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Starting a new law firm is an exciting journey with many possibilities and challenges ahead. Crafting a business plan can provide a blueprint to help navigate the complexities of running a successful practice and it is also an essential component for your application for recognition to the SRA.
Your business plan will help set clear goals and objectives, define strategies to achieve those objectives and enable you to measure success. In this guide, we will discuss key considerations when writing a business plan for a new law firm.
Ensure that the following are clear:
- If the firm is a successor practice (and if so provide full details, background and claims history)
- Is there any adverse history (e.g. regulatory matters/disciplinary matters/claims and if so provide full details)
- If the firm will carry out any financial services activity (and if so this will need to be fully disclosed in the PI application and SRA application)
- If the firm will be carrying out services that are subject to money laundering regulations (and if so you will need to apply for money laundering authorisation)
1. Identify the type of legal work the firm is going to do
Before setting up your law firm, you should decide on the type of legal services that your firm is going to provide. This decision should be based on the expertise and experience of the supervisors and qualified solicitors who will be carrying out legal practice, the demand for legal services in your area, the level of competition and available resources.
Consider the legal areas in which you have demonstrable experience and passion. If you are going to employ solicitors to carry out work in other areas of legal practice, be sure there is adequate supervisory experience in those (all) areas. Insurers will consider a firm high risk if there are too many different areas of practice and/or if the firm plans to become involved in areas in which those with supervisory responsibility have inadequate experience.
Also, consider the financial potential of the legal services that the firm is going to provide. It is essential to research the market thoroughly to identify trends, gaps in legal services and threats to your proposed business model.
In addition to legal expertise, you may need to seek advice from professionals in accounting, finance and marketing to assist in developing the business plan as well as ongoing financial supervision and advice.
2. Identify where the work is going to come from
Business development and marketing are crucial to the success of your new law firm. Identify potential referral sources and develop a comprehensive marketing plan for your firm.
Networking with peers, attending organised networking events or online sites, and social media strategies can create brand awareness, build connections and attract potential clients.
4. Decide who is going to be responsible for management and regulatory functions of the firm
Selecting the appropriate management team is key to the success of any new law firm. The management team will oversee the daily operations of the firm, implement policies and procedures and ensure compliance with regulatory and legal obligations.
A well-balanced team should be comprised of a managing partner/principle, administrative officer, IT specialist and marketing and financial managers, as needed and the key compliance roles (such as COLP, COFA and ‘qualified to supervise’) must be held by appropriately qualified and experienced people.
5. Assign supervisory responsibilities for the areas of practice carried out by the firm
It is important to assign supervisory responsibility to an experienced solicitor for each area of legal practice your firm wishes to offer. Firms should be mindful of not having too many areas of practice as this can be regarded as high-risk. The supervising solicitor/s and/or partner/s should be adequately experienced to supervise the respective area/s of practice and will ensure that work is completed to the highest standards and that there is consistency in approach and advice.
The supervising solicitor/s should have extensive experience in the respective legal area/s, be able to train and mentor other solicitors and ensure the proper application of legal knowledge.
6. Implement robust and demonstrable risk management procedures
Robust and relevant risk management procedures are essential to ensure the successful running of a law firm. The primary objective of risk management is to minimise the risks associated with operating a business. It is therefore essential to have a written risk management plan, which includes:
a. Outline the risks of practicing law and the strategies which the law firm will employ to manage and mitigate associated risks
b. Outline a detailed process for the client intake, identifying and managing conflicts and the checking/identification process for new clients
c. Review client files and regularly evaluate legal work in progress
d. Develop a client communication plan and set expectations for each client regarding communication, work product delivery and fees, and service levels
e. Set clear policies and procedures for handling money entrusted to the firm by clients, ensuring that it is recorded, and managed in compliance with local laws and professional regulations including money laundering regulations
f. Have a clear disaster recovery plan which is communicated to all staff and tested regularly
g. Have a clear cyber risk policy and ensure that all staff are trained in cyber risks
7. Outline the firm’s financial objectives
The financial objectives of the firm are crucial elements that establish its feasibility and growth and sustainability plan. The financial plan should make clear how the firm will be funded, the organisational objectives and financial goals, and projections to break-even and beyond.
Solicitors should identify all possible overheads and expenses that come with running a law firm and ensure that sufficient (fee income) revenue can be generated to sustain the firm. The financial projections should consider the current, past, and forecasted prevailing economic and market conditions that could impact the firm’s financial results.
It is important to be realistic. When insurers are considering the financial aspects of any proposed new law firm they need to see that the firm is sustainable – and importantly that they can afford to pay their insurance premiums and any possible policy excess payments.
8. Identify Possible Risks and Threats
Like any business, a law firm faces risks and threats that can negatively affect its success. The business plan must take into account the potential risks and threats that the law firm may encounter.
When writing a business plan, solicitors should demonstrate that they have considered and identified all potential risks such as emerging competitors in their chosen areas of practice, the current regulatory regime and any potential or anticipated changes in regulation, potential natural disasters, and operating risks such as cybersecurity breaches.
The Covid19 pandemic and the resulting changed ways of working have created new challenges for businesses across all sectors and any new law firm should consider how it would respond to future events of this kind. Having robust risk management and mitigation plans for these risks can help the firm avoid costly mistakes.
Writing a business plan is crucial when starting a new law firm to create a road map for success and is a key document for the SRA and potential Insurers. The plan should be re-evaluated and updated on a regular basis, and it should consider the financial, risk management and strategic objectives of the firm.
The business plan should include a clear idea of the legal services that will be offered, where the work will come from, who will be responsible for the management and regulatory functions, who the supervising solicitors will be, what risk management procedures will be in place, the financial objectives of the firm and any possible threats to the firm.
By taking the time to create a thorough business plan, having the right personnel in place and enthusiastically embracing risk management from day one, your law firm will have a strong foundation for success.
Written 26th January 2024
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