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Practice Management: The business of planning

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Cite as: April 2014 88 (04) LIJ, p.77

It pays to do some serious preparation if you want to be your own boss.

Thinking of starting a practice? An exciting prospect – after all, what could be better than being your own boss and the master of your own destiny? The answer is plenty if you don’t do your homework before setting up shop.

Your homework starts with the preparation of a business plan. The development of business plan is an absolute pre-requisite before embarking on any business venture and starting up a law practice is no exception. The chances of unwanted surprises in the pre and post establishment phase of starting a practice are reduced when a business plan covers off most contingencies simply because they have been considered and factored in from the outset.

What to include in your business plan

Mission statement – in a couple of sentences articulate your vision for your practice, that is, what captures the essence of your business? A well-articulated statement is indicative that you have a clear understanding of your business and its purpose.

The business concept – outline the nature of the services to be offered; the market to whom your services will be targeted and your competitive advantage. It is important that you understand your market – its size and trends and where your business will sit in terms of estimated market share. This may require you to undertake some market research.

Financial attributes – importantly, outline the viability of your business and the soundness of it as an investment. This will be paramount for your business’s survival but also relevant if you are contemplating offering equity in return for investment in your practice, either as part of natural expansion, merger or succession plan.

Pricing model – outline the methods for determining price, such as value based billing, competitive pricing and or an hourly rate. In developing your pricing model be mindful that client expectations and the wellbeing of your staff are relevant considerations.

Financial requirements – outline the financial outlays required, their sources and nature (equity or loan).

The various funding options can be found on the LIV website under “Practice Resources”. See www.liv.asn.au/Practice-Resources/Practice-Support/Practice-Management/Establishing-a-Practice/Funding-a-Practice.

Ordinarily, your financial requirements would fall into two categories, one to cover the capital outlays for establishing the business, such as rental bonds, office fit-outs and /or computer hardware etc; and the other, to cover the operating expenses (insurances, rent; utilities, wages etc). The “Start up expenses checklist” which is available on the LIV website is a good starting point for this exercise. See www.liv.asn.au/Practice-Resources/Practice-Support/Practice-Management/Establishing-a-Practice/Starting-a-Practice.

In addition, budgets and cash flow estimates would be valuable tools in assessing your financial requirements, therefore consider engaging the services of an accountant to help with their preparation.

Operating structure – outline the form of structure, whether it be an incorporated legal practice, partnership or sole practitioner; and the related legal and taxation implications associated with the structure. Again, an accountant is best to advise you on the most appropriate structure for your needs.

Owners, principals and key personnel – identify these and their roles.

Milestones – outline the targets/goals you would like to see reached in the short term (within one to two years) and in the longer term (within three to five years). For example, within two years target gross fees earned will be $; staff to partner ratio will be . . . Identifying these milestones will assist you with some major decisions such as whether to have a physical or virtual office; the period and size of rental tenancy; whether to purchase or lease office equipment; what professional support services will be required and for what length of period.

Difficulties and risks – outline those most relevant to your circumstances, together with the proposed strategies intended to address these. For example, a regional practice may face difficulties in attracting or retaining staff, in which case you may consider offering incentives; a highly geared practice may be susceptible to interest rate rises – in such circumstances prudent management of the business cash flow maybe warranted. The economic climate, whether it be at a global, national or state level ought not be forgotten either (the GFC and our current dual speed economy are testament to this). While you can’t control the economy, in all probability you will be in a better position to control the timing of the establishment of your practice and the associated financial commitment made.

What’s next?

If you are confident that your business plan has outlined your business case to your satisfaction, you should have a better understanding of what to expect if you decided to proceed with the establishment of your practice. If that decision were made, having regard to the myriad of associated regulatory, taxation and other legal requirements, you would be well advised to seek guidance from your accountant, a property law specialist (if you intend leasing premises) and the Legal Services Board. Also regularly visit the Practice Management/Practice Support section on the LIV website.

Bear in mind, a well-prepared business plan not only helps you with the decision to start a law practice, but also it can be used as an ongoing business development and management tool – constantly evolving as your practice develops.



TRACEY SMAIL is the principal of Consult Legal and an LIV Council member.

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