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    Practice Tips: The Business of Law 101

    Law school teaches students how to look at things analytically - how to think like a lawyer - but it usually does not teach students about the business of practicing law. Here are some tips to help address basic business issues you should consider if you're planning to open your own law office.

    Nerino J. Petro Jr.

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    Wisconsin LawyerWisconsin Lawyer
    Vol. 80, No. 5, May 2007

    Law school prepares students to look at issues analytically and to interpret statutes, and it gives students a basic understanding of the intricacies of the profession they are about to undertake. But law school does not teach students about the business of practicing law. Lawyers are left to learn that through osmosis.

    It is only within the last few years that some law schools have begun offering classes on law practice management and business operations. An outside observer might conclude that law schools believe their graduates will all go to work for law firms and that none will start their own law practices right out of law school, and that if lawyers go out and open their own offices, they will have picked up the necessary business acumen while working for firms and then transfer that knowledge to their own businesses. This, as we all know, is a fallacy.

    More and more law school graduates are looking to open their own offices right out of law school for one reason or another. Even associates who decide to leave an existing firm generally have had little or no exposure to the actual business processes required to operate a successful law office. As a general observation, lawyers can be some of the most intelligent people that you will ever meet; however, they're trained to practice law, not operate a business.

    Proper bookkeeping, dealing with staff and vendors, and realistic spending on marketing, all basic business principles, are just a few of the areas often encountered when talking with lawyers about opening their own practice. The thing to realize is that there is no need to recreate the wheel: other lawyers have gone down this same path and you can learn from their experiences by studying the materials they have provided.

    Recommended reading. Every lawyer contemplating opening a law office should read Jay Foonberg's How to Start and Build a Law Practice, Fifth Edition, and Ed Poll's Attorney and Law Firm Guide to the Business of Law. Foonberg's book provides a great overview of the things you will need to know to run a law office from the perspective of an attorney who has "been there and done that." Poll's book has a more business-oriented perspective. Reading these books will put you in a better position from which to evaluate what you will need to run your business - that is, your law practice.

    Covering Your Expenses

    When you start out, you need to get an idea of what your ongoing business expenses will be. From these, you can determine how much you will need to bill and take in each month to break even. Begin by detailing those costs and expenses that you will have on a recurring basis every month. This includes things such as rent, utilities (including telephone and Internet service), general business insurance, and malpractice insurance. You also should include amounts for things such as legal research services and books, staff costs (if any), advertising (Web based and other media), and continuing legal education, bar dues, and license-based assessments. These items make up your fixed expenses. Total these expenses and divide by 12 to arrive at the monthly amount that you will need to cover from your fees.

    Next you need to determine your hourly rate, if that is how you will bill. Then, divide your monthly fixed expenses by your hourly rate to determine the minimum number of hours you will need to bill simply to cover your fixed expenses. For example, if your monthly fixed expenses total $1,200, divide that number by an hourly rate of $150 to arrive at 8 billable hours. Therefore, you would need to bill a minimum of eight hours each month just to cover your fixed expenses.

    If you're not sure what an expense amount will be, talk to other lawyers, get price quotes from service providers, and make educated guesses in some circumstances. These expense amounts are not meant to be exact, but they should be realistic enough to give you an idea of what you'll need to make just to cover your fixed expenses. In addition to these fixed expenses, you should consider costs for such things as office supplies, mailing and copying, equipment, and furniture. Generally, for fixtures, office equipment, and technology purchases, you will create a budget and spread the budgeted amount over two to five years.

    Tips, Tricks, and Suggestions

    Here are a few suggestions for making your practice run more smoothly:

    1) Use practice management, timekeeping, billing, and accounting software from the very beginning of your practice. Proper implementation of this software will increase your efficiency, speed billing, and improve accuracy. Tools are available at a reasonable cost that will more than pay for themselves in a short time while lessening the demands of calendaring, bookkeeping, monitoring statutes of limitation and other deadlines, and organizing your files.

    2) Being organized from the moment you open your office and paying attention to the smallest details will pay off in the long term; you avoid having to go back and make sense out of incomplete or missing information. Creating a logical file-naming structure for your electronic files and knowing how long you must maintain files will help you operate efficiently and effectively for years to come.

    3) While there is no need to have your IOLTA (Interest on Lawyer Trust Account) at a separate bank from your general business account, you do need to be able to easily differentiate between the two accounts when writing checks. Therefore, use different color checks for each account.

    Nerino PetroNerino J. Petro Jr., Northern Illinois 1988, is the advisor to the State Bar of Wisconsin Law Office Management Assistance Program (LOMAP). He assists lawyers in improving their efficiency in delivering legal services and in implementing systems and controls to reduce risk and improve client relations. Visit the Law Practice Management area at www.wisbar.org regularly for practice management guidance. You can reach Petro at (800) 444-9404, ext. 6012; org practicehelp wisbar wisbar PracticeHelp org.

    4) Never remove from your IOLTA account funds that do not belong to you. There is no reason to breach the fiduciary duty you owe your clients to safeguard their property - even if times are tight or business is slow. The one guaranteed way to get into trouble is to play fast and loose with your IOLTA account.

    5) Find a good insurance agent who you trust. Your agent can provide you with insurance on your business, including equipment and business interruption insurance; liability coverage if necessary; and worker's compensation and disability insurance. Don't forget to look into the State Bar's endorsed insurance providers, at www.wisbar.org/discounts.

    6) Ask for help from other lawyers, your local bar associations, and the State Bar. Most lawyers are willing to help a colleague if they can; this is especially true for members of committees and sections that exist to help solo practitioners and small firms. The State Bar's Practice411 electronic list and the Lawyer-to-Lawyer Directory (published each January in the Wisconsin LawyerTM Directory) are good resources for locating lawyers willing to help other lawyers.

    7) Seek out the advice and assistance of professionals who can help you run your business. Accountants, insurance agents, computer consultants, and other professionals often can answer questions and provide solutions in less time and at a lower cost than if you try to figure out a solution yourself. Your time is money and it has value. If you charge $150 per hour and it takes you three hours to find your own solution, you have just lost $450 of billable time. If a professional in another field can provide a solution for you for $100, your time is better spent doing work for your clients.

    8) Do not take every client or case that walks in the door. When business is down, it is easy to ignore your inner voice warning you against taking a potentially troublesome case, just to chase a few dollars. One of the best tips I ever heard is this: If you have a choice working on a case that you know you will not be paid for or going fishing and not being paid, go fishing - at least you'll enjoy it.

    Resources to Help You Help Yourself

    Practice411TM, the State Bar of Wisconsin Law Office Management Assistance Program, provides resources in a variety of formats including in-person conferences, direct email, and telephone calls with the practice management advisor who operates the program. You'll find a wealth of resources on WisBar, the State Bar's Web site, at www.wisbar.org/practice411, as well as on the Practice411 electronic list, where State Bar members share information, ask questions, and connect with a panel of experts when tackling business and technology aspects of their practices.

    Information on WisBar includes checklists for starting a new law office and for going into business from the U.S. Small Business Administration. You'll also find information on creating a business plan. The "Managing a Practice" page includes information on trust accounting, finance, malpractice insurance, and personnel management. The "Resource Library" page provides a lending library of print, audio, and video resources on a wide variety of topics.

    The Office of Lawyer Regulation provides information on setting up a trust account, sample trust account overdraft agreements, and other helpful resources online at www.wicourts.gov/about/organization/offices/olr.htm.

    The Wisconsin Department of Workforce Development's Web site, www.ded.state.wi.us/dwd/employers.htm, provides links to resources under topical headings, including "What Employers Need to Know" and "Resources for Employers." The site provides information on what new employers need to know about such things as registering for an unemployment insurance account, complying with various state and federal employment laws, and reporting requirements for new employees.