How Much Does It Cost to Start A Law Firm?

As the legal industry evolves, we’re seeing more young lawyers say no to Big Law in favor of starting their own law firm.

We’re also seeing these same lawyers hemorrhage cash as they apply practices that work for large firms to their solo firms.

There are expenses involved in starting a law firm, but you don’t have to go broke.

It’s more about attitude. You can start strong if you’re comfortable investing time (and a little bit of money). It’s all about making intelligent choices, cutting the non-essentials, and embracing a DIY attitude.

In this article, we’ll go over what law firm costs are inescapable, what to prioritize, and just how much everything should cost.

New law firm costs

Let’s break down different areas that you’ll likely need to invest some money into.

Savings

Besides the money you’ll need to get your business afloat, you’ll want to build up your savings. We recommend you have enough set aside to support yourself for at least six months.

The reality is that your law firm may not be stable enough to pay you a salary for a while. The upfront costs will put you in the red, and it’ll take time to attract new clients and make a profit.

Law firm startup costs

You can’t start a business without spending some money upfront. That goes for law firms too.

To compete in today’s hypercompetitive market, you’ll need a few things at a minimum:

• A modern law firm website
• The right hardware/legal software
• The proper licenses, continuing education courses, etc.

We recommend at least $3,000 to start. It’ll be tight, but it’s possible to make do. However, a more comfortable starting point is somewhere between $5,000 to $15,000.

It’s impossible to pinpoint an exact amount, as the cost depends on numerous factors such as your practice area, location, whether you have existing clients, and more.

That said, lawyers working in lucrative practice areas can get by with less.

Office and supplies

It’s easy to go over budget when looking for office spaces and buying high-end supplies. Fortunately, we know many lawyers who started their law firm without an office space.

It’s too easy to spend too much on the perfect furniture, ideal office space, fancy supplies, and over-the-top technology.

You can run a law practice from the comfort of your own home. Whatever gets you started, do it.

Many lawyers are finding success with virtual offices. Legal software like Uptime Practice makes it simple to run a complete law office in the cloud. More on that later.

A virtual office can keep your overhead costs low and free up your budget for law firm marketing and other ventures that will bring in more clients. Then, when you have the finances and need the space, you could consider a physical office space.

Shared offices

Companies like WeWork offer coworking spaces to start-ups and small companies. You can lease an office or more if required, and the cost is generally less than you’d pay for a personal office space.

This could be a good option for lawyers who need a physical office but can’t afford to cover long-term rental fees.

We recommend looking at your particular situation to see if this option would benefit you.

Hardware

Wherever you set up your law firm, you’ll need some essentials.

To get started, you’ll need (at least):

• Computer
• Hard drive
• Scanner and printer
• Phone
• Legal Software

As we mentioned, legal software can help you in many ways. It allows solo lawyers to operate their law firms from their homes.

But be careful not to overindulge in software and end up overwhelmed. Pick a select few to keep your law firm operating efficiently.

For optimum productivity, you’ll want to consider:

• Google Suite or Microsoft Office for the basics like email, calendar, document management
• Accounting software
• Paperless office tools to improve your organization, back up files, and manage documents
• Law firm practice management software
• Legal research tools
• Timekeeping and billing software

More about practice management

Whether you have a physical office or work out of your home, a robust cloud-based practice management software is worth the cost. And all you need to get started is a laptop, a phone, and internet access.

Practice management software like Uptime Practice includes Office 365 integration, allowing you to manage all of your documents on the go.

It’s engineered to run all the crucial law firm software, including Quickbooks for your accounting needs.

And you don’t need to worry about security, as all of your data is encrypted. Without a cloud-based service, you’d have to perform data encryption, storage, and backups on site, which would be expensive.

Plus, there’s always-available IT support for any issues that arise.

Professional expenses

Don’t forget to budget for your professional expenses. Licenses, continuing education, conferences, and events are all non-negotiables.

To start, you’ll need an LLC. The price tag varies depending on your location — budget a couple of hundred dollars for this.

These things will vary depending on your jurisdiction. But you’ll definitely need the business license to identify your business, and for tax purposes. Other things to consider are trade name registration, getting a state tax identification number should your state require it, and zoning approval if you do open a physical office.

And if you’re planning on hiring, you’ll need an Employer Identification Number (EIN).

Insurance

All businesses need insurance, even law firms. The exact type of insurance you need depends on your practice area, where you operate, your employees, and so on.

Here’s a breakdown of some different types of insurance to get you started.

• General Liability Insurance: The most basic type of insurance, it covers most claims that come up during normal business operations.
• Property Insurance: This will cover the building where your law firm is located, as well as assets like computers and furniture.
• Legal Malpractice Insurance: Also known as professional liability insurance, it’s arguably the most important form of insurance for you to purchase. This insurance is designed to cover claims of negligence or malpractice made against an individual in your firm.
• Cyber Liability Insurance: Unfortunately, many businesses fall victim to security breaches carried out by hackers. And as a law firm, you carry a lot of confidential client information. This insurance offers comprehensive cyber liability coverage, including covering social engineering schemes.

The above will suffice for almost all solo lawyers. But if you expand and start hiring, you’ll need additional coverage.

• Employment Practices Liability Insurance (EPLI): If you have employees, you could become the target of a number of employee-related claims, like wrongful termination or discrimination. This insurance provides coverage for said claims.
• Workers Compensation Insurance: A mandatory form of insurance in almost every state, it protects your firm from claims made by employees who get hurt on the job (whether that be in the courthouse or the office).
• Directors & Officers (D&O) Insurance: This type of insurance protects both you and your spouse’s personal assets should you be sued by a competitor, vendor, client, or other parties for wrongful acts in managing your company.

As always, check with a professional to find out exactly what types of insurance you need to keep yourself and your business protected.

Marketing

You’ve got your law firm up and running. Now what? How’re you going to attract prospective clients?

Considering 96% of people seeking legal advice use a search engine, digital marketing should be your number one source of new leads.

But you went to law school to practice law, not marketing. So, you’ll likely need to outsource to a marketing professional or hire an in-house marketer.

Your law firm’s website

Your law firm’s website is the hub of all of your marketing activities. It’s an area you want to invest in, as a poorly designed website directly affects your bottom line.

Many lawyers attempt to reduce the expense by DIYing it with platforms like Squarespace. And that’s definitely an option, but not one we recommend.

A marketing agency that specializes in web design can put together a mobile-friendly, SEO-optimized website that is tailor-made for your law firm. With a website builder, you’ll have to settle for something generic that doesn’t do you any favors.

Take a look at Oykhman Criminal Defence’s website for inspiration.

The ROI of working with a digital marketing agency that specializes in helping small law firms is massive. You’ll quickly outearn the flat fee you paid for the marketing, and your business will rapidly grow.

Start your law firm with a plan

The industry is changing. Many lawyers want to offer their own legal service rather than working with a larger firm.

The only thing stopping you from becoming a business owner is overhead. But we’ve illustrated ways that any lawyer, regardless of budget, can get started with their own law practice.