Alternate Headline: Wait, Did I Take Finance in Law School?
Personal finance is often a strong suit of those entering into law school. The drive behind getting a Juris Doctor, coupled with a careful tabulation of student loans, expenses, and projected incomes, likely means that you are entering into the workforce with a significantly above average understanding of how a balance sheet works.
However, in the age of changing technology and for those that might have missed a lecture on staying in the black, there are some easy to learn tips for keeping your firm profitable. Of course, many of you went to work for large firms, or the government, and few of you immediately set up a shingle rights away. The cold truth is that law schools don’t teach you how to avoid malpractice, or the local rules and laws. You must have at the very least, a mentor, or had already been a paralegal for many years prior to becoming a lawyer to make the jump right into being a solo.
PI law, is a lot different than hourly work. The industry dictates that these cases are done almost exclusively on a contingency fee. This means there must be a war chest of funds set aside to pay for cases, and costs out of YOUR OWN MONEY. Hourly billing practices may offer more security, but they do not offer that shot at the “one big case” that may just retire you forever.
Much of this stuff that I discuss may be irrelevant if you decide to continue to work for a government agency or a larger firm. However, those that are starting their own personal injury law practice ,or are considering it in the long term, should keep in mind the following, learned from my years of experience in the front lines of an independent personal injury law practice in greater LA area.
Appropriate Background Costs
When forming an LLC, many new attorneys focus on the big ticket costs, including that of salary and benefits. However, the cost of rent, insurance, utilities, and the like are often overlooked. When starting new, especially in a larger metropolitan area, the cost of these simple necessities can run into the four and five figures.
Renting an office can be a major hurdle. Changes in how a modern office run has reduced the pressure for large, fully staffed offices. Now a new firm has the option of renting just several rooms. In some cases, if shared with another business, the cost of utilities may be significantly reduced. Furthermore, the need for a secretary can be shared with another firm, business type, or even outsourced to a specialized company.
Do I Get Paid?
Salary may be the number one concern for a twenty something that just put up their shingle. However, there are other aspects at work. Even if just self-employed, it is important to remember the cost of health insurance. With changes under the Affordable Care Act, many policies have become substantially more expensive, cutting into the profit margin. Putting away for retirement, even in a tax-free fund also takes away from the immediate bottom line.
Any other employees come with similar starting costs. This also can include the unwritten costs of time taken on vacation or being sick. There are also costs involved in training employees and the chance that they may quit, taking their learned skills with them. If you want to nab a particularly skilled new attorney or paralegal, you have to take the estimated increase in profits and weigh them compared to the cost of salary, benefits, and miscellaneous expenses.
There is never a simple way to do such a budget. There are often many factors involved behind the scenes that are never written down in a formal budget. With experience, you can tame these issues and bring your firm into the black.
Michael Ehline is the lead attorney for Ehline Law, based in Los Angeles. This Southern California firm specializes in car accident and personal injury cases. An avid reader, Ehline writes columns to assist attorneys entering into an increasingly competitive and changing legal field.