At Esterase we work with many start-up practices. Creating your own business is an exciting prospect but simply being an expert in your field of law is no guarantee of success.
All firms need to have a business plan. It will be necessary to convince the SRA that you are creating a viable business. Just as importantly, it should be a tool for you to reality check your objectives. So what are some of the critical points to consider for any would be legal entrepreneur?
1. Can you define your practice?
1.1. What do I want to achieve?
This is not as foolish a question as you may think. What constitutes success?
For instance:- are you looking to build a long term business providing for you through to retirement?
- is the plan to create a firm that others may want to acquire in the future?
- is the focus more on service to the community or profit generation?
Considerations such as these can impact on how you look to build the business and what investment choices you are willing to make.
1.2. What is the concept?
“Legal expertise” and “a client focused approach” are statements seen on almost every practice website. So how are you going to differentiate yourself in order to succeed?
Points to consider include:- the range of services offered and how they are delivered,
- pricing,
- additional specialist knowledge of a particular sector,
- the client “experience” and your reputation with your client base
- the efficiency with which you run the firm
1.3. How does my idea compare to the market?
Your concept may appear sound, even exciting, but before jumping in have a good look for the rocks that might scupper your new firm.
1.3.1. Market size
Understand the market that you are going to work in. How big is the available pie and can you win enough of it for your firm to succeed?
As an example, we‘ve recently seen the SRA questioning whether starting up another PI firm in a particular area was truly viable when so many already existed. We had to argue clearly as to why our client would be able to make a success in such a congested market.
1.3.2. Market developments
What are the developing trends in your area? Can these give you a competitive advantage?
For instance, we’ve seen family law change significantly over the past 5 years with legal aid changes and increasing use of ADR. We also see more and more firms offering fixed price services.
1.3.3. Competitors
Understanding who you will be competing against is very important. Ask yourself:
- who else is providing these services to the sector?
- who else may be looking to enter?
- what can you learn from what others do already?
- what can you offer that’s better?
- what will you need to match to be able to compete?
1.3.4. Clients
You may be confident that you have key clients who will come with you. Are you sure? How will you keep them with you for the longer term?
While existing clients are a great starting point, even the most loyal client base will dwindle over time. How are you going to entice new clients to instruct you? (This is the starting question for your marketing plan).
1.4. How will I operate the business?
There are many decisions with regards to how you will manage the firm including:
- what office space do you need? (If going for a virtual practice solution what’s the impact?)
- what services will be managed in-house and where will it be better to outsource?
- what staff are needed and how will they be managed?
- what telephone solutions to use (such as external call answering)
- what IT solutions should be used? (While care should be taken to ensure compliance there are excellent cloud based solutions that can save on infrastructure investment and time).
- how will the accounts be managed to be SAR compliant?
- how will compliance and risks be managed within the practice?
1.5. How will I market the practice?
So ask yourself; “what is my winning strategy?” How will the message about what we do get in front of the right people at the right time?
Existing clients (assuming you bring them with you) are a key starting point. They are your best source of work. Are you doing everything that you can to maximise the services provided to them and to get them to spread the word about how good you are?
It’s about making people aware of the benefits of instructing you. So you need to think about how you get your message across and what of the following can be leveraged to your advantage?
- website (and ensuring that it is easily found)
- social media / e-marketing
- literature
- articles, journals, editorials, seminars and opportunities to speak
- advertising
Spend each marketing pound as well as you can. You only have so much so prioritise what’s important.
2. Will your practice be financially viable?
2.1. How realistic are my forecasts?
You have the strategy. Your forecasts show how you will make the firm work financially. Sales, direct costs and overheads all need to be considered and forecast on a month by month basis looking over two to three years at least. As you prepare this answer the following:
- are your estimates for income realistic?
- is there the potential client base to achieve this?
- will there actually be the fee earning hours in the day to deliver what you are predicting?
- what can be done to minimise my costs? Is each cost absolutely necessary?
- critically: if your predictions are worse by 10% or 15% (or more) is the business still sustainable?
2.2. Do I have the cash?
While many talk of profit and loss, this means nothing if there is no money in the bank to pay the bills. Think long and hard about how you will make the business financially sound. Do you know:
- what cash is needed to set up the business and to allow it to survive the initial months?
- What cash do you need to take out to live?
- what contingency you should allow?
- how you will manage cash flow?
- how regularly will you invoice clients?
- how will you ensure your invoices get paid?
- how regularly will suppliers be paid? - where will funds for tax and VAT (if registered) be put aside?
If you don’t get the cash right then all the other grand plans will count for nothing.
3. How will you achieve Compliance and Authorisation?
Authorisation by the SRA is obviously a critical hurdle. The level of work required to achieve this will vary depending on the entity to be authorised. In answering their questions remember that the SRA have a duty to ensure that clients are protected. They need to be confident that you can deliver. So whatever the structure of the firm there are still some common points to be addressed.
3.1. Can I demonstrate the viability of my plans?
If you have addressed the questions in the article above you should be in a position to prove that you have a viable plan for your firm’s long term existence.
You will need to have a proposal in place for PI Insurance. This means that the insurers will also want to be confident that you are ready to manage things properly.
3.2. Can I demonstrate how I will meet my regulatory duties?
Prepare your compliance plans before applying. You can use these within the answers to the SRA to show that you are taking your duties seriously. When we have worked with clients on their authorisation the fact that we have their compliance plans in place helps significantly.
Make sure that you have all of the policies that you need (such as anti-money laundering, equality & diversity, financial management and so on). Do not tie yourself up in unnecessary bureaucracy. Compliance is critical but your policies and processes should be appropriate to the size and nature of your practice.
3.3. Have I considered the possible risks?
Risk management is a critical area of concern for the SRA. Make sure that you have taken the time to identify potential risks and taken reasonable steps to mitigate them. Risks include:
- client risks (including how you will manage high risk clients)
- operational risks (including disaster recovery)
- strategic risks (part of ensuring long term viability)
4. Can I get help?
Yes. Play to your strengths and utilise the expertise of others. Where possible and practical use support and help that’s available to you. This can include your personal network of friends and family and your professional networks.
While costs should always be kept to a minimum it’s still worth looking at what professional help you can get. With the appropriate support you can reduce delays in authorisation, reduce set up costs and improve your chances of success.
Most importantly it can free you up to do what this is all about… providing outstanding legal services to your clients!
Author: Alex von der Heyde
Date: July 2014
Company: Esterase Ltd
