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How to Start a Law Firm

Written by:

Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.

Edited by:

David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.

How to Start a Law Firm

Fast Facts

Investment range

$11,550 - $22,100

Revenue potential

$156,000 - $364,000 p.a.

Time to build

0 – 3 months

Profit potential

$94,000 - $218,000 p.a.

Industry trend

Growing

Commitment

Full-time

Lawyers often get a bad rap, but they perform essential services, from criminal justice to employment law, copyrights and more. The US legal industry has grown steadily over the past decade and is now worth nearly $370 billion and looking ahead to further expansion. 

If you’re a recent graduate of law school or an established lawyer, you could start your own law firm and provide tremendous value to your community while getting a share of that huge market.

But in addition to your vast legal knowledge, you’ll also need to understand how to launch your own firm from a business perspective. Fortunately, this step-by-step guide provides all the information you need to launch a successful law firm. 

Step by Step Business values real-life experience above all. Through our Entrepreneur Spotlight Series, we interview business leaders from diverse industries, providing readers with firsthand insights.

If you’re embarking on the journey of starting a business law firm, delve into this interview with Danya Shakfeh from Movita Business Law.

Step 1: Decide if the Business Is Right for You

Pros and cons

Starting a law firm has pros and cons to consider before deciding if it’s right for you.

Pros

  • Good Money – Make up to $500 per hour
  • Provide Value – Help clients with their important legal needs
  • Flexibility – Set your own hours by appointment

Cons

  • Complex Work – Legal work is very specialized and complicated
  • Crowded Market – Compete with many established law firms

Law firm industry trends

Industry size and growth

law firm industry size and growth

Trends and challenges

law firm industry Trends and Challenges

Trends in the law firm industry include:

  • As baby boomers retire, estate planning is becoming a focus for many law firms.
  • Technology is fueling the rise of virtual law firms, with attorneys providing legal advice online and preparing documents that are submitted digitally.

Challenges in the law firm industry include:

  • Law firms are often targets for hackers, so they need to take extensive cybersecurity measures to protect data, which is an added expense.
  • The rise of virtual law firms and DIY legal services are not only creating more competition in the law firm industry but also causing clients to demand lower rates since they can find lower cost alternatives. 

Demand hotspots

law firm industry demand hotspots
  • Most popular states The most popular states for attorneys are New York, the District of Columbia, and Massachusetts.((https://www.zippia.com/attorney-jobs/best-states/))
  • Least popular states -The least popular states for attorneys are Indiana, South Carolina, and Kansas. 

What kind of people work in law firms?

law firms industry demographics
  • Gender 50.1% of attorneys are female, while 49.9% are male.((https://www.zippia.com/attorney-jobs/demographics/))
  • Average level of education The average attorney has a doctorate degree.
  • Average age The average attorney in the US is 46.2 years old.

How much does it cost to start a law firm?

Startup costs for a law firm range from $11,000 to $22,000. Costs include office space rental, office preparation and furnishings, a computer system, and malpractice insurance.

You should also consider joining the American Bar Association. Costs range from $75 to $400 annually. 

You’ll need a handful of items to successfully launch your law firm business, including: 

  • Computer system
  • Law practice management software
  • Office furnishings
Start-up CostsBallpark RangeAverage
Setting up a business name and corporation$150 - $200$175
Business licenses and permits$100 - $300$200
Insurance$100-$300$200
Business cards and brochures$200 - $300$250
Website setup$1,000 - $3,000$2,000
Office space rent$1,500 - $2,500$2,000
Office preparation and furnishings$5,000 - $10,000$7,500
Computer system and software$2,500 - $3,500$3,000
Malpractice insurance$1,000 - $2,000$1,500
Total$11,550 - $22,100$16,825

How much can you earn from a law firm business?

law firm earnings forecast

Attorney rates range from $100 to $500 per hour. When you’re first starting out in a solo practice, you’ll probably be able to charge about $200. Your profit margin after rent and overhead should be about 60%. 

Some types of legal services, such as litigation, involve commissions or flat fees, so you could have revenue above and beyond your hourly rates. 

In your first year or two, you might work 15 billable hours a week, bringing in $156,000 in annual revenue. This would mean $94,000 in profit, assuming that 60% margin. As your firm gains traction and you get referrals to new clients, you might get 35 billable hours a week. With annual revenue of $364,000, you’d make a tidy profit of $218,000.

You might want to hire other attorneys and paralegals at this point to grow your firm. 

What barriers to entry are there?

There are a few barriers to entry for a law firm. Your biggest challenges will be:

  • The law degree and bar exam passage required
  • Competition from many established law firms

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Step 2: Hone Your Idea

develop a business idea

Now that you know what’s involved in starting a law firm, it’s a good idea to hone your concept in preparation to enter a competitive market. 

Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.

What? Determine your legal services

Your services will be legal services in whatever practice area you’ve chosen. Law firms typically offer a variety of services, with the most common including:

  1. Litigation Services: Representation in court for civil or criminal cases.
  2. Corporate Law Services: Assistance with business formation, mergers, acquisitions, and compliance issues.
  3. Real Estate Law: Handling property transactions, leases, and disputes.
  4. Family Law Services: Dealing with divorce, custody, and estate planning.
  5. Intellectual Property Law: Protecting patents, copyrights, and trademarks.
  6. Labor and Employment Law: Addressing workplace disputes and employee rights.
  7. Tax Law: Offering advice on tax-related issues and disputes.
  8. Personal Injury Law: Representing clients in cases of injury or negligence.

To determine which services to offer, a law firm should consider:

  • Market Demand: Research local demand for specific legal services.
  • Expertise: Align services with the expertise and interests of the firm’s attorneys.
  • Competition: Analyze what competing firms are offering and identify gaps or niche areas.
  • Regulatory Environment: Stay informed about changes in laws and regulations that might create demand for new services.
  • Client Feedback: Listen to existing clients to understand their needs and adjust services accordingly.

Research law firms in your area to examine their services, price points, and customer reviews. You’re looking for a market gap to fill. For instance, maybe the local market is missing a firm specializing in employment law or a legal practice that handles family law. 

You might consider targeting a niche market by specializing in a certain aspect of your industry, such as corporate law or tax law.

Focusing on a specific aspect of law allows a law firm to develop deep expertise and a strong reputation in that area, which can attract clients seeking specialized legal assistance.

Specialization also enables attorneys to stay abreast of the latest developments and nuances in a particular legal field, enhancing the quality of their advice and representation.

Furthermore, by concentrating on a specific legal niche, firms can differentiate themselves from competitors, making them more attractive to clients looking for experts in that particular legal domain.

How much should you charge for legal services?

Attorney rates range from $100 to $500 per hour. When you’re first starting out in a solo practice, you’ll probably be able to charge about $200. Your profit margin after rent and overhead should be about 60%.

Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.

Who? Identify your target market

Your potential clients will depend on your practice area. You should market on sites like TikTok, Instagram, and Facebook. You should also have an active presence on LinkedIn. 

Where? Choose your law firm location

When choosing a location for a law firm, consider the following aspects:

  1. Client Demographics: Select a location that is accessible to your target client base.
  2. Proximity to Legal Hubs: Being near courts, government agencies, and other legal institutions can be advantageous.
  3. Competition: Assess the density of competing law firms in the area to avoid oversaturated markets.
  4. Infrastructure: Ensure good transportation links and technological infrastructure for easy accessibility and smooth operations.
  5. Visibility and Accessibility: A location that is easily visible and accessible to clients is preferable.

You can find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.

law firm idea rating

Step 3: Brainstorm a Law Firm Name

Here are some ideas for brainstorming your business name:

  • Short, unique, and catchy names tend to stand out
  • Names that are easy to say and spell tend to do better 
  • Name should be relevant to your product or service offerings
  • Ask around — family, friends, colleagues, social media — for suggestions
  • Including keywords, such as “law firm” or “legal practice”, boosts SEO
  • Name should allow for expansion, for ex: “Atlas Legal Services” over “Tax Law Solutions”
  • A location-based name can help establish a strong connection with your local community and help with the SEO but might hinder future expansion

Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these. 

Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that sets your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.

Step 4: Create a Law Firm Business Plan

Here are the key components of a business plan:

what to include in a business plan
  • Executive Summary: A concise summary of your law firm’s key points and objectives.
  • Business Overview: An overview of your law firm’s background, mission, and vision.
  • Product and Services: Explanation of the legal services your law firm offers.
  • Market Analysis: Assessment of the legal market, potential clients, and trends.
  • Competitive Analysis: Evaluation of other law firms in your area or niche.
  • Sales and Marketing: Strategies for attracting and retaining clients.
  • Management Team: Profiles of the key individuals running the law firm.
  • Operations Plan: Details on how the firm will operate, including location and technology.
  • Financial Plan: Projections of income, expenses, and financial requirements.
  • Appendix: Supporting documents, such as resumes, contracts, or additional data.

If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.

Step 5: Register Your Business

Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.

Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business! 

Choose where to register your company

Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you’re planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to law firms. 

If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state. 

Choose your business structure

Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your law firm will shape your taxes, personal liability, and business registration requirements, so choose wisely. 

Here are the main options:

types of business structures
  • Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
  • General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
  • Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
  • C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
  • S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.

We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.

Many law firms choose a PLLC, which is a professional limited liability company specifically for licensed professionals such as attorneys. You can read more about the difference between an LLC and a PLLC

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Step 6: Register for Taxes

The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN. 

Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.

The IRS website also offers a tax-payers checklist, and taxes can be filed online.

It is important to consult an accountant or other professional to help you with your taxes to ensure you’re completing them correctly.

Step 7: Fund your Business

Securing financing is your next step and there are plenty of ways to raise capital:

types of business financing
  • Bank loans: This is the most common method but getting approved requires a rock-solid business plan and strong credit history.
  • SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
  • Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
  • Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
  • Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
  • Personal: Self-fund your business via your savings or the sale of property or other assets.

Bank and SBA loans are probably the best option, other than friends and family, for funding a law firm business.

Step 8: Apply for Law Firm Business Licenses and Permits

Business Licenses and Permits

Starting a law firm business requires obtaining a number of licenses and permits from local, state, and federal governments. Of course, you’ll need to be licensed to practice law in your state. 

Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits. 

You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more. 

You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.

This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.

If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.

Step 9: Open a Business Bank Account

Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.

Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your law firm business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.

Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account. 

Step 10: Get Business Insurance

Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.

Here are some types of insurance to consider:

types of business insurance
  • General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
  • Business Property: Provides coverage for your equipment and supplies.
  • Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
  • Worker’s compensation: Provides compensation to employees injured on the job.
  • Property: Covers your physical space, whether it is a cart, storefront, or office.
  • Commercial auto: Protection for your company-owned vehicle.
  • Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
  • Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of the above insurance types.

Step 11: Prepare to Launch

Launching a Business

As opening day nears, prepare for launch by reviewing and improving some key elements of your business. 

Essential software and tools

Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks. 

You may want to use industry-specific software, such as Clio, PracticePanther, or actionstep, to manage your case flow, documents, time, and billing.

Accounting

  • Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero
  • If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.

Develop your website

Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.

You can create your own website using website builders. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.

They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google. 

Marketing

Here are some powerful marketing strategies for your future business:

  • Professional Branding — Develop a sophisticated brand identity with a professional logo, business cards, and a user-friendly website to convey trustworthiness and expertise.
  • Website Optimization — Optimize your website for local search terms related to your legal specialties, including detailed service descriptions, lawyer profiles, case studies, and testimonials.
  • Direct Outreach — Network with local businesses and community organizations, participate in local events, and offer legal workshops to build professional connections and referral sources.
  • Social Media Engagement — Leverage LinkedIn for professional networking and Facebook to disseminate firm news, share legal insights, and engage with the community.
  • Content Marketing — Maintain a legal blog to provide valuable information on common legal issues, changes in laws, and practical advice, establishing your firm as a thought leader.
  • Email Newsletters — Regularly update clients and prospects about legal developments, firm updates, and upcoming seminars or webinars.
  • Community Engagement — Participate in community service and pro bono work to enhance your firm’s local reputation and goodwill.
  • Professional Collaborations — Form partnerships with professionals such as accountants and real estate agents who can refer clients to your firm.
  • Local Sponsorships — Sponsor local events, sports teams, or charitable causes to increase visibility and demonstrate community involvement.
  • Client Engagement Programs — Implement a client referral program and host client appreciation events to foster relationships, encourage repeat business, and generate referrals.
  • Targeted Advertising — Utilize targeted local advertising through newspapers, radio, and online platforms, focusing on legal directories and community bulletins to reach potential clients.
  • Public Relations — Engage in public relations efforts by writing op-eds, participating in media interviews, or commenting on relevant legal issues to enhance your firm’s public profile.

Focus on USPs

unique selling proposition

Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your law firm meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire. 

Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your law firm business could be: 

  • Expert family law to protect you and your loved ones
  • Peace of mind with professional estate planning
  • Affordable legal services for small business owners

Networking

You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a law firm business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in law firms for years and can offer invaluable insight and industry connections. 

The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in law firms. You’ll probably generate new customers or find companies with which you could establish a partnership. 

Step 12: Build Your Team

Building a Team for a New Business

If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a law firm business include:

  • Attorneys – perform legal services for clients
  • Paralegals – assist with legal services
  • Receptionist – answer phones, make appointments, greet clients
  • Practice Manager – scheduling, accounting
  • Marketing Lead – SEO strategies, social media

At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need. 

Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent. 

Step 13: Run a Law Firm – Start Making Money!

Running a Business

Nobody wants to need legal services, but unexpected situations arise and people need attorneys. Whether you’re a recent law graduate or an established lawyer, starting your own law firm is a great way to serve your community. You’ll be using your skills and your passion for the law to help people, and could also build a very lucrative practice! 

Now that you know what’s involved in establishing your business, it’s time to build your entrepreneurial case and launch your successful law firm.

Law Firm Business FAQs

How profitable is a law firm?

Law firms can be very profitable, with rates up to $500 an hour. If you have a passion for serving your clients and put your heart and soul into your work, you can be successful.

What are the best states to start a law firm?

The best states to start a law firm depends on various factors such as market demand, competition, regulatory environment, and local economy. States with strong legal markets, like California, New York, Texas, and Florida, often present opportunities. However, it is important to conduct thorough market research and consider your specific legal niche to determine the best location for your law firm.

How can I differentiate my law firm from competitors in the market?

To differentiate your law firm from competitors, focus on developing specialized expertise in specific areas of law, prioritizing exceptional client service with personalized attention, adopting innovative legal technologies to improve efficiency, and creating a unique brand identity with targeted marketing strategies.

How can I expand my law firm to reach more clients?

To expand your law firm and reach more clients, enhance your online presence with targeted SEO and social media strategies. Build a referral network with other professionals and utilize targeted advertising in relevant media. Engage in community events and pro bono work to increase visibility and credibility in your area.

What is the most common business structure for law firms?

The most common business structure for law firms is a partnership, specifically a general partnership or a limited liability partnership (LLP). Partnerships allow attorneys to share resources, responsibilities, and liability while maintaining flexibility in managing the firm. 

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How to Start a Law Firm