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Before opening a solo law office in 1998, I tried to determine how much money I needed and how much money I could expect to make as a solo. Books advised saving one year’s worth of living expenses before taking the plunge. Other solo attorneys shared with me their stories of opening offices, only to close them after a few years of poverty. I did not have one year’s worth of living expenses saved when I went out on my own, nor did solo practitioners I talked to. I questioned the necessity of having that much in savings but had no better estimate of just how much of a financial cushion would be enough. I then turned to reading entrepreneurial materials about starting a business, because, after all, in its infancy, opening a law office requires more business acumen than legal skills. These materials did not suggest the arbitrary year’s worth of living expenses and did not give doom and gloom prophecies. Instead, they were upbeat, encouraging and practical. I read that people were starting small businesses every day; I thought surely I was smart enough to be one of them. I relied on these materials and adopted their views for funding my practice. Eight years later, with the benefit of hindsight, it’s clear that I should have planned differently for the opening of my practice, so I offer these insights into how a would-be solo can determine the amount of money necessary for opening an office. The No. 1 rule is this: Preserve cash flow. When opening his own practice, the budding attorney will have many opportunities to “save” money, but those opportunities will hurt cash flow. Resist them. Solos must know that they’re in business for the long haul. Their focus should not be on net income but on net cash flow. The most important information necessary to open a practice is a detailed budget of revenue and expenses, broken down by month, for at least the first year. Why break it down by month? Because the expenses in month 10 of an office do not have as much to do with the amount of money an attorney needs to open the office as do the expenses in month two. Also, different types of firms have different revenue streams. A contingent-fee firm may generate little revenue in the first few months but significant income near the end of the year, while a transactional firm will produce a more steady revenue stream. Simply stated, an attorney cannot assess the cash flow of the business and determine its needs without breaking down a budget by month. Estimating expenses is tedious and time consuming. Reality is key; do not underestimate expenses. Verify the dollar amounts needed by calling the potential landlord, telephone company and insurance carrier. Attorneys must remember to pay themselves what is required to survive. The quickest way for a solo to fail is to assume he can survive without paying himself. Don’t forget expenses, such as rent deposits, tax deposits, down payments, occupation taxes and membership fees. Incorporate these expenses into the budget in the month that the expense will be paid. Estimating revenue is more difficult than estimating expenses. Who knows what funds the firm will receive eight months after opening the office? Conservative, educated estimates are usually the best figures available. Factors relating to estimated revenue include the following: existing or acquired client base; revenue stream associated with type of law practice; and marketing emphasis. Meeting with other attorneys in the same practice areas also can provide a wealth of information for the would-be solo. Many new firms have the largest cash flow shortfall three to six months after opening. Unless an attorney maps out a budget broken down by month, this will not be apparent. Running these numbers will show an attorney what is needed to keep a firm in the black. GO WITH THE FLOW After working out a preliminary budget, focus on common sense methods to improve cash flow. Ideas include the following: � Delay paying for expenditures. Rent will be one of the largest expenditures, so look for a space with lower deposits or a few months of reduced rent payments. Furniture and computers are two other large expenses associated with opening an office. Try to buy them from a company offering no or low interest rates. Take advantage of these deals even if it means paying slightly more in the long run. Also, establish credit lines that may be used to pay for required items when necessary. � Accelerate cash receipts. Offer clients a partial discount for paying up front. Focus initially on cases where retainers are commonplace. Remember that contingent-fee cases dramatically hurt cash flow because the attorney pays case expenses and the case does not bring in cash until it is completed. Even if a contingent fee-based business is an attorney’s primary practice area, doing hourly fee cases can help pay the bills. � Do not incur too much debt. Having some money to fall back on is nice, but do not overdo it. Do not incur the interest payment on a $50,000 loan when a $20,000 loan would suffice. Instead, obtain a credit line on which interest only accrues if the line is tapped. � Delay adding overhead. Solos starting out should not add labor costs if they can do the work themselves. Do not immediately enter into large advertising or legal research contracts unless they are critical to the firm’s success. Prioritize the types of insurance necessary, and phase in the various types of policies. � Seek advantageous financing arrangements. Banks want business. Seek low-expense bank accounts and credit lines, as well as low-interest credit cards from them. While most attorneys don’t have a rich aunt to provide financing, relatives may be willing to offer low-interest loans. Finally, remember there is a reason some attorneys succeed and others fail in solo practice. Effective, realistic planning will help a budding solo thrive, even if that big client doesn’t immediately walk through the door. Donald E. Teller Jr. is a solo practitioner and the current president of the Northeast Tarrant County, Texas, Bar Association.

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