Why Attorneys Need Business Plans
Law practices, just like any business, are expected to have a business plan and that is no different for law firms. What is different is how lawyers view their business plan. Most lawyers view their business plan as a marketing plan.
That is why you see in most legal marketing plans a description of their services, such as practice areas. You then see the anticipated costs of their marketing, such as ads, new users, websites and business cards in the form of professional stationery.
There is nothing wrong with having these marketing objectives as part of your business plan. What is wrong is leaving it at that. So what else goes into a law firm business plan? For starters it should have the all important executive summary of founder lawyer; information on firm partners and associates; a list of your top ten clients and what percentage of the firm’s revenues they contribute; your firm’s purpose , vision, mission and values; the firm’s marketing plans; a description of the firm’s facilities and resources.
Perhaps most important, you should write about the services that you practice, a description of each service and the market that it addresses. You should also write about who your competitors are and why your services are differentiated from those of your competitors. Finally, the business plan should outline the current firm goals.
The biggest problem with marketing plans is that they are too short term in nature. All lawyers need a longer term and more comprehensive business plan that goes beyond marketing.
Essential Elements of an Attorney’s Business Plan
Essential Components of a Lawyer’s Business Plan
For the busy lawyer, having a plan for your practice is an essential tool to get ahead. When you are just starting out or when you have been practicing for years, a business plan that focuses on your goals and outlines your plan to get there is a critical element to your success. While every plan should include unique components tailored to the practice it serves, at the outset, the business plan for a law firm essentially needs to have several key components.
Executive summary
Your executive summary should contain your firm overview, including information about its structure, partners, location, and an overview of your products and services, in addition to information about how you plan to get the attention of your target client base. This is a quick description of what your practice is all about and should cover all the basic elements of your practice and outline your goals for the next two to three years.
Market analysis
This is where you will focus on your target clients, including demographics of the people who are using your services, current sales of services in that area and recent trends. This section should be as detailed as possible and include information on the market size and profit margin. In addition, you need to focus on other lawyers offering similar services to those you provide.
Organizational structure
This section will give your readers an overview of how your firm is organized and answer questions about who does what, where the firm is located and how much of a role your senior leadership plays in marketing developed by junior partners.
Services offered
These are the tasks your firm’s lawyers will be doing, based on the specialties of their practice areas.
The Current Legal Landscape
For the vast majority of lawyers, their business plans simply do not go far enough in addressing the marketplace, and one of the problems with that is these plans usually fail to take their legal competitors into consideration, while the successful lawyer’s plan should do just that. The first step in this process is understanding your existing clients (sheer common sense) and analyzing what is happening in the law firms that represent them, while also looking at why they have chosen you over a competitor. For example: "We’ve lost three clients to Firm XYZ this year and their lawyers have posted it on Twitter and LinkedIn."
The next step is sizing up your colleagues. Are they on their A game or resting on their laurels? Are they planning on being there in the future? For example: "At the beginning of (financial) year, Firm ABC started firing lawyers; something is going on there and I need to find out what."
The next step is taking the time to analyze what is happening in the environment outside your law firm, including the industry your target clients are in. Are these industries part of a declining industry? There are a lot of disruptions in industries and markets in this day and age, so you need to keep informed on your target industries—and you need to ask yourself if your target clients’ changing business models or economic conditions affecting them will affect you? For example: "Our most important clients are in the following industry…"
The next step is the most obvious, and that is: look at your competitors at a deep level to see where you fit in. Some of the questions to ask include: What do Firm A, B, C, D, E, F and G do (and are known for) that we don’t do? What do we do better than these firms? Are there areas of synergy or co-opetition we could leverage?
The key is to make specific observations instead of just stating generalizations or assumptions about what you think the truth is; remember, it’s OJT (on-the-job training). What do you know about these competitors? Research the skills that the lawyers in your field have. Studying your competitors is a job in itself, but you cannot afford not to do it if you want to be the best.
Establishing Achievable Goals and Objectives
Lawyers are already the single largest group of service businesses they are ever likely to come in contact with so planning for the future makes sense no matter what size your practice may be. For the majority of firms, particularly smaller ones, growth is usually the area most in need of a fresh look. While there are several strategies you could embrace, the key is to set goals and objectives that are realistic and workable.
They need to be realistic because if they’re vague or unattainable, your team will lose interest or, worse, the motivation to reach them. Look at what your firm or practice area can realistically do in the next twelve months. It may be to serve the same existing market and clients you are now or to undertake a new level of service for existing clients. If growth is your focus, it may involve targeting untapped markets or clients.
Objectives, in contrast, are achievable and have a timeframe attached to them. If your goal is to increase revenues and your target is healthcare providers and your firm is located in a major metropolitan area, you might expect to bring on an additional 25 new such clients over a twelve month period. Your objectives might include bringing on 1 per month as opposed to 2.5 per month from the healthcare providers you already know. This gives you enough time to work your existing contacts to see if they are satisfied with your service (or not) before you approach others in the same or related industry.
When you look back on the previous twelve months and how you fared, set goals that equal the amount of work you were able to handle and deliver to your clients. When you push too far too fast, you may wind up sacrificing service quality to achieve your goal – a tradeoff that is not acceptable to you or your clients.
Financial Planning for Attorneys
A significant portion of a business plan is dedicated to financial planning. Run your law firm as a business and this shouldn’t scare you. Law firms are businesses. Businesses need budgets, forecasts and cash flow forecasts.
Budgeting helps you identify how much cash you have available and what you can afford to spend it on. Using a budget helps you maximize your finances so you know when you can make large purchases or investments. A budget will help you set expenses so you aren’t living beyond your means. This is very important for firms that have an irregular flow of income. Once you have a budget, you can manage your firm’s resources better.
Cash flow management is crucial to all businesses, especially law firms. You don’t want your cash flow to fall below the point where you have no money left to operate. You can manage your cash flow by looking at the short- and long-term level of cash that your firm has. There are some factors to consider when doing cash flow management which include client payments , pricing you charge for your services, the speed of which you bill clients and the efficiency that you take payments.
Financial projection estimates your firm’s future financial performance and can be beneficial to your firm. Most often law firm projections include forecasted income and expenses and cash flow forecasts. A third projection to consider is the estimated value of the firm. The projections should be done on an annual basis, based upon last year’s and/or actual expenses and income. The numbers are projections and should be taken as a guide. When you create projections, be realistic. Having them regularly allows you to evaluate them and see if you’re on track with your projections and can allow you to make changes as needed.
Attorney Marketing Strategies
Effective marketing strategies for law firms may include methods such as online marketing (formatted content, search engine marketing, and social media) and/or traditional marketing strategies (networking events, radio and/or television commercials, and other traditional advertising).
Regardless of the strategy chosen by the law firm, they all have the same goal of helping the firm stand out in a saturated market.
In addition to ensuring that the law firm has clearly defined its target market (presumably by now, the law firm will have this information from the target market segment in the Business Plan), the materials that are being marketed online or offline should be tailored to appeal to that target market. For instance, a personal injury law firm marketing to senior citizens would use different marketing materials than a custody law firm marketing to young couples with children. As it relates to a business plan, the law firm will need to specifically address the following questions:
How did you choose these marketing methods and mediums?
Which of the marketing materials and methods will the law firm be using to reach its targeted market?
Legal Compliance and Risk Management
In the business plan for a law firm, risk management and legal compliance must be clearly and comprehensively addressed to protect the firm’s assets and ensure continued operations. In this regard, the financial implications of various risk management measures, such as liability insurance, should be calculated and assessed based on a comprehensive budget and in consideration of the other areas of the business plan.
Specifically, the business plan should address how the firm intends to comply with licensing requirements, regulatory obligations and ethical considerations that impact the firm from a business standpoint. A successful law firm business plan considers how the firm will satisfy reporting requirements, practice management rules, employer responsibilities, client confidentiality obligations, advertising rules, fee agreements, retainer agreements, client trust rules and other ethical rules, as well as regulatory requirements in regard to the handling of negligent referrals, acquisitions of other practices and the disposition of client files.
The plan should also set forth capital improvements, hiring practices, overflow systems, technology practices and protocols to address the risks inherent in the firm’s practice area(s) and outline steps to stay compliant with all applicable laws, rules and regulations. Risk management strategies should be periodically evaluated in light of changing circumstances and should include strategies for protecting against adverse judgments and claims.
Revisiting Your Business Plan
No plan stands the test of time, and the same can be said for a law firm’s business plan. Every year the marketplace changes, new competitors emerge, and clients’ needs evolve, along with their service delivery preferences. In order to keep a competitive advantage, maintain relevancy, and meet emerging client demands, firms must routinely review and update their business plan to be strategically aligned with market forces.
Your firm’s strategic plan is an interactive document that must be updated to incorporate key changes. How often the business plan is reviewed and updated will vary. Larger firms with more complex operations will need to review their business plan more frequently than smaller firms. For instance, if you have many practice groups offering a broad array of services, you may discover that one group is losing ground to competitors, or is no longer strategically aligned. Even the most successful firms review their plans on a regular basis, no less than once per year . However, plans are typically adjusted and modified quarterly to ensure that they are still aligned with current reality.
Your firm’s business plan should be reviewed whenever significant changes occur, both externally and internally. Examples of these changes include:
Reviewing your business plan involves questioning the fundamental assumptions and strategies you originally developed. For example: The purpose of conducting a periodic review is to determine whether the business plan is in alignment with your firm’s changes and challenges, and to identify and make necessary adjustments. In addition to reviewing your plan, it is critical to update your plan’s financial projections. Your financial projections, including revenue, expenses and profits, must reflect and incorporate market realities and firm forecasts. This will allow you to assess your firm’s long-term financial health and sustainability.
