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Creating A Business & Financial Plan

Starting a practie involves the same financial consideration as starting a business. Financial management is a fundamental pillar of setting up your own legal practice. An important point to take into account is your ability to bear the financial burden alone or whether a partnership would be a better option.

Winston Churchill once said “He who fails to plan is planning to fail”. Hence, before you set up your law practice, you should develop a business plan and a financial plan.

Business Planning

In an article published on the New York City Bar’s website, Kravitz identifies a business plan as “a roadmap, albeit a changing  one, with milestones to help reach goals you already know and have yet to define”.[1]
Apart from that a business plan is also important as it gives you an idea of the viability of your venture and serves as a potential marketing tool in terms of financing your practice.
Your law practice business plan should cover your operation areas such as:

1. The general description of your law practice

E.g. What type of work you foresee your firm engaging in, areas of specialisation etc.

2. Your financial plan

Your financial plan should be a projection of your budget and cash flow for the next 12 months.

3. Your management plan

You may wish to consider the number of staff that you need to run your firm. Considerations such as how many clerks  you would need to help you in the day-to-day administrative work, whether you would want to hire an office manager, who should be in charge of your accounts etc.

4. Your marketing plan

As a lawyer running a new firm, you should be aware that marketing is going to be a main consideration. You need to ascertain who your potential clients are. Having done that, you need to think about how much time you are going to devote to your marketing plan and whether this will affect the time you have to handle running cases in your firm. Your marketing plan ties closely with your management plan as a good management plan may be able to help you manage your time and workload, thus giving you time to focus on marketing your firm.

Financial planning

Financial planning involves budgeting and managing your cash flows. It is advisable to prepare a detailed monthly budget for at least the initial 12-month period.

Note that budgeting does not simply reflect recording down what you have spent in the past month and using that as your yardstick. A good budget should include all expenses known and anticipated as well as when they must be paid. Once you have a budget drawn up, you can compare the total expenses to your anticipated revenue.

Knowing when your expenses must be paid helps you to draw up a payment plan. A payment plan can help you manage your cash flow against your expenses thereby ensuring stable the operation of your firm. In addition to that, a payment plan can help you to set a target of the amount of fees and billing that you need to cover your firm’s expenses and profits made.

Financial factors that need to be considered when setting up are:
  1. Establishment costs: Establishment costs are essentially start-up costs and are therefore a one-off cost. For example, the cost of renting your premises, your first, second and third year losses, office equipment, stationery, furniture etc.
  1. Profit and Loss Statement: This is a statement which shows your profit and loss for the first 12 months which will include your income derived from fees, incidental costs and expenses.
  1. Cash Flow Worksheet: It is important to keep track of how much cash you will need to keep your business running, irrespective of your expected profit and the source of your profit. Remember, your practice is only as good as it is if it remains open.
  1. Break-even Analysis Information Sheet: It is important to identify the point at which you break-even. This can be done by identifying the relevant expenses and costs.

[1] Robin Kravitz, 'Writing A Business Plan: Business Plan For Lawyers' (New York City Bar ) <> accessed 29 January 2014

Note: The information above is extracted from "Setting Up Practice". For more information, please contact the PII and Risk Management Department.