December 21, 2020

From FTE to Freedom (Part 2)

This is the second installment of a four-part series exploring the risks and rewards of freelance legal work. Be sure to read:

Laying the Groundwork for A Successful Solo Law Practice

If a thorough analysis of your potential solo legal practice convinces you that starting a new venture is the right decision, it’s time to lay the foundation for a successful business by building strong legal and technological infrastructure. 

First, select an entity type for your new company; this determines the kind of income taxes you’ll pay as a solo practitioner. Most freelance attorneys form either a limited-liability company (LLC) or partnership (LLP) because these entities balance liability with a favorable tax structure. After you define specific goals for your new organization, consult with a tax expert to prepare your business for short- and long-term success. 

Of course, building a strong infrastructure requires considerably more capital than filing paperwork to create a new legal entity. Some of the many challenges may not be obvious. Consider the legal profession’s ethical guidelines, which include an unyielding commitment to client confidentiality. If you plan to run your new venture out of your home, does your physical space—and the people with whom you may share it—allow for confidential conversations and secure storage of client documents? 

You’ll need to establish how you’re going to secure and protect your clients’ data, as well.  Some states and ethical guidelines require attorneys to use data privacy software sophisticated enough to protect clients’ sensitive information from breaches.¹ 

Financial Considerations

If you intend to become a solo practitioner, you’ll need to overcome the stereotype of the math-averse attorney. Accounting software can help you track, bill, and collect for the time you spend working for clients. However, you’ll need more than efficient software to collect on bills—you’ll need to build strong relationships and deliver value to clients. This will involve a significant time investment, but it will increase the probability of timely (and repeated) payment. 

Still, you’ll need to account for the fact that you may not receive payment for some portion of your billed services. A report from Georgetown Law and Thomson Reuters placed law firm realization rates around 81–84% in 2018.² Some practitioners cite a collection rate of as high as 97%, but this is exceptional and unusual.³ And even when clients pay their bills, they pay late 59% of the time.⁴ For solo practitioners, this introduces a level of uncertainty that can seriously impact your bottom line if you don’t account for it in your business plan. Depending on the practice area, policies intended to increase collection rates—like upfront payments or retainer fees—may not meet a client’s service expectations. 

Some other investments to consider: 

  • Branded email through Google Workspace
  • Essential document processing software, such as Microsoft Office and Adobe DocuSign, and related licenses
  • Conflict management tools  to ensure compliance with ethical guidelines
  • Malpractice insurance 
  • Time tracking  software
  • Accounting and billing software
  • Project management tools 
  • A fully customized website, including design and hosting fees
  • Social media marketing and brand pages
  • Email marketing software like ConstantContact, MailChimp, or MailerLite
  • Customer relationship management (CRM) system

Once you’ve created a business plan and set up these basic infrastructure elements, you’re ready to start serving clients. 

Click here to download our guide “From FTE to Freedom” to learn more about the risks and rewards of freelance legal work.

 


¹ https://www.clio.com/blog/data-security-law-firms/

² https://www.law.georgetown.edu/news/rebuilding-the-law-firm-model-2019-report-on-the-state-of-the-legal-market/

³ https://lawpay.com/about/blog/whats-your-collection-rate/

⁴ https://www.timesolv.com/blog/whats-your-collection-rate/