sure a mission statement is somewhat of a marketing device, but it is also a great way to define your law practice. It is a way for you and your partners and staff to see what you are trying to accomplish with the practice. A guiding principle, if you will. I have worked at places where people were on board with a mission and places where they were not. The difference is significant in retention and job satisfaction. Even if your practice seems a little mundane to outsiders, it is probably not to your clients. Tap into what it means to your clients to have your firm do an outstanding job for them.
What are your financial goals?
This section breaks down into needs and wants and personal vs. business goals. Depending on where you are in building your practice, how you approach this will be different, but it is still a good exercise. Personal needs: food, housing, health care, clothing, transportation, loan repayment, taxes, maintaining your law license. Personal wants (some of which become needs, so I know the first list was pretty austere): retirement, vacation, rainy day fund, gifts, events, pay ahead on loans, etc. Try to put as realistic numbers to all of this as you can. When you do a budget, you might be surprised by what you find. You may be deficit spending and need to cut back. You may be doing better than you thought and may have been putting off necessary expenditures that you do not have to. Regardless, knowing your personal finances makes it so you know each month when you have made enough to pay your bottom minimum expenses, your “want” goals, and if you have exceeded both goals. An incidental effect of examining your finances is finding expenses that you no longer are benefiting from that you can cut.
The business goals are similar in that you are looking at what is the minimum needed for the law firm to survive and meet its obligations and what would you like to see it do to meet your future goals? Non-negotiable items include rent, insurance, salaries/draw (which you determined above under your personal wants/needs), debt management, taxes, research/library expenses, equipment, etc. Naturally, you will want more than for the law firm to survive, so what does that look like and what does it cost? You might have goals for higher profits, new locations, more staff, more advertising, a better building, etc.
Meeting your goals
Now that you know how much profit you need to meet each goal, we have to figure out what that looks like in sales when you consider expenses. If you have established pricing and sales figures, this is easier to predict, but it is a useful exercise regardless. For easy math, we will use an example of a practice area for which you will charge a $2000 flat fee upfront:
$2000 avg per matter
10 leads a month
50% close rate
= $10,000 monthly gross
I’m assuming a 50% close rate, but if you have an existing practice, you either know your close rate or can start tracking it. Close rates on the internet or yellow pages leads are much lower than personal referrals by someone the client respects.
If I assume this practice is a solo practitioner with no staff, we could argue for $3000 a month in expenses for a net of $7000 before taxes. How does this number match up with your personal and business goals? Don’t worry about the numbers presented, they are oversimplified to show the concept. You would plug in historical or projected numbers and work in more detail to get a better idea of how many clients of what kind you need to meet your goals.
The marketing plan
But where did those leads come from? Ideally, they came from warm leads by trusted sources. They are much easier to close and far less expensive to generate in the first place. The challenge is that the less established you are, the fewer high-quality leads you will have. This affects your close rate, meaning you need more leads or prospective customers to meet your goals. You will want to think about how you will build a presence in the community. Will you advertise in local shoppers, buy ad words on Google, run radio ads, take potential referral sources out for coffee, join the rotary, or some other strategy to gain a profile?
Some points to be made here:
- Advertising tends to raise your expenses significantly, but done well, can also dramatically raise your profile. This gives you the opportunity to do a great job for clients you acquired through advertising which leads to referrals.
- Building a referral network takes a long time. Do not expect immediate sales as a result. Think of it like planting and caring for a garden.
- Remember your mission! Your marketing plan needs to be consistent with your mission. If your mission is “Being the trusted advisor to people during life’s challenges” and you send people direct mail designed to scare them with possible, but unlikely scenarios, you are not building trust and are off mission. Think about how your marketing can support the lawyer you want to be and the law firm you want to build.
- Consistency is necessary for marketing activity. If you join the Rotary Club, show up at every meeting. Volunteer and get involved. If you are advertising, commit (maybe not in writing) to a long enough run to reinforce your message. Think about the sales cycle for your area of law. If it takes someone six months from when they realize they have an issue until they commit to doing something about it on average, then it will be a while before there’s a payoff for marketing.
- Who is your ideal client? Again, we look back on your mission. Who do you want to help? Who can afford your services? If your ideal client cannot afford to pay you to sustain your practice, is there another reliable funding source such as a grant? Once you know your ideal client, we can look at their demographics and buying habits to know better how to reach that particular audience and how big that audience is relative to your competition.
- Who is your competition? What do you have to offer your ideal clients that they do not? Price competition may work, but only if you actually have greater efficiency or the clients are being greatly overcharged.
- Related to competition—what price will you charge for service? What do your competitors charge? What are the differences in service or reputation that might justify differences in price? Can your clients afford your prices? My Future of Law Practice students often propose too high or low prices. High because they are not taking into account that a new lawyer cannot (and for ethical reasons probably shouldn’t) charge experience big law firm prices. Low because they are not taking into account the value they give or the cost and risk of delivering legal services.
Who are you?
I know this might seem a little woo-woo for a business planning discussion, but self-knowledge is important to business planning, especially for a solo or small law firm. Think about the following questions when deciding what to focus on and what you should outsource:
- Experience in the practice area
- Experience owning a business and doing sales
- What do you enjoy about law practice?
- What sucks up your energy?
- What are you bad at?
- Why do you do what you do?
- What resources do you have or need?
What cash on hand do you have? What ability do you have to borrow from banks or other sources? This is an important one. I knew a lawyer who had been in business for years and then the 2008 financial crisis happened. He didn’t know how he was going to make payroll and didn’t have a line of credit. You want to have that line of credit before you need it. If you are starting a practice from scratch, you will need to consider all of the start-up costs and how you will fund those.
Who knew crunching numbers would lead to fulfillment?
I know it sounds preposterous, but if you do the work to think about who you are, how you want your law practice to be, that will drive the numbers to inform how that will all come about. A business plan isn’t something you do to go through the motions and toss it on the shelf to gather dust. It’s a plan to help you achieve your goals and it works much better when it is updated frequently to reflect when your estimated numbers hit reality.
About the Author
Shaun G. Jamison is associate dean and professor of law with Concord Law School at Purdue University Global. Dr. Jamison’s interests lie at the intersection of law, technology, and privacy. He may be reached at sjamison@purdueglobal.edu.